The Breakdown - The Programmable Future of Bitcoin, Feat. Muneeb Ali

Episode Date: December 27, 2021

This episode is sponsored by NYDIG. On this episode of “The Breakdown’s” “End of Year Extravaganza,” NLW is joined by Muneeb Ali. Muneeb is the co-founder of Stacks and CEO of Hiro. In this conversation, he discusses the programmable smart-contract future of Bitcoin as the base layer for the new internet.  Find our guest on Twitter: @muneeb Enjoying this content?   SUBSCRIBE to the Podcast Apple:  https://podcasts.apple.com/podcast/id1438693620?at=1000lSDb Spotify: https://open.spotify.com/show/538vuul1PuorUDwgkC8JWF?si=ddSvD-HST2e_E7wgxcjtfQ Google: https://podcasts.google.com/feed/aHR0cHM6Ly9ubHdjcnlwdG8ubGlic3luLmNvbS9yc3M=   Join the discussion: https://discord.gg/VrKRrfKCz8   Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW   NYDIG, the institutional-grade platform for bitcoin, is making it possible for thousands of banks who have trusted relationships with hundreds of millions of customers, to offer Bitcoin. Learn more at NYDIG.com/NLW. - “The Breakdown” is written, produced by and features Nathaniel Whittemore aka NLW, with editing by Rob Mitchell, research by Scott Hill and additional production support by Eleanor Pahl. Adam B. Levine is our executive producer and our holiday theme music is “Spike The Eggnog” by Two Dudes. The music you heard today behind our sponsor is “Dark Crazed Cap” by Isaac Joel. Image credit: Yuichiro Chino/Moment/Getty Images, modified by CoinDesk.  

Bitcoin is a trillion dollars in crypto capital and trying to turn that into productive capital so that people can actually deploy it into smart contracts, people can build interesting applications, use cases, decentralized exchanges, stable coins around Bitcoin. It's like a no-brainer. At the same time, