The Breakdown - The Breakdown Weekly Recap | Feb 15 2020

Episode Date: February 15, 2020

The full week's shows as one long episode, featuring guests including Travis Kling (Ikigai), Muneeb Ali (Blockstack), Coinlist (Andy Bromberg)  Monday | On the Frontlines of the SEC Safe Harbor Proposal With CoinList President Andy Bromberg Tuesday | Muneeb Ali Explains Blockstack’s Big Bet on Bitcoin Wednesday | Why Crypto Sentiment and Prices Are Soaring: Puppets, Pundits, Partnerships Thursday | The US Government Sends Mixed Signals on Digital Currency Privacy Friday | The Top Narratives Driving Crypto Market Growth feat. Travis Kling

Welcome back to the breakdown. An everyday analysis breaking down the most important stories in Bitcoin, crypto, and beyond, with your host, NLW. The breakdown is distributed by CoinDesk. Welcome back to the breakdown. It is Saturday, February 15th. And today, like every Saturday, we are just doing a quick recap of the week with all of the breakdown episodes for your long runs, for your errands, whatever it may be. all the episodes from earlier this week in one spot. And today, I think that the only way to really summarize this week is getting used to the idea that we may actually be back in a bull

market. We spent most of this week over 10,000. In fact, right until about I started recording this when we happened to be down 4.5% from yesterday and dipped under 10K for the first time in a week. But that's neither here nor there. I think that even regardless of that, most folks feel that there is something different going on. The price seems to show it. The volume of activity seems to show it. The energy on social seems to show it. The news around financing seem to show it.

That's really the story right now is getting used to the idea of being back in something approximating a bull market, asking why that might be. So this week, a lot of the episodes you'll see come down to that question of what's driving this new shift in energy and attention. And seeing or asking what we should be thinking

about for how we move forward, right? What we want to be different, what we want to have be different in this bull run than was maybe the last time we were here. So I hope you enjoyed these episodes, and I hope you had a great Valentine's Day. As I said yesterday, we will be off on Monday, but back on Tuesday. Until then, have a great weekend. Thanks for listening, and I will catch you soon. Peace. Welcome back to the breakdown. An everyday analysis breaking down the most important stories in Bitcoin, crypto, and beyond, with your host, NLW. The Breakdown is distributed by CoinDesk. Welcome back to The Breakdown. It is Monday, February 10th, and today we have some expert

insight onto one of the biggest pieces of news from last week. Obviously, last week saw some pretty exciting events. We had a billion dollars locked in D5 for the first time. We saw Bitcoin achieve a price of 10,000, a big psychological barrier over the weekend. We saw the Federal Reserve get into the central bank digital currency game more than they have before, admitting that they're, of course, researching and exploring. But we also had an SEC commissioner, Hester Pierce, who's been one of the most active and engaged pro-crypto commissioners, in fact, undoubtedly the most active and engaged pro-crypto commissioner, propose a new rule called a Safe Harbor Rule. Rule 195 could possibly totally change the face of the

crypto industry in the U.S. In short, the rule would give crypto projects three years to prove that they were sufficiently decentralized such that they weren't in violation of securities law. The challenge for crypto teams today who want to use a token as part of their system is that they run the risk of having offered or having done an illegal securities offering. Currently, you can see the SEC going back through old ICOs from the 2017-2018 vintage and going after projects that were unregistered securities offerings. So this safe harbor rule would actually give those teams that were operating in good faith and who went through a set of disclosures the chance to actually offer tokens and not just to

accredited investors, which is a big shift. Now, the response has been somewhat mixed. There are those who are fundamentally skeptical of tokens and don't think that any grace period is going to actually solve the issues of incentive alignment that they bring, which has to do with the fact that they're a form of pseudo-equity rather than actually coming with the rights of equity. There are others who think that three years is not a sufficient amount of time to actually, quote-unquote, decentralize a project or reach sufficient decentralization, whatever that metric may mean. Then, of course, there's a lot of folks who have been working on this issue for a while who are very excited about this possibility. One of those is Andy Bromberg. Andy is the CEO of CoinList, which is a

spin-off of Angel List, and CoinLis is a platform that has strived since its launch in late 2017 to offer a better, more compliant platform for token sales. That's been their goal. As such, they're obviously incredibly invested in what a compliant token sale actually looks like and how to do it. So Andy, as you'll hear in this interview, is very enthusiastic about these changes. He's very enthusiastic about what they might mean and thinks that it could actually address some of the most fundamental issues that are driving in some cases companies to go start abroad to actually leave the US to find more favorable regulatory regimes. So let's listen in to this interview and then we'll come. back for a recap at the end. All right, I am here with Andy Bromberg from Coinless. Andy,

thank you so much for taking some time today and joining us here. Thanks for having me. All right, so you and I were just talking a little bit before this about the significance of this news that we heard in this proposal from Hester Pierce last week. And so I thought maybe we could kick off by just having you quickly summarize what Commissioner Pierce is actually proposing and really just what the news was. One of the big issues. One of the big issues, issues in crypto and in new tokens, I think, for the past couple years, has been the question of securities law and its applicability, particularly the United States, to this industry. And the key question there is, are these tokens treated like securities, which is a pretty

highly regulated type of asset regulated by the Securities and Exchange Commission, of which commissioner person is a commissioner? Or are they not securities? And are they regulated in some other way and not under that set of rules? For a long time, this has kind of been an issue for the industry because people, if tokens are treated like securities, there are a bunch of requirements on how they can be bought and sold and transacted, which makes it much more challenging to reach their potential as global assets that anyone can access. What happened yesterday is that Commissioner Pers, who's one of five SEC commissioners, released a proposed safe harbor, Rule 195. This is a statement that if the other commissioners agree to it, that would exempt tokens that

meet certain criteria from securities law entirely and make it so that they can be freely traded and used and sold and bought without falling under the purview of the SEC. There's a lot of new ones we can go into in terms of what the actual parameters of this are. But at a high level, she said, if you're launching a token and the intention is that within three years, the network becomes mature, so it becomes decentralized and functional and can't be governed by a single party, for that three-year period, at least you can, while you're developing it, you can treat it as a non-security, and it can be freely used, freely bought and sold on exchanges, freely transacted in order to reach that end state of network maturity.

Now, put a pin in the Safe Harbor proposal and actually go back a couple years to give some of our listeners the context for how we got to the point where this might be important, right? And so this is obviously maps very closely to the story of coinless. You guys have been kind of on the front lines of trying to figure out this question of how tokens are going to be designated with regards to securities law and what people can do with them. So maybe can you just take us back to, you know, 2017, 2018 as you started to look into the space and get involved with this space, what were our assumptions around securities law then? How is that evolved? And how has it forced you guys to evolve along the way? Absolutely. So I'll even take a step further back than that, pre-2017, there were a small number of ICOs and token sales, but you can think about Ethereum or MasterCoin or any of these way back in the day. And at that point, securities law wasn't really consideration for people. They were just selling these tokens and there wasn't a whole lot of attention paid to those laws. But then in 2017, everyone started to realize, and this was, you know, after the Dow hack and more people were getting to the space and certainly more lawyers were getting to the laws. And certainly more lawyers were getting to the laws.

the space, everyone realized that these token sales could possibly be considered offerings of securities. And particularly, if you were pre-selling a token where the funds would be used to develop that network, and then eventually the users would get the token when the network went live, everyone realized, hey, these might be securities, so we need to treat them really carefully and cautiously. And what ended up becoming the paradigm in 2017 was softs, simple agreements with future tokens or similar types of documents. And Coinless dealt with a lot of these. What these effectively were were explicitly securities.

They were pieces of paper that you signed that said, I'm investing $10,000 into this project. And in return, they are promising to give me tokens when the network is live at some point in the future. But that piece of paper is a security. And the hope was that the tokens themselves that would be delivered at some point in the future would not be securities. But at that point, and for the past couple of years, there's really been no way to tell whether or not a token is a security or not.

And so that promise has been really difficult to fulfill for teams because they've been looking at it and they've been saying, well, we'd like to distribute tokens to our investors, but we can't get comfortable with the idea that those tokens aren't securities because the SEC hasn't given us guidance to that effect yet. And so it's really slowed down the pace of innovation here. We've seen teams do a couple different things. One is that just a couple teams, block stack and props, both of whom we worked with, decided to bite the bullet and say, you know what, we're going to release our tokens. We're going to consider our token securities.

We're going to conduct what's called the reg A plus offer. And that's really costly. It takes a long time, requires a whole bunch of infrastructure buildout and limits what the token is really allowed to do, but at least was a way to get into users' hands, treating it as a security and dealing with the compliance that came with it. But the other dynamic that started happening. This is something that was playing out a whole lot in the last year or so, is that teams were looking at this lack of clarity in the United States, this inability to tell whether or not a token was a security and saying, you know what, we don't want to deal with that. It's not worth it for us to have this kind of limbo state.

We're not willing to go down this reg A plus path of treating the token like the security and dealing with all the issues that come with that. We don't want to sell to investors where they might just have to hold it indefinitely because we can't get comfortable that the token is not a security. So we're just going to leave the U.S. We're going to issue the token outside the U.S. We are only going to sell to investors outside the U.S. Maybe even our team's going to be based outside the U.S.

And so a lot of these teams ended up just moving and leaving the U.S. alone and not accepting U.S. investors. In our eyes, it's a painful solution. And certainly some of those people were customers of ours and had successful sales, but we don't want to leave the U.S. out of us. There is incredible innovation that can be performed here in the United States. There are great investors that should have access to these assets in the United States. And for this period, it's just been really hard to justify that.

And so now with Commissioner Purses' new Safe Harbor, if it were to get approved, that would reopen the floodgates and allow capital resources to flow into the United States would allow innovation to occur here and would really open up the gates for getting back to where we were, where everyone, everywhere could develop tokens, invest in tokens, and participate in the potential upside of this industry. One of the things that I think is really interesting and is a part of the conversation around tokens that often gets left off is basically a lot of our conversations are couched in or colored by the experience of the ICO boom, right?

When there was such an incredible flood of capital into these companies or into these projects, I guess, that we tend to forget that the original idea, at least for a lot of sincere projects, let's put it, of tokenization was not about a fundraising mechanism. It was about a network distribution mechanism where the idea of the token was that it actually played some role in overcoming the bootstrap effect and early network effects, where there was not enough value for early users, right? If you're going to go compete with a Facebook or an Amazon or any of the networks that dominate our lives, you need some reason for people to come early before network

effects have kicked in. Tocons were theorized to be a really interesting opportunity for that. And now, of course, there's a million other use cases that were theorized for tokens, but it turned out that their power as a fundraising tool was so immense and that they changed the nature of friction in fundraising so intensely that that became the entirety of the story. And I feel like what some people are excited for and the innovation they're looking to come back is the ability for these things not to just be viewed strictly through the lens of traditional fundraising mechanisms, right? Which is what securities law was, but as something that has, again, multiple different types of utility holding aside for the fact that there's, again, serious cynicism around the utility token idea. Yeah, I think that's exactly right. I mean, this is part of what I think is so impressive about this proposed safe harbor.

And it demonstrates this real depth of understanding from the commissioner about how these projects can work. She puts in there that in order to use this safe harbor and treat your token as non-security, the team that is initially developing it has to make an effort to have the token be listed on exchanges, on compliant exchanges. But what she's recognizing there is that the reason these networks are powerful and the reason they should exist. And the reason they should be classified as a different type of asset is because distribution to a wide set of people is key to their success. That for a lot of assets out there,

talk about equity, for example, companies can be very successful just having a couple shareholders and not distributing the asset widely. But in order for these tokens to be successful and to fulfill their promise, they need to be distributed. We need to be in the hands of many different users to decentralize that network. And that's actually built into this. carbon, which again, I think it's just shows this real depth of understanding in terms of what these assets should be used for. And yeah, I think this will let us get back to that vision that certainly tokens can be used for fundraising. But more importantly, I think some of the best token fundraisers that have happened have had that dual mandate. One, raise money for the team to

develop the project. But two, for them to get the tokens in the hands of a lot of users that the network can be successful and decentralized as it launches. You know, the hope is that this will enable much more experimentation with these different models, with these different use cases, because people feel comfortable doing that experimentation, building it out, not worrying about the regulatory effects of what they're doing and being able to feel comfortable under the safe harbor. So I think that there's a lot that people are very excited about in this. I think especially at core at this stage, just the fact that we have a representative voice who's

arguing for more openness and more kind of pro-innovation policies. The critiques that I've seen have tended to focus around whether this actually solves some of the problems with token sales as it relates to incentives for projects to deliver or enforcement around bad practices. what do you think the downside, if any, is or unaddressed questions are with this proposal? So I actually don't have that same concern. The reality is anyone in any industry, token or otherwise, can raise money and try to run away with it. And it happens. You know, if you go on the SEC's website and you look at the press releases that they put out,

there are tons of cases where someone raises money for inequity for a venture or raises debt. and runs away with the money or misuses it. And that's just a reality of doing business. Now, what you have to be able to do is go after that person to appropriately disincentivize that from happening. And what this safe harbor includes is disclosures that teams have to make in order to claim the safe harbor around who's on the team. What are the identities of the people developing it?

What are their backgrounds? And those are the sorts of things that make it so that if a team does do something bad, which will happen and happens in every other. industry that the investors can chase after them and get what's due to them. I actually think prior to this, these assets were way less regular. People are running token sales without any disclosures. There are people unnamed behind these projects sometimes. And now there will be some legal burden on them to make appropriate disclosures about who they are, what the use of funds is, details about how the network's going to work. And hopefully that makes it much cleaner, start to finish, and makes

it's less likely that the people will run away and exit scam or do anything like that. It's not a concern of mine other than at some level. You just always have to be mindful of those things. But again, that's true of crypto and non-crypto industries. And I think, too, it's reasonable to say that there's a difference between the security enforcement side of the law and designing the law in the first place to set the framework. And it's not necessarily the job of the framework to, figure out exactly how punishment is going to be metted out for violation of that framework.

This Great Harvard does contemplate that consumer protections are still a really important part of this. There's a whole bunch of different ways that assets can be regulated. The SEC is just one of them. And so this safe harbor doesn't mean these assets are not totally unregulated and do whatever you want. Consumer protections against fraud still exist. And people have ever right to chase after bad actors, even with the state harbor. Another one of the interesting elements of this is that it actually enables non-accredited investors to participate, which has been one of the beefs of many folks in the crypto ecosystem of who have this sort of libertarian bent to them around people should have autonomy and sovereignty to do what they wish with their money. There was actually a comment from Marco Santore as he did a thread about this.

He wrote, if you think SAFs just let rich people buy cheap tokens to dump expensively on poor people, you're really complaining about the accredited investor standard, so you should love this proposal. It gives retail the same access as VCs, which I thought was another interesting point just about this framework, that it does answer a lot of things that have been brought up as problematic by the crypto community. Absolutely. That's been one of the biggest barriers that securities law has put in front of the crypto industry is how the primary offerings work, the accredited investor rules, and how that restricts who's allowed to buy. And it speaks to your earlier point about distribution.

Token sales treated as securities, sure, they were still a way to distribute to users, but only accredited users. And that's a very small set of the population and a lopsided one. And everyone should have the chance to participate in the upside of these projects. Everyone should be able to participate in the distributions that we can make these networks as decentralized as possible. So the removal of that requirement, in addition to the removal of restrictions on trading tokens that might be securities, both of those are going to absolutely change the industry. if the safe harbor comes to pass. So that, I guess, is the next question is, what is the likelihood of this coming through?

Historically, this particular SEC has not been particularly friendly, with notable exceptions. And I've even seen commentary to the effect that people don't think that an SEC under Clayton will actually ever really be pro-crypto. What do you think? Yeah, you know, there's no way to know for sure. I'm optimistic, and I'll tell you the two reasons why I'm optimistic. One is that I'm not inside her brain, but I find it unlikely that Commissioner Perth would have introduced this without feeling at least some level of confidence or optimism that it would pass.

Otherwise, it's a fairly futile gesture. And so I think that she has to be feeling some optimism about this. But more importantly, it's a really reasonable proposal. If she came out with a safe harbor that was much looser, didn't require the disclosures that this one requires, didn't make the assurance that this one makes, and just didn't have those requirements in there, then I would be saying, okay, this is just a statement that she's putting out there. But she took the time and her staff did and put in the effort to really understand everything. and I think come up with a really down-the-middle proposal in terms of what's required of these teams in order to claim the safe harbor, what the continuing conditions will be, how it's going to work. You know, I think all the commissioners, whether they're pro-crypto or not, they are smart and reasonable. And I think it's hard to read this proposal and throw it out the window.

Now, will there be discussion and argument over from the details? Absolutely, both from the industry and from the other commissioners, I imagine. but I think she put together a really reasonable down the middle proposal, and that dramatically increases chance of passing. Will it happen? I don't know. When will it happen? I don't know, but I'm optimistic about this one after a couple of years.

I've failed attempts to do something similar by different folks in D.C. Well, I really appreciate the perspective. I guess as we wrap up, is there what else, if anything, should people know about this proposal, or how should they engage with it, do you think? What can people who support this proposal do to help it actually come to pass? I love that question. Two things. First of all, look at it, really read it, think about what you like about it and what you don't like.

There will be a period where there's feedback accepted and comments. And so just thinking about that and coming up with where things are changed or where things should be praised in this proposal is really important. But even more than that, be vocal. The industry support of this proposal will be meaningful. The commission pays attention to that. Staffors pay attention to that. Other people in D.C. pay attention to that. And I think it's a really important flag in the ground for us to plant as an industry that we are supportive of this proposal.

I think sometimes crypto gets this rap that we don't want to engage with D.C. at all. We don't want to deal with any of it. If the government's suggesting something, we want no part of it. When we get a proposal like this that's reasonable and will allow companies to be successful, that's a chance to come out really strongly and say, we're supportive of this. We think this is a reasonable proposal. We think we can work out of these conditions. We think that innovation can occur under this safe harbor. And the more people that join that course, the more powerful it will be the better chance there is that this gets past. And we all

get to get back to doing work in the United States and building great crypto projects here. Well, Andy, thank you so much for your thoughts. I know this is an area that you've spent an inordinate amount of time thinking about working on and trying to work within and around the system as best you can. So very exciting to hear that for the first time in a long time, I feel like there's this excitement and optimism about possibilities that just hasn't been there for a while. We've got hope. Yeah, no, it's my pleasure. Thank you for having me on. This is a really fun conversation. So really interesting stuff from Andy there. To me, one of the more salient points or one of the more relevant points, I think, is Andy's response to my question about whether

this can actually go through, whether there's any chance that Rule 195 could come to pass. His response was basically that he can't imagine that Commissioner Pierce would be this invested and would actually take the time to float this full proposal, right? Not just mentioned it in speeches, as she's been doing for a while, but to actually come and bring a full proposal for review if she thought this didn't have a chance. Now, obviously, we'll have to wait and see, but there is a chance that this is a chance that this a fundamental moment for this industry where we look back and see that there was something that was different afterwards. But what do you guys think? Is Rule 195 a good thing? Should we be

enabling projects that are behaving in good faith to actually experiment with tokens? Are tokens just a bankrupt enterprise destined only to enrich the founders, as some have claimed? What do you guys think? Let me know on Twitter at NLW. And as always, guys, thanks for listening, and I'll be back with The Breakdown tomorrow. Welcome back to The Breakdown, an everyday analysis breaking down the most important stories in Bitcoin, crypto, and beyond, with your host, NLW. The Breakdown is distributed by CoinDesk.

Welcome back to the Breakdown. It's Tuesday, February 11th, and today we have something just a little bit different. One of the most contentious issues or questions in the entire crypto space is the idea of what blockchains are good for, what tokens are good for. Now, on the one end of the spectrum, you have folks who really believe that there is only one good use case for blockchains, which is money, which is Bitcoin. On the other end of the spectrum, you have people who believe that there is a fundamental

shift necessary in how the entire internet is architected, and that services need to change from being fundamentally centralized and controlled by specific corporations with specific incentives that do not necessarily match the incentives of users or the needs of users, to something that is more user-owned, where the distinction between network users and network owners is in fact obliterated. The second vision is, of course, a lot of what underpinned the growth and explosion of Ethereum and the ICO movement, and the whole goal of having decentralized applications, that could take functionality that previously required centralized intermediaries and turn it into something different. Now, while much of the focus in Ethereum has shifted to decentralized finance

protocols, there are still plenty of people across the space, not only just in Ethereum, but beyond, who are looking into decentralized social networks, decentralized social applications, and a huge array of other types of decentralized apps that can change the power balance and recreate the internet in a fundamentally different way. One of those platforms is Blockstack. Blockstack describes itself as a decentralized computing network and app ecosystem, and their focus is to empower users to actually control their own data and identity in a way that's impossible in Web3. Last year, Blockstack made news for running the first SEC compliant token sale, an extremely burdensome process, which cost them millions of dollars, but which did show

that with the right resources and patience, you can actually work within the confines of the existing system, even if it's not ideal. Blockstack were back in the news last week when they announced a new proposal they call proof of transfer. The idea of proof of transfer is that it anchors the security of the Blockstacks blockchain stacks to Bitcoin, and that participants in the ecosystem of Blockstack actually are rewarded, not just with the native tokens of the ecosystem, but with Bitcoin itself. It's a very different approach to security and a very different approach to the game theory and incentive structure of network participants than anything that we've seen before, at least in the recent era. On today's episode of the breakdown, Blockstack CEO,

Munib Ali, joins to talk about how this decision was made, why proof of transfer came about, and how Bitcoin is poised to be at the epicenter of the cryptocurrency ecosystem, even for advanced functionality that isn't on the development agenda and shouldn't be on the development agenda in his estimation for Bitcoin. It's an interesting interview and a fascinating experiment that has implications that go far beyond blockstack, but may be about how Bitcoin fits into this ecosystem in general. All right, welcome back. We are here with Munib Ali, the CEO.

CEO of Blockstack, Moodyb, thank you so much for joining today. Absolutely. Happy to be here. Okay, so we were just talking about this a little bit and something I think is really interesting and maybe the meta context, right, for someone who's like, okay, why should I listen to this interview? I feel like Blockstack has found itself in this interesting role of being something of a leading indicator for the industry, right? You guys tend to have an interesting perspective on where the industry is as a whole, and you reflect that in some of your strategic decisions. Now, the most obvious example of this is the fundraise that you did, which was the first Reg J Plus fundraise last year, basically went through the SEC's actual processes in a way that is very different and out of

sync with perhaps the rest of the industry, but in a positive way, obviously, as it relates to regulators. And now you guys have made a new interesting announcement as it relates to how participants in your network are going to be rewarded. So I want to get into all the details of the new proposal. But first, for folks who haven't spent much time with Blockstack, I'm wondering if you could just give us a little bit of the story, kind of what you guys are trying to build and where you are in that process. Absolutely happy to. And yeah, I think for that comment,

I think we internally here at Blockstack tend to think in terms of first principles. We look at what the industry is doing, but just take that as a single input. And we try to make independent decisions. And I think sometimes that comes across as we would end up picking paths that were non-obvious or picking paths that not a lot of people are looking at. So maybe, maybe that's what you're noticing there. Certainly with the SEC qualification last year, I think that was a very unique approach. Let me give you a little bit background on myself and how the project started.

So I have a background in distributed systems, right? And so for almost like more than a decade before starting Glock Stack, I've been doing research and distributed systems, which for people who don't know, it's the area that looks at next generation computer networks. The original internet was kind of invented by people from this research community. And I did my PhD at Princeton.

And I have been involved with various projects that try to kind of like build a next generation internet, right? So there have been many clean slate internet design projects, for example, Stanford and other places. And part of the reason why I did a startup instead of trying to pursue some of these kind of like ambitions through a more academic route is that I feel like those ideas never get really translated into commercial solutions. They never get deployed in real life. So I sometimes describe Blockstack as the idea that escaped, the research lab.

Right. So we, so my PhD thesis was on Blockstack. Me and my co-founder, Ryan met at Princeton University. And then really this was about how can we build a more secure internet infrastructure that addresses a lot of problems that we face with the internet that we know today. And I think blockchains happen to be a really interesting solution for the problems that we're trying to solve. So this is, I think, I'm pretty OG at this point,

given that the company was formed in 2013, predates Ethereum, and we've been building a lot of very interesting solutions over time. People should think of Blockstack as software for a user-owned internet. So there are several layers of the stack, the Stacks blockchain being the foundational layer, if you've done a bunch of work on storage and authentication,

and other developer tools that people need to be able to build and scale out their applications. So I think there are now more than 400 decentralized applications built on our network. We are extremely excited about the developer traction that we've been getting over the last year, especially. You should think of Blockstack as being in heavy R&D mode initially. We raised venture capital, hired a bunch of computer scientists,

and we're heads down doing R&D, and then we started deploying out our infrastructure and have been focusing on getting a lot of developers. So that's kind of like the background and which ties into our thesis on, basically think of it this way that at this point, it is very clear that a next generation internet or Web 3, if you want to call it,

will be built on top of blockchains. I don't think it's a controversial topic anymore. If you talk to people and you say that Web3 would be built on top of blockchains, they would largely agree that yes, that's likely what's going to happen. I think the next question is where there's more competition or more arguments going on and there about, okay, but then which blockchain or how exactly would it get built? And I think the proof of transfer or POX that we have recently released is actually a very big bet. And it's a very, very unique bet in a way as well.

What we're really saying is that the 800-pound gorilla in this space is actually Bitcoin. And we haven't seen a lot of work that effectively says that Web3 would be anchored into Bitcoin or it would emerge on top of Bitcoin. And I think the reason for that is that because of Bitcoin's security, the scripting language with Bitcoin is very limited by design, right? And I completely agree with that design. And Bitcoin basically prides itself in not changing. So I think people don't envision that if Bitcoin is never going to change, how would it ever support Web3 functionality? But I think Web3 functionality can actually emerge on top of Bitcoin in new blockchains like the Stacks blockchain that is trying to use Bitcoin in new innovative ways. So I think that's again, tying back to, you know, what you said, for one reason or the other block that ends up making unique design decisions. I think this is consistent with that. Yeah, so, I mean, the interesting thing is that basically, you know, to your point,

when people discuss which blockchain, a future iteration of the web will be built on, presuming that they are in that zone and in that conversation, right? There's a whole critique that says the sort of things that Web3 enables censorship resistance, et cetera, don't really matter to users because they only care about convenience. But let's hold aside that argument for a second. For the people who do believe that there is both a need and a mandate to build a new version of the web, the conversation does often come down to the technical specifications of which chain they think is best suited to do that. And the interesting thing, it seems to me, about this proof of transfer proposal,

is to some extent decoupling the security part of a blockchain from the feature functionality and the developer functionality part. So I guess maybe now this is a good segue to have you explain a little bit more about exactly what proof of transfer in this proposal looks like and how Bitcoin interacts with the system. Absolutely. And I think even with the argument of a next version of the internet, it's interesting to see that, you know, the internet is not a technology that was given to us by aliens. It was invented by people who happened to be still alive and amongst us, right? And most of these internet

founding fathers like WinServe or Sir Tim Ferriss Lee or David Clark, who was the chief protocol architect of the internet, they all seem to agree on the shortcomings of the internet, and they all seem to agree in the general direction of Web 3. I think it's a good thing. It's different story about users and how they're dependent on these centralized large tech monopolies. But as you said, let's keep that topic aside and then dive into the technical tradeoffs and the different options. So I think proof of transfer or POX, as we call it, is basically the idea that you need to go from electricity to a proof of work-based cryptocurrency.

only once, right? Once you have that and once you have it in a secure way, as in Bitcoin, you don't need to repeat the process, right? So right now, if you look at even the Ethereum blockchain, it is basically doing proof of work right now. So miners are taking electricity, they're burning it or using it to mint new Ethereum tokens. And same for a lot of other proof of work based blockchains that are out there. And I think in general, If you compare the hash power or security of these blockchains to Bitcoin, you'll notice that Bitcoin by far is the king of proof of work. And we're making the bet that the difference is actually going to increase over time. There might be bigger difference between how secure Bitcoin's

proof of work is compared to some smaller blockchain that is trying to start and gain attraction for miners. So that's the high-level idea that you don't go from electricity to a new cryptocurrency You go from electricity to a new cryptocurrency in terms of Bitcoin, and then you use Bitcoin to participate in the consensus algorithm of a new blockchain. So let me get into that a little bit. So in this, so Stacks 2.0 is that blockchain that is in development right now. So imagine that our goal is that we want to start a separate blockchain that has new features that Bitcoin doesn't have, and Bitcoin shouldn't have.

And I think that point is important to understand. For example, the Stacks 2.0 blockchain has a full smart contract language, is called clarity. And people can express different types of smart contracts. It's very, very precise. And there are proofs around what the programs can and cannot do. But Bitcoin should not have that functionality, because that would go against the security of Bitcoin.

And it should have just a very limited scripting language. So there are two types of parties in our consensus algorithm. One is the Stax miners and the other is the Stax cryptocurrency holders. Right? So miners, just like traditional miners, they have a cost to mine. If you are a Bitcoin miner, you have your A6 or you're consuming or burning electricity or you're paying electricity bills and you mine if it's profitable for you to mine. So you calculate what your cost basis is and if getting the new Bitcoin from the

mining process is profitable, you will decide to mine. Similarly, there's a cost to mine through POX, and that cost is expressed in Bitcoin's. Right. So miners are kind of like spending Bitcoin in the consensus algorithm, and they're participating in leader election, meaning some of them will get elected randomly to be a leader, much like normal mining process and the leader gets to take the transaction fees, take the newly minted Stax tokens, and write the new block. So that's what the miners do. The interesting thing here is the miner could just destroy the Bitcoin.

That would be similar to destroying electricity. But instead of destroying the Bitcoin, the miners are sending Bitcoin to stacks holders. Right. And that's where the other part of the equation kicks in, where if you are a STX holder, you can also participate in the consensus algorithm. And there is effectively what you're doing is you're running a full node. You're indicating that you want to participate and you announce your Bitcoin address. So you say, let's say you have 100,000 stacks and you're saying, this is my Bitcoin address. And then you are effectively helping the consensus process by sending some, useful information on the network. You are effectively telling other people which blockchain fork

your own and this information is useful to miners, especially the honest miners. So now these holders are effectively, they're holding stacks, but they have a Bitcoin address associated with it. And the Bitcoin miners agree on this list of addresses and they're effectively sending Bitcoin to those addresses as part of mining. Does that make sense? So I think there are two ways to try and understand this. One is to compare it with staking, that more people would be familiar with this concept of staking

as they have been around for a couple of years. So in staking, the idea is that instead of doing proof of work, you are the economic holders of that new cryptocurrency basically run the consensus out with it. So you put up your funds, as almost like a stake that can be slash, right? So if you are being malicious or somehow, you know, you end up not following the protocol correctly,

your funds can be slash, right? So that's the risk of trying to keep people honest. There's a potential cost factor involved. And then these folks who are participating in staking, let's as Tesos or Algorand or potentially each 2.0 that wants to migrate to the. you are earning more of the same crypto asset by participating in consensus.

With PUX, this is different because A, your funds are not at risk for being slashed. So if you're a tax holder, you're participating in the consensus algorithm, but your funds cannot be slashed. And the second big difference, and I think this is where it becomes really interesting, especially for folks interested,

in game theory and economic models out there, it's an interplay of two different assets. You're holding snacks, but you're actually earning the rewards in Bitcoin. So there are a very interesting interplay between two different crypto assets that happens. And you could be potentially bullish on both of them, right, for different reasons.

And you see synergy between the two assets as well. So one other difference from proof of stake is that the security of this consensus algorithm is still derived from Bitcoin's proof of work because miners are sending transactions on the Bitcoin chain. So if you're a minor, you actually have visibility both on the Bitcoin chain and the Stacks 2.5 chain.

Everybody else, if you're just a user or just a Stacks holder, you only need to interact with the Stax chain and not the Bitcoin chain. So miners are effectively participating and consensus by sending Bitcoin transactions, which means that if someone wants to go back and rewrite history, they would also need to attack Bitcoin and try to rewrite Bitcoin's history, which is, as we all know, extremely, extremely, extremely hard to do. So I think we benefit from Bitcoin's proof of work that way, which is something that

poor stake doesn't have. So it sounds like the goal is almost two part in some ways. It's to one is almost to peg or piggyback against the security and the increased security of Bitcoin, while also taking advantage of the demand and the interest in Bitcoin to almost play the role of this kind of reserve asset type thing that potentially uplevels the amount of demand that you guys have for people who want to participate in the Blockstack ecosystem. Is that a fair characterization? I think the reserve currency aspect is definitely very interesting. Even if you model this in how societies evolved over time, like you had

you know, different types of objects that were used as currency. Then people started relying more in gold, right? And we have Bitcoin as digital gold. And then people started coming up with gold back currencies. And in this case, tax is not really quote unquote gold back, but it is anchored in Bitcoin digital gold. Right. So in a way, there's an interplay between the new cryptocurrency and the underlying reserve cryptocurrency, which is Bitcoin. Do you think that this is, do you think we're going to see more of these type of new novel interactions with Bitcoin going forward? Do you think it's hit, I guess, a critical threshold in terms of where it fits in the larger cryptocurrency ecosystem? And maybe a better way to actually get at this is how long was this idea brewing?

How did it come about and what was the process like for you guys of actually coming to this, you know, to your point, very different type of approach? Yeah, I think in some ways, like we were circling this idea for a very, very long time. Let me go back to 2013 when we were just starting off. Right. So this is, you know, this is a world where Ethereum did not exist and not even on paper. The Ethereum white paper did not exist. and I remember kind of like looking at options for should be so the goal of the project was still the same that you know we want to build a user-owned internet which means that we should be able to register user names on the blockchain we should be able to register domain names and we should be able to kind of like define property for internet users and Bitcoin didn't have that functionality right so we were debating that should be modified Bitcoin or try to modify Bitcoin?

Or should be work with a fork. So I don't know how many people will remember Namecoin. And it used to be the number two, you know, cryptocurrency. I think Satoshi was involved with it early on. Aaron Schwartz was involved with it early on. Zuku gave this thing a name Zuku's triangle that was squared by Namecoin. So a lot of like early crypto people were involved with this project. And what Namecoin basically did was it was a Bitcoin fork, and it was introducing the new functionality of registering domain names or other types of digital assets.

And the third option was we started a new blockchain, and we try to re-implement a lot of this functionality and come up with the hash power and all of that. And I think the world would have looked very different out of these three different design decisions. And initially we ended up trying to build on top of Namecoin because it already had a certain feature set and that we wanted. And the same issues that I'm referring to where, you know, if you're on a smaller chain that doesn't have enough hash power, those are the kind of things that the name coin community noticed. And we noticed such attacks as well where, you know, a few miners would have more than 50% of the hash power on Namecoin. The project since then hasn't been very active, but the lessons from that experience are still valid today.

If I try to start a new proof of work blockchain, initially the hash power is not going to be a lot, and any single party can come and try to take that over. Plus, like, I think in the grand scheme of things, it just seems like reinventing the wheel. Like if everyone is going from electricity to a new type of a crypto asset, you're burning electricity,

you're investing in ASX, and it sounds like a waste of resources, whereas P-UX is finally kind of like that idea that can have a sustainable relationship with Bitcoin. Because you're also, I think there have been variations that other people in the industry have proposed as well. We took a deeper dive on this, the concept of Poofer Burn, where you go from electricity to Bitcoin, and then you burn the Bitcoin to participate in content.

I think that can also work, but I think POX is even more powerful because you're not destroying Bitcoin. You're actually distributing it as incentives to other participants, and Bitcoin gets recirculated back into the supply and can be used. How has the response been to this? I think it's always interesting and challenging, as I'm sure you well know, to introduce anything new just because of the base level hostility isn't the right word. But it's a contentious market, right? With a lot of people trying to build different versions of a similar future, how has the response been from different communities? Have Bitcoiners been interested in this? Or are they just not interested in what you guys are doing?

How has Ethereum responded? I'm kind of interested in what you've seen so far. Now it's a few days since you actually made this announcement. Yeah. So I think the announcement has been very positive. I generally don't look at market conditions, but if you take that out of the signal, that was extremely positive as well.

And this is kind of like at a draft stage, the paper that we released is a draft. And we have a Stax Improvement Proposal Process where this one is called SIP-007, and it is in a draft phase right now. So I think when this gets accepted and we release the full paper after all of the security and economic audits,

that would be the confirmation that, hey, we are definitely going ahead and doing this. But even at the draft level, the response has been very positive. And I think even the Bitcoin community, I think that there are some people who are effectively, like, you know, there's just Bitcoin and there's never going to be anything else, right? And they're very much on one end of the spectrum. But I think the broader Bitcoin community is actually, they want more innovation to happen in the Bitcoin ecosystem. And some of them, even some of the well-respected leaders in Bitcoin, they realize how sometimes more innovative things are happening in other ecosystems than Bitcoin.

Bitcoin is, yes, still by far the most secure kind of like cryptocurrency. That could be the reserve cryptocurrency. But if you look at new teams and developers who are tinkering with new types of ways to interact with cryptocurrencies or financial products or even Web 3 type applications, all of that is not happening on top of Bitcoin. And there is a significant portion of the Bitcoin community that welcomes the idea that more innovation happens on top of Bitcoin. That's precisely what we are trying to do.

Like imagine that the Clarity Smart contracts benefit from the security of Bitcoin. And it give you full flexibility to write, you know, defile like contracts or, start building like stable coins that effectively benefit from the security of Bitcoin, which is good for the Bitcoin ecosystem. Right. So I think that there's definitely a bunch of folks in Bitcoin that we have talked to are extremely excited.

I think the true test is going to be when the hardliners, who especially because, you know, has taxed a separate bought chain with a separate crypto asset. And usually, you know, they're hostile towards. new types of crypto assets. But I think the jury is out to see how even the hardliners would respond. They see that there's a synergy between Bitcoin and the stack of crypto assets. Yeah, I mean, I think it's fascinating. One of the reasons I was so excited to have you join is that I think that part of the

tension between Bitcoin and other blockchains comes from Bitcoiners having a sense that almost that they need a different level of conservative. in terms of what they are trying to build and what Bitcoin is trying to be. And in some ways, to me, what's interesting about this is that it's a new type of experiment in terms of the relationship between Bitcoin and other assets in the space that reinforces the role of Bitcoin as a central anchor for the rest of the space, but in a way that's very different, right? It's not just philosophical, which is the point that people make all the time.

like, oh, yeah, you support Bitcoin because you support everything, but we're also doing these other things. It actually ties the destiny together in a different way. And that strikes me as something pretty novel and certainly really, really interesting to watch. So I appreciate you taking the time today to share more about this. I think it's going to be a really, really fascinating experiment. And I'm definitely excited to see how this goes as it moves into production and out of proposal. Thank you so much. Thanks for having me. And yes, I absolutely agree.

I think of this as a couple of years ago, there was that meme around the flippinging, that Ethereum is going to flip Bitcoin. And the idea was that, hey, Ethereum has smart contracts and people can build decentralized with it. And it also has the payment functionality. And I think over here, we are explicitly saying that, you know, Bitcoin is the king of approval work. Bitcoin is the reserve cryptocurrency. And we want to have synergy with Bitcoin and our holders are earning Bitcoin.

So you're actually in a way spreading Bitcoin by even kind of like being a user of stats or some of the applications built on it. So I do think that very explicit acknowledgement of what role Bitcoin would be. play in this world can help some of the people kind of like calm down their nervousness around you know what what if some other blockchain comes and tries to kind of like fight with you like you're absolutely not trying to fight with the bitcoin awesome all right munib thank you so much for your time it's been great having you same here thanks a lot so there you have it what i find so interesting about this block stack proposal and why i wanted munib to join for the show is that it changes the dynamic of a conversation we hear a lot around Bitcoin. Many people who are

invested in other projects and other chains believe and will tell you that Bitcoin is important. It's important that it stays this digital gold. It's important to serve as a rallying point for everyone in the industry and for new financial people and speculators to come in to join, just to increase the flow of assets in the ecosystem. But of course, innovation is going to happen elsewhere. There are also folks who believe that all innovation will be built off of Bitcoin in some ways and that innovation looks like layer two and other application layers where they can do things that the base layer of Bitcoin can't happen. This block stack proposal to me is something of a third path that does more than just pay lip service to the idea and the importance of Bitcoin as

a rallying point for everyone in the industry, but also suggests that there is more room for the interplay between Bitcoin and other chains than just simply building layer two solutions on Bitcoin. Now, of course, this proposal is, even as Munib said, still very early. It has to be approved and has to go to implementation before we can really talk about how it's going to work. This is the type of thing that is fundamentally about not just being theoretical, but about changing how people behave and how incentives work inside an ecosystem. I'm definitely going to be watching it closely, and I hope that you had a chance on this interview to understand why it seems like such an interesting experiment. Thanks as always, guys, for listening. We'll be back with

another episode of The Breakdown tomorrow. Cheers. Welcome back to The Breakdown, an everyday analysis breaking down the most important stories in Bitcoin, Crypto, and Beyond, with your host, NLW. The Breakdown is distributed by CoinDesk. Welcome back to the Breakdome. It is Wednesday, February 12th, and today we are looking at the return of bull sentiment within the market. Now, of course, over the weekend, we saw Bitcoin rise above 10,000, which is mostly important as a psychological barrier. Milestones like 10,000, not only reaffirm people's participation in the industry, but they also bring the attention from outsiders and people who are not as invested as we are in this space. But on Monday, we saw a quick retrace back under 10,000, and with it, a real

dreariness on crypto-twitter. In fact, just about the only good thing that happened on Twitter on Monday was that rage against the machine announced that they would be touring again. Luckily, the crypto market seemed to have gotten the signal, and by Tuesday the Bulls were on parade again. So today we are going to be breaking down the shift in sentiment, looking at prices, partnerships, puppets, and pundits. One of my favorite Bitcoin tweets of all time comes from the infamous Mr. Hoddle, who says, none of you, expletive, would be here if number didn't go up. Explative, which you heard, price matters. It's from October of 2019. I think about this all the time when we've had a period of low energy that is followed by a period of high energy

thanks to some price action. Bitcoin has hit its highest price in five months, and that matters to the folks who are here, even if they are long-term hoddlers, even if they are not particularly concerned, and this price action isn't necessarily going to change any of their behaviors. Now, what's most interesting to me about this shift in price is actually a potential shift in the BTC narrative, but we're going to come back to that in the pundit section. Instead, I want to just briefly touch on how prices are impacting other assets as well. First, while much of the attention may be on Bitcoin, it's hard to deny that Ethereum is having an even better run. As of this recording, Bitcoin was up over 5% over the last 24 hours, where

Ethereum was up nearly 15% to 255 per ETH. Especially in the wake of interesting and exciting milestones like a billion being locked in defy, the Ethereum community is heading into this week's ETH Denver with an extraordinary amount of wind in their sales. And of course, it is not even just Ethereum as well. Tezos is up 20% so much that people are actually asking on Twitter, what's going on with Tezos? Why is it performing so well? Does it have to do with tokenized securities, which seem to be flocking to the chain? And then there's Link. The Link Marines, God bless them, have pumped this thing up to actual all-time highs. Link is above $4 per token. Now think about this. Even those assets that

we're excited about, Bitcoin and Ethereum, right? Bitcoin is currently standing at 53% of its all-time high. Ethereum is at 18% of its all-time high. Ripple, which is also up 9% in the last 24 hours, is at 11% of its all-time high. ChainLink is at 100%. It is at its all-time high. It's hard to tell with price action like this, how much is just rampant speculation versus something more fundamental. I will say that if you're interested in what ChainLink is doing and how it's finding an important role in the Defy economy, go back and check out my podcast with Sergei Nazaroff and Kane Warwick from Synthetics. Sergey is the CEO of Chain Links. Kane is the CEO of Synthetics. And they talk about ChainLink's recent announcement around decentralized price feeds. Whatever the reason, though,

it's hard to deny that these assets are achieving something that is getting the market incredibly excited. But as I mentioned, that is not the only bullish signal that we want to look at today. Next, I want to talk about something that is eerily and perhaps uncomfortably reminiscent of 2017 and 2018, which is assets pumping on partnerships. Hedara Hashgraph is a blockchain that claims to be a third generation public. ledger. That means to them is they have a different consensus model than things like Bitcoin and Ethereum. And Hadara Hashgraph has built a big part of its reputation around the companies who are interested in using it. Yesterday, we heard about a new partnership that got the market's attention.

Google Cloud, it was announced, would be joining the governing council of Hadara Hashgraph. I asked Mance Harmon, the CEO of the company, to explain, We've been using Google Cloud to run our test networks, both for the developer community and also for our own internal testing program in which we're preparing to upgrade the main network. The main network, of course, is distributed. Each council member runs their own node in a different cloud provider or on-premises so that we have that decentralization across the main network.

That's important. but using Google Cloud has made our test process more efficient and we get a lot of value from that. Second, a relationship with Google is important when we consider the architecture of the Hedera Consensus Service or HCS. HCS enables private DLT networks and application networks to leverage the trust of a public network, the HEDRA public network. For example, the Enterprise Consortium may create a private network that is fully dedicated to a single application, but uses the public Hedera Consensus Service for putting transactions into consensus order. This unification of public and private provides the trust of a public network with the privacy, low cost, and performance of a private network.

Google Cloud will make it easy for private networks to lay. leverage HCS, and we believe this architecture is the future of distributed ledger technology generally. Finally, both Google Cloud and HADERA are focused on enterprise use cases, and I believe we are aligned in our vision of what Web30 will look like. Now, what interests me in the context of this larger question of the return of the Bulls isn't so much HADAR Ahara Hashgraph or Google or what will happen there, although I think it is is clearly worth watching, right? When you have a big company who's willing to put its name on something and go to press with them and all that sort of stuff, it's notable. However, what's interesting to me

is what happened when this announcement was made. H-bar, the token of H-Dara Hashgraph, surged from less than five cents per token, about four and a half cents per token, all the way up to 12 cents per token, something like a 70% gain, before we're tracing a little bit to where it is now, which is still something like 50% up on the initial price. The volume was also up massively. According to NOMICs, the volume was up almost 10,000% over the last 24 hours, which is just insane. So insane, in fact, that there were many who were having, I think, a bit of PTSD looking back at 2017, 2018, and saying this is exactly the type of unhealthiness that we saw in the immaturity of crypto markets at that time, where simply the announcement of partnerships could make an asset

price soar. Now, one example does not a trend make. And I think that before we jump into conclusions about a return of the sort of market dynamics we saw back in the day, we need to just watch and see whether this was something emblematic of a trend, or whether this was, in fact, pump that had to do with an actually meaningful announcement, right? Google Cloud joining the actual governing group of an asset is much different than the sort of, we signed up for Amazon, so now we're partnered with them that was so prevalent a couple years ago. And speaking of a couple years ago, let's shift now to something that absolutely didn't happen back then. TV puppets. Figure is quietly one of the fastest growing and most aggressive companies in the entire blockchain

space. Founded by the same people who started SOFI, it is a blockchain-based lender for home equity lines, mortgage refinancing, student loan refinancing, basically personal finance type loans. This is obviously a space that is enormously competitive and takes a huge amount of money and figure has raised a significant amount of money. Well, just yesterday they announced that they were taking the idea of blockchain to the airwaves and creating a traditional ad campaign that would run both on online video and on regular terrestrial TV. In Astorian Reuters, figures Chief Marketing Officer Brad Simmons argued that this was the perfect time to educate consumers. And so this ad campaign is basically introducing a mascot, which kind of looks like gray ice cube stacked together, but

they're blockchain, obviously. It's four gray blocks with metal links on his sides. And basically, he's a know-it-all who will harang anyone around him about what blockchain is and why it's so great and why they shouldn't be dealing with the white hairs at the bank and so on and so forth. Uh-huh. Okay. I got to go. Hey, I'm blockchain. What's up?

You've either heard of me and you don't know what I do, or you've never heard of me and you don't know what I do. Or you know all about me, in which case, I don't know how you're here. Go watch a cafe video or something. For the rest of you, here's what I do. First off, I'm not Bitcoin, cryptocurrency, or anything. Scary! Ah!

Woof to you, too. In fact, I make things less scary. I improve financial transactions like loans, behind the scenes, to make them more efficient, secure, and less costly, which, if I work my magic right, can save you money. I'm a company's like figure used to record, share, and exchange the data about your loan. Before me, this was all done manually, aka by people. and people can make mistakes. And then other people have to find those mistakes and correct them,

which all takes time and money. So how does Figure do it differently? They use me to create an immutable record, meaning it can't be changed. So the administrators, trustees, and other people who used to verify all that paperwork can have more free time to pursue their scrapbooking dreams. So whenever you use Figure to get a loan, I make a block. Hey Carol. What's up?

That block is a super secure digital record of the transaction. In fact, it's so secure, in order for me to create or append a block, I have to share my block with a network of unbiased computers called nodes. From trusted financial institutions all over the country. Yo! Hi. Oh, hey there. Howdy.

And they all have to sign off on it to give me the go-ahead to make it. Good to go? Go for it! Which means I can always maintain the security and legitimacy, or or truth state. Of your data, making it uncompromisable. Try to say that five times fast. Uncompromisible.

Uncompromisable. She's actually doing it. I'm like a vault, except a super secure vault with many different keys that gives you a big, long, undisputed chain of truth or paper trail. But without all the paper. So with Figuere, we can pass that time and savings onto you. So you can get out of this place and onto a better place. and onto a better place.

Like literally anywhere but here. Later! Figure, power by blockchain. So it's an interesting campaign. I think I have some questions around whether embodying blockchain as literally the blockchain bro archetype that is constantly made fun of

on Twitter and anywhere that people make fun of things is the best strategic idea. However, maybe they own it in such a way that people think it's charming or funny or it gets through. Either way, what's notable about the campaign is that it exists, frankly, and that a company in the blockchain space is willing to spend significant resources to put an ad on regular terrestrial TV as well as online to push people to learn about blockchain and think they will care about it. So a pretty interesting moment in, I think, the industry's

history. And certainly, as we're talking about the Bulls-on parade and bullish signals today, you got to include it. And for our last discussion, I actually want to stay on TV, although this time I want to talk about pundits and narratives. Whenever Bitcoin's price surges, especially if it's sustained, and especially when it hits milestones that matter like 10,000, it starts to be fodder for TV news pundits again. CNBC yesterday had a roundtable conversation on fast money,

all about Bitcoin in rally mode. And I really just want to play this clip for you, so you guys can hear what they're saying about it. How's that for a graphic? Bitcoin's boom time continues back above 10,000. Get this. If you're not paying attention, you probably should be. Bitcoin is now up 44% this year.

So, Tim, we went from like zero to 20,000, back to 4,000, now back to 10,000. Is anything different this time around? I think what's different is, first of all, you've shaken. out a lot of weak players. You've shaken out a lot of the momentum. You've certainly gone further down the road in terms of institutional follow-through. You've certainly had major banks in the world talk about their own blockchain platforms. You've had a dynamic where money's become freer than free. Gold's been rallying. Why shouldn't Bitcoin be rallying? I mean, I agree with you. I think that last part. If you talk about a Fed just gone nuts as a guy thinks it has or all the

central banks going nuts, I mean, that's part of the bull case for Bitcoin. Plus, I institutional interest as well. Yeah, but listen, so we got rates lower, we got gold up, we got utilities up, we got Bitcoin up, so it's all acting like Safe Haven. That just takes me back to the MAGA trade. What's going on there? It just seems very bifurcated in this market where they're doing that heavy lifting. But these other things that we identify as safe haven assets have really perked up in 2020.

Possible coronavirus impact here. I know a lot of the buyers come from that part of the world, and you wonder if they're looking to protect their money, maybe hiding it in Bitcoin? Perhaps. But I do think, to Karen's point, I mean, I believe, that in a world where central bankers are tripping over themselves to devalue their currency, Bitcoin wins. In the world of fiat currencies, Bitcoin is the victor, Brian. And, well, it certainly has been, of 44% this year. All right. So that's that key quote.

In a world where central bankers are tripping over themselves to devalue their currency, Bitcoin wins. In a world of fiat currencies, Bitcoin is the victor. Now, keep in mind, there was no pomp on this show. There was no guest who is natively in this industry. This is just the conversation that they were having on fast money. So that's narrative exhibit A. Narrative Exhibit B is an article from this morning's The Guardian. Bitcoin bounces back over 10,000 amid coronavirus concerns. Investors seek safe haven because of fears over the economic impact of outbreak.

This is the Guardian connecting explicitly the Bitcoin price rise with the coronavirus, which frankly isn't even a narrative that we on Bitcoin Twitter are talking about. We are certainly talking about coronavirus, and there's an ongoing conversation that's almost a background conversation at this point around whether Bitcoin is a safe haven asset. But we haven't been pushing this narrative. This is something that the Guardian is writing all on its own. So we have two instances here of mainstream media making the safe haven narrative argument for Bitcoin.

Now, this is an important narrative moment because, it exemplifies how narratives function like self-fulfilling prophecies. Over the course of the last six months, a year, whatever it is, each time there's some correlation between a Bitcoin price rise and increased volatility in the market, which, by the way, is almost always happening, just based on the state of the world we're in, it adds credibility to the idea to the narrative of Bitcoin as a safe haven asset,

and then more people pick it up. And then when the next volatility happens, some additional number of managers potentially add it to their portfolio and talk about it with their peers, and then it's a little bit more real and not just a narrative. And this happens over and over until eventually it just is the place where capital flows when something bad happens. Now, skeptics of this obviously say that Bitcoin doesn't have any intrinsic value, that it's just speculation. Well, guess what? We live in a market where, with the possible exception of just the plentiful availability of cheap money,

that's the legacy of 10 years of quantitative easing as a normal policy now. Narratives are the most important factor in how assets are priced. And the more that people believe that Bitcoin is a safe haven asset, the more that they will behave in the way that makes Bitcoin a safe haven asset. So there you have it. We've had pundits, we've had puppets, we've had partners, we've had prices. The Bulls are on parade, man. The markets are off to the races.

could all change by the time this is released, but for now, the shift in sentiment is real, it's interesting, and it's worth breaking down. Thanks as always guys for listening, and I will be back tomorrow with another episode of The Breakdown. Peace. Welcome back to The Breakdown, an everyday analysis breaking down the most important stories in Bitcoin, crypto, and beyond, with your host, NLW. The Breakdown is distributed by CoinDesk. Welcome back to The Breakdown. It is Thursday, February 13th, and today we are going to be talking about one of the most significant and contentious issues in cryptocurrency, privacy. Privacy is at the heart of debates around cryptocurrencies for a couple reasons. On the one hand, there is a question of law enforcement. The chief concern over the 10-year history of Bitcoin and other cryptos that regulators have and that enforcement agencies have, is that cryptocurrencies can be used to move around financial controls like anti-money laundering protections

that are used to fight terrorism, drug trafficking, and so much more. Now, on the other hand, users of cryptocurrencies are worried about things like encroaching government surveillance and the ability for governments to have better near-perfect visibility into their citizens' financial behavior. This brings with it a huge number of concerns about abuses, and so cryptocurrencies which are potentially harder to trace are incredibly important, especially in the context of a society and a world that is moving increasingly away from cash. Cash today remains the most private way of transacting. However, governments around the world are pushing to move to a cashless world. Big corporates like Visa and MasterCard are obviously invested heavily in a world where there is no

cash. And as the conversation about government digital currencies heats up, so too is the conversation about surveillance becoming even more important. So on the one hand, you have concerns from regulators about privacy as it potentially flouts and gets around important tools of law enforcement. And on the other, you have concerns from privacy advocates and really anyone who wants to live in a free liberty-having society about government surveillance and the potential of abuse in a world that It has no cash and only digital currencies. Well, the last 48 hours or so have had some very interesting developments in this space. So let's look at what's happened.

At a Wednesday hearing of the Senate Finance Committee, Treasury Secretary Steve Mnuchin said that FinCEN, which is the nation's financial authority, it's the financial watchdog, was getting ready to roll out some what they called, quote, significant new requirements around crypto. The comments were in response to a question from Senator Maggie Hassan from New Hampshire who asked, quote, how will the Treasury's proposed budget increase in monitoring suspicious cryptocurrency transactions and prosecuting terrorists and other criminal organizations financing illicit activities with cryptocurrency? Newton said, we want to make sure that the technology moves forward, but on the other hand, we want to make sure that cryptocurrencies aren't used for the equivalent of old Swiss secret number bank accounts.

So in some ways, this is nothing new. This has been the line from the Department of the Treasury for a long time. And the narrative of cryptocurrencies as tools for criminals continues to persist even a decade later. It is the dominant narrative, right? When Donald Trump tweeted about Bitcoin last year, which, as we all know, was really more of an excuse to tweet about Libra, he made this same argument. He grabbed that old line of Bitcoin and cryptocurrency. is being used by criminals. This is the most persistent fud that our industry has to deal with, and it doesn't help that in the last month, we've seen major New York Times profiles talking about the rise in criminal activity on Bitcoin and all this sort of thing. What is notable about Secretary Mnuchin's comments is that it comes on the back of a proposed budget for 2021 that does seem to indicate that there's going to be even more emphasis on this sort of enforcement activity and on this sort of regular. battle. Coincidentally, and as if to make the point about growing focus on enforcement of

anti-money laundering protections, we at the same time got news that the CEO of Dropbit had been arrested for money laundering in a major case. Dropbit is a crypto wallet provider, right? It is a Venmo for crypto. It's a send Bitcoin, get-bitcoin type of experience. So this came as something of a surprise. Late last night on Wednesday, news broke that Larry Dean Harmon, the CEO of Dropbit, had been indicted for supposedly laundering something like $311 million worth of Bitcoin around dark net transactions. So the accusation is basically that between 2014 and 2017, Harmon laundered at least 354,468 bitcoins via a mixing service. called Helix. At current prices, then, the bitcoins would have been worth $311 million, but at

today's prices, they're worth over $3.7 billion. So we're talking about a huge volume of activity. Now, I and many in the industry heard about this from Peter McCormick, who has had Dropbit as a sponsor. So Peter yesterday wrote, read Dropbit. CEO Larry Harmon has been arrested and is currently in Youngstown, Ohio federal jail, charged with conspiracy to launder, money instruments, operating an unlicensed money transmitter business, he faces up to 30 years. Speaking to Larry's brother, his source of funds is central to his arrest. Larry ran a tool called Helix, allowing users to mix coins for better Bitcoin privacy. Some customers also use dark markets such as Alpha Bay, Agora market, nucleus, and Dream

Market. Larry has been denied bond as he has considered a flight risk even though they have confiscated all of his assets. Also, all coin ninja assets have been frozen. In terms of the Dropbit app, despite the accounts being frozen, Larry's brother and the developers are using their money in time to keep it running. Federal prosecutors are seeking millions of dollars in financial penalties and his properties. I am currently digesting this information myself and would appreciate thoughts from the community. I personally support financial privacy and individual liberty. I have paused all adverts for Dropbit on the podcast for now. I will be scheduling an interview with Larry's brother and lawyer and will be looking to also meet and talk to Larry.

So the central question here, or the device of the potential infraction, was a mixing service. And the reason that mixing services matter is that they basically allow users to obscure the trail of Bitcoin. Bitcoin is, as many will point out, not a completely anonymous cryptocurrency, right? It is not an untraceable cryptocurrency. It is something where there is a record, but it is a pseudo-anomized record. However, if you have someone's public key, you can see all of the transaction. that relate to that public key. And that's how law enforcement can use Bitcoin as a tool, actually, to trace illicit transactions. Mixers obfuscicate that trail of transactions, and so they are very non-appreciated by authorities. Of course, and as we intimated at the beginning

of this podcast, mixers are seen as potentially an important tool for people who value their own privacy. The challenge with mixers is basically that people who use them legitimately, just as a way to not be surveilled, get lumped in and mixed, if you will, with people who use them for more illicit purposes. Researcher and writer Ian Grigg wrote about this exact problem. He says, a problem with private money services is that even though honest users need such protection, some people use it to do illegal things. Unfortunately, privacy and money is a hard topic, having challenged the best brains in the business

and nobody's really cracked the societal dilemma. e.g. David Choms e-cash was somewhat private and only operated by banks. When MTV discovered porn shops, they shut it down. Privacy is set for a disastrous year. Expect mixers to be arrested and closed. Expect privacy coins to be delisted and attacked. The storm will eventually abate because there are other forces moving that will break it. But in the meantime, don't be in its way. Okay, so now we've seen that the Fed and the Treasury are talking a bigger game about information. enforcement around AML and just cryptocurrency being used for illicit transactions in general. We're also seeing that come to practice in enforcement actions like this one against the drop-bit

CEO. But how is this happening? How are law enforcement agencies actually able to dig into cryptocurrency forensics? Well, for that, they are partnering with cryptocurrency businesses that specialize in on-chain analysis. CoinDesk this week published an extensive review of chain analysis. relationship with the U.S. government. Now, chain alysis is by far the biggest provider of on-chain data forensic services for the U.S. government. It's not even close in terms of their competitors,

of whom there are a number. But it's fascinating to see just how significantly this business has grown. Their first contract was a $9,000 data software contract with the FBI, and that was in 2015. By the next year, they were working with five agencies. By 2017, they had over a million in contracts. 2018 and 2019, they saw those numbers go up even more, and at this point, federal agencies have spent something like $10,690,000 with chain analysis. What's more, if you include contract extensions that are possible in these contracts, they stand to make up to $14 million.

Additionally, the number of agencies using this has just ballooned, right? The current total includes the CFTC, the DEA, the FBI, ICE, the IRS, the SEC, and even the TSA. Danny Nelson, the author of the Coin Desk piece, makes the comparison to Palantir, the secretive Silicon Valley data company that has contracts up and down the government. And I think that there is something apt about the comparison. It wouldn't be possible for these agencies to do this level of forensic and protection work without the support of these types of companies. Now, there's a couple different ways to look at this, and I feel like the industry has a real strong bifurcated feeling about these intelligence tools. On the one hand, there is a frustration

in the sense that cryptocurrencies are meant to be a protection of individual liberty and privacy. And so when they are used against their users in some way, or at least that's what it feels like, it can be easy to target the companies that are enabling agencies to do that. The flip side is that the better these tools get for actually providing forensic analysis that can identify real illicit transactions, the more it protects the ability for other people to use it in non-elicit ways. So there is a real give and take here. And of course, a lot of the question comes down to trust around how power is being used or abused. And of course, this is an industry that is not known for its trust. In fact, it's predicated upon the idea of don't trust verify.

Now, just to show how prevalent these tools are getting, two more pieces of news. Tether announced that it was partnering with chain analysis as a way to bolster its anti-money laundering tools, right, to be seen as more legitimate. Tether's CTO said, this solution allows us to ensure a secure compliance program that fosters trust with regulators, law enforcement agencies, and users. This is achieved without sharing our users identifying information. As such, data is only kept on our servers. And as I mentioned, it's not just chain analysis in this space. They are by far the most successful when it comes to winning U.S. government contracts, but that doesn't mean that there aren't other big players. Eliptic is a competitive company that has been raising a series B of something like $28 million,

and just today it was announced that they had received an additional $5 million from Wells Fargo's strategic investment arm, and the elliptic product that they were really interested in was basically something that provides a, quote, bill of health for crypto exchanges. So it allows banks to be confident that cryptocurrency exchanges are actually conducting the sort of KYC, know-your-c- -customer-customer checks that they're required to, and it allows banks better insights into the regulations that they're supposed to be regulated by in the first place. The upshot of this potentially is that banking relationships could become much easier for exchanges and other core parts of the crypto industry infrastructure. It has been notoriously hard to be banked

if you are a crypto exchange or a crypto business. So the benefit, the upside of the this better regulation, better formalization of all of these processes, is that companies can actually function. So if you take a step back and look at the net of this, there is an inevitable push to rein in the wild west nature of cryptocurrencies. And basically, you can kind of read all of this as saying that if these technologies are going to exist, if they're going to be real, if they're not going to just fade away, as we might have hoped, and obviously I'm speaking here from the perspective of regulators. If they are going to be here and be a force, we are going to make sure that they fall in line with our regulatory regimes, that they do not allow people to work outside the

system that we have created. Now, within that, there are going to be many battles, right? These are gray areas that are much more complicated than many other financial technologies. So you can expect there to continue to be some amount of back and forth and confusion and challenge along. the way, but regulators are making it clear that there is a new sheriff in town, it's the old sheriff of them, and that they're going to get their law on. I want to shift now, though, to a slightly different side of this privacy debate, one that relates to the emergent phenomenon of central bank digital currencies and the U.S.'s role within that new area. The part of the crypto industry that is paying attention to CBDCs and the development of these types of digital currencies around the

world, really, the concern has to do with financial surveillance and the ability for governments that are issuing digital fiat effectively to effortlessly surveil all transactions going forward. This conversation has accelerated since both Facebook announced Libra, and additionally, China responded aggressively to Libra in the context of their own forthcoming digital yuan. China is clearly trying to move into the leadership position in this new arena of economic warfare and put out a digital currency before anyone else can. And this has many people, many governments worried. News last week that I think we talked about here, Japan is pushing, pushing, pushing the Fed to actually get their digital dollar strategy together to ward off the influence of.

China in governments around the world. Just last week, after months of being dismissive, we saw the first indications from the Fed that there was actual more attention being paid in this domain. Fed Governor Lael Braynard gave a speech at Stanford where she explicitly acknowledged the Fed was researching digital currencies. Now, just this week, Fed Chairman Jerome Powell was testifying before Congress and was asked about digital currencies. Specifically, he was asked whether the Fed had any, quote, visibility into China's progress around CBDCs. He said, yes, we certainly have that, but they're in a completely different institutional context. For example, the idea of having a ledger where you know everybody's payments, that's not something

that would be particularly attractive in the United States context. It's not a problem in China. So people in the crypto industry have picked up on this very quickly as an indicator that if the U.S. is to pursue a digital dollar-type project, it would be somewhat privacy preserving, at least given lip service to that. This is really interesting because Christopher Giancarlo, the ex-CFTC chair, who's known around these parts as Crypto Dad, also recently announced what he calls the digital dollar project, and it is a collaboration with Accenture to actually design or push the Fed to design a digital dollar. And in an interview with CoinDesk's Michael Casey at Davvo, he said explicitly that the reason that he was so passionate about this project is that he believes

that in the fight for the battle of the future of money, if you have on the one hand corporations like Facebook who have an incentive to see every transaction because they want to use that data for their own business purposes, and on the other hand, authoritarian governments like China who want to see every transaction data because they use it for their own authoritarian purposes, having someone like the U.S. that is constitutionally prevented from tracking data in that way that has a constitutional mandate not to surveil their citizens in that way is a very improved third option. We didn't get much from Jerome Powell, but what we did get seems to be in line with that argument that if there were to be a digital dollar, and this is a big if,

the Fed has made clear that their position is different because the dollar is in the world leadership position, the world reserve currency position with still a very strong, robust cash system. But if the Fed were to pursue a digital dollar, it seems to be the thinking that it would have to have some amount of privacy protection built in. Now, skeptics and cynics will say that it doesn't matter what the Constitution says if the ability to surveil is there. You can expect government agencies to do it. What's more, we certainly have evidence that right now government agencies care very much about the ability to surveil electronic communication. There is an ongoing battle between Apple and Attorney General Barr around end-to-end encryption in apps like WhatsApp and

Facebook Messenger that is not finished and is certainly not very encouraging in terms of our government's beliefs about privacy. However, at least the lip service being given to this idea is more reassuring than it might otherwise have been. And I think that's why people in the crypto industry were so interested and, frankly, a little surprised to see these comments coming out of the Fed chair just this week. So what's the net takeaway about the state of privacy? Well, honestly, we have a bunch of divergent conditions, frankly. On the one hand, there is no doubt that we are seeing more aggressive enforcement and a way that is promised to not only continue but accelerate. I think that the emergence of Libra, the continued persistence of Bitcoin, all of these

factors combined, regulators are finally accepting that these are forces that are here to stay. Cryptocurrencies are not going away. Because of that, you can expect them to bite back and make sure that those projects, those companies that are built in this ecosystem are playing by their set of rules. That could come with pretty severe impingements on personal privacy. On the flip side, we're seeing that the emergence of China in particular as a force in the digital currency space is making perhaps the U.S. regulatory regime think about its role as a more liberty-providing or liberty-supporting version of a digital currency provider. That's a notable thing, even if we're not quite ready to be clear that it's a positive thing or a sentiment that we exactly trust to come to being when applied.

So that's the state of it for now. This is going to be one of the most important conversations, I think, not just this year and not just in our industry, but across industries. We are living in fundamentally new times when it comes to the question of privacy versus surveillance, and the best thing we can do is to stay engaged, to make sure we do not go passively, quietly into the good night to demand that privacy is an issue that our government takes seriously. There are few legacies of the U.S. government that are more profound and more at the core of who this country believes itself to be than individual liberty. And we could very easily find ourselves in a scenario where those values are threatened simply by the greater

availability of data across all spectrums, but in the one that we're talking about now, the financial realm. So let's make sure that that doesn't happen. That is the breakdown for today. I hope you enjoyed it. Let me know what you think. Hit me up on Twitter at NLW and I will be back tomorrow breaking down the news. See you then. Welcome back to the breakdown. An everyday analysis breaking down the most important stories in Bitcoin, crypto and beyond with your host, NLW. The Breakdown is distributed by Coindesk. Welcome back to The Breakdown. It is Friday, February 14th.

Happy Valentine's Day lovers. And speaking of love, those of you who have listened to me before know that one of my greatest interest is narratives. Narratives are the ways that we explain complex phenomena simply. It's the way we make sense of the world around us. In the context of markets, it's how we explain what's happening and why and what might happen and next. I think narratives have incredible power across all markets, but especially in emerging markets where there's simply less data and simply less history to really have stronger basis in fact, right? It's just a game of interpretation. And these narrative battles have real implications

in the context of crypto markets because there's limited time, attention, and money to go around, and the narratives that shape what we believe shape what we do and how we spend those resources. So narratives are an incredibly important part of this market. What I wanted to do today then is take a look back across this week, which is the culmination in some ways of an incredible shift in sentiment and excitement that started at the beginning of January and has gone right through to the middle of February where we are now. Across almost every vertical from volume to price, there is just so much more action in crypto markets now. And this was inspired in part by Dan McArdle. He responded to my tweet about the CNBC fast money show that we listened to a couple days ago,

where in less than two minutes, they hit almost every bull Bitcoin narrative that you can imagine. They talked about weak hands moving out of the market. They talked about institutions coming into the market. They talked about gold rallying, so why shouldn't Bitcoin? They talked about central banks going nuts as a bull case for Bitcoin. They talked about the Safe Haven narrative. They talked about Chinese citizens buying because of corona. They talked about central banks rushing in to devalue their currencies, which is good for Bitcoin. It was a narrative smorgasbord, a narrative parade. And so this got me thinking, what do you guys, the listeners to this show, think are the narratives that actually explain this new excitement and energy and shift in sentiment?

What are the narratives that you think can explain why there is so much more activity now? So I took to Twitter and just asked you guys. I said, which narratives do you think best explain why the crypto markets are on fire? Is it A, the Bitcoin having, B, the coronavirus and volatility, C, Fed Policy, or D, digital currency battles? I also invited people to write in the answers if I didn't include them for some reason in the poll. What I want to do now is go through the answers in the reverse order of how many people thought that they were the most important explanatory narrative and just give my take on why that might be important in the context of this market action. Bringing up the rear at 10.8% of you was this idea of digital currency battles.

So obviously since the introduction of Libra, there has been so much more focus from governments around their digital currency strategy. And this has created a lot more energy or at least the tension around our part of the market cryptocurrencies. However, it must be said that cryptocurrencies and these digital currencies from central banks are in some ways philosophically opposite, right? digital currencies represent a tool for governments to extend their power in some ways in surveillance by giving customers or consumers or citizens a perhaps more convenient option. But it's a trade-off,

right? It's a trade-off of convenience for surveillance and a threatening of privacy, whereas cryptocurrencies that most of us work on are options for opting out of local monetary regimes. So it's hard to say that there's a direct correlation in some ways. But at the same time, And, you know, we had Fed Chair Jerome Powell talking this week in Congress about how Libra had lit a fire under them around digital currencies, so it does bring exposure to the space. Speaking of Fed Chair Jerome Powell, our number two response, or in second to last place, rather, with 14.9% of the votes, was Fed policies. Over the last year, we've seen the Fed pretty much capitulate to pressure in particular from President Trump, but just to the aides of the markets in general,

that Fed policy is clearly going to be looser and easier and continue to inject money into the markets to juice them up. For many in particularly the Bitcoin community, there is nothing that could better describe the right context for a non-debasable, fixed supply, non-sovereign currency, right? When you see central banks continuing to inject money into economies even far outside crisis time, it sort of makes the case for this different type of asset that Bitcoin represents. So, like I said, 14.9% of you guys thought it was about Fed policy. 22.7% of you thought it was about coronavirus slash volatility. And I'll admit here that I made a bit of a goof by lumping these together, because on the one hand, I think volatility refers to this idea that in a world that feels

increasingly chaotic, does something like Bitcoin start to have a higher cachet? Does it feel like a good way to opt out of that chaotic world? That's a general feeling. And I think a general narrative that certainly could apply to now. The coronavirus safe haven narrative is something that's much more specific. And I have heard some people make specific arguments that the coronavirus has had an impact in that Chinese citizens, perhaps who are quarantined or perhaps who are just worried about being quarantined and who haven't had access to the regular sort of equity markets that they participate in have been moving money into Bitcoin as a way to, again, escape that local monetary chaos. Now, I haven't seen a particularly compelling evidence of this or even really evidence beyond

conjecture at all. However, we're talking about narratives. And to the extent that people think that this is happening, perhaps they are behaving accordingly, right? Perhaps they are hedging into Bitcoin more because of that. So I think it probably would have been smarter for me to perhaps separate the specific issue of coronavirus from the larger general issue of volatility. But regardless, I didn't. And 22.7% of you think that that's the major reason why the markets are so hot. The number one answer, though, by a whopping margin, was the Bitcoin having. 51.5% of you think that the energy and excitement around the Bitcoin having is the primary factor that is driving so much attention in these markets, which I think maybe is also a little interesting piece of evidence

around this constant debate about whether the halving is priced in or not. But regardless, 51.5% of you think that that is the driving cause. Now, what about the write-ins? What about the things that I didn't include? Well, there are three that I want to make specific mention of. The first is Ethereum and excitement around Defi. Defi has hit recently in the last couple of weeks, this important psychological milestone of a billion dollars locked in Defi, which to me is akin in some ways to price milestones in Bitcoin like 10,000. It may not matter ultimately that much from a real perspective, but it matters from a psychological perspective. When Defi hit a billion, I guarantee that there were some number of people who were watching on the sides who were like,

I'm going to take that more seriously now. Or perhaps institutions who had been keeping an eye on Ethereum who are saying to themselves, maybe we should be paying a little more attention to that now. So I do think that it's important to note that Defy has had a good year. Ethereum has had a good year, right? Bitcoin is up something like 40, 44% on the year, but Ethereum's up something like 80, 85, 86% on the year. And the reason that I didn't put Ethereum as one of my major choices is that, well, two things. One, I tend to have a bias towards the macro explanations, rightly or wrongly. And two, we have lived in a paradigm, I believe, where Bitcoin has in general been the major driver that ripples out and

trickles down to the rest of the market. And I don't know that I think that Ethereum is there yet as a force that can actually drive prices across the asset, not just within Ethereum itself. But perhaps that's wrong. Perhaps 2020 is the year where Ethereum and DFI specifically show that When they're doing well, they can be doing well even uncoupled from Bitcoin and have impact on the rest of the market. So something that's certainly worth watching. A second write-in that a number of people mentioned was price and price reflexivity, which is the idea that when prices start to move, they move in either direction, right? When prices go down, they tend to go down more. When prices go up, they tend to go up more because more and more people get excited. And this is almost so obvious and so important that I didn't include it,

but it is worth noting. No matter how strong narratives are in this market, in these crypto markets, the thing that gets people most jazz that increases energy in any way you look at it, from volume to social media volume, is price, price action. We've talked about this earlier this week, even. And so I think that in some ways what I was looking for with this poll is almost a question of what maybe got the ball rolling down the hill, but I do think that once momentum starts, it really is pretty reflexive to price. Now, one additional amendment to this that I thought was worth mentioning was the idea that it wasn't just price, but Lindy effect in the context of price, right? The Lindy effect is the idea that the longer that something has existed, the more that it feels

like it will continue to exist. And so, you know, the popular narrative in mainstream media of Bitcoin is that it's constantly on the verge of dying, right? And so when it hits some new big milestone again, like 10,000, something that has a big psychological impact, and people have heard a million times before that it's going to die, it starts to trigger this feeling of, hey, maybe this thing is really here to stay. And every single time this happens, that feeling gets stronger. So the idea of price and the reflexivity of price plus a side of the Lindy effect was the second write-in that I wanted to mention. The third write-in, I think, has to be said, is for sure just the right answer, which is all of the above. I created this poll to see what

people thought was the most significant narrative, but the reality, and of course this is why CNBC Fast Money could blast off so many of these narratives in such a short couple minute period, is that they are all happening simultaneously. There are these global fears around the coronavirus and suspicions that that may have an impact. There is this Fed action that people are nervous about because where does it end? There are these battles going on around what the digital currency of the future is going to look like. And there is a ton of attention. on the Bitcoin having. So take all that together and then combine these right-in things, right? Ethereum hitting these new milestones in Defi and so much else. And it really does feel like a

perfect storm type moment more than just any one factor or another. So that's what you guys thought. But I also love getting expert opinions on the show directly. And so I asked Travis Kling, the CIO of Aikai Asset Management, who is now, I think, our most frequented guest on the breakdown to come and give his thoughts. And I started by asking him about Fed Chair Jerome Powell's comments because, as I admitted before, I'm so interested in the macro context right now, rightly or wrongly. So let's see what Travis had to say about those comments earlier this week as their relation to this market. So the comments from Jay Powell and Steve Mnuchin this week are the first time since summer of 2019 that they've really cranked back up some very pointed commentary addressing, I'd say one,

the crypto asset ecosystem and two central bank digital currencies. I don't know whether or not it is a coincidence that Bitcoin's up 40-something percent in the first 50 days of 2020 that has them sort of stepping back up into the limelight to discuss this stuff. It's pretty coincidental that that's happening. You know, Powell said specifically Libra lit a fire. And that, I think, was pretty apparent from the commentary in the summertime. And then the fact that President Xi, with his kind of blockchain is good edict at the end of October,

in a lot of the movements around the digital Remembe that they're looking to roll out, it's apparent that both Treasury and the Fed realize that they've got to get a clear path and a handle on how they're going to address these things. As I was listening to Travis, and as we were talking, though, it felt to me like there was clearly something different that he thought was perhaps the real explanatory factor in this shift in sentiment and energy. So instead of trying to pin him down to one answer like Jerome Powell's testimony, I just asked him what he thought. thought were the biggest factors that were actually driving this shift in sentiment. So let's,

let's hear what he had to say about that. I think you can't overstate how much all of the airtime that the halving is getting plays into reflexivity. You know, reflexivity is just means that higher prices beget higher prices and lower prices beget lower prices. And the way that reflexivity is intertwined with narratives is a pretty fast. thing. And I like to say Bitcoin is the most reflexive asset on the planet. And for good reason, it's because network effect drives such a significant portion of the value of the technology as a whole. And the narrative setup for Bitcoin prices to head higher and around and after the halving, it's just too clear of a setup. And what you can have is whales dominate the Bitcoin

market and whales have the ability to manufacture reflexivity. You can get prices moving to the upside. And then because Bitcoin acts so reflexively higher prices, but get higher prices. And you start getting this snowball effect to the upside. And I mean, that's exactly what January of this year kicked off with. It's just too easy to take prices meaningfully higher in between now and the halving. And whether that's 14K or 20K or 30K, I'm not really going to sit here and make a call on that. But the setup for prices to move much higher into that was just kind of too apparent in the first part of this year. As you can tell, Travis reinforces a lot of the points that you guys were making online, right? He's saying that having is a major factor and this reflexivity is such a major factor as well.

before letting him go, though, I really wanted to get his take on one more thing. It can be incredibly hard when you're in these excitable moments to think about how fast it could shift again, right? And the longer that you've been here, the more that you know this, but these markets are chaotic and they're roller coasters and they can go down as fast as they go up. So I asked Travis one last question. I asked him, what made him most concerned around where we were in this specific moment, whether it was a narrative or a specific type of action or something else. But then I also asked him what made him most optimistic about it. The most concerning thing, I think, is how much our little space is getting levered up.

You are seeing the signs of a levered Bitcoin market in a lot of different places. You're seeing it in the interest rates for stable coins. You're seeing it in contango, the contango curve for Bitcoin. you're seeing it in funding rates across derivative platforms. You're hearing about it anecdotally. The entire Bitcoin mining industry is now levered up because the sort of cottage financing industry is popped up around providing cash loans

to the Bitcoin mining ecosystem. The whole world is levered to the Gills. So I guess some argument could be made that what's wrong with a little leverage in Bitcoin, but it is, you know, it does kind of make me a little, nervous because you're talking about an underlying asset that's like 15 times more volatile than the S&P 500 when it gets moving. So you couple leverage with that type of volatility. And that can be

a recipe for fireworks. So that's certainly something that we're watching. You know, on the positive side of things, look, the macro backdrop for a non-sovereign form of money to go get mass adoption over the next couple of years, like you really couldn't paint a more bullish kind of macro picture for that. I like to say that it appears that Bitcoin was created for such a time as this. So there you have it. Most concerning is perhaps just how levered we are and how much that could be bad if it goes the other direction. But that optimism, the idea that the macro environment is so well suited for this. Well, I couldn't agree with Travis Moore. And I think that it was really interesting to hear from all of you guys about what you thought was the reason behind

so much new energy. So thank you to everyone on Twitter who participated in the poll and who wrote in answers. Thanks to all of you guys for listening. And if I miss something or if you disagree, hit me up on Twitter. I am there at NLW. I would love to hear what you think. But for now, guys, it's Valentine's Day. Get out of here. Go spend some time with the people you love. I will catch you not on Monday. We'll be off for President's Day and a travel day for me. So we will catch you here on the breakdown on Tuesday. great weekend, guys. Peace.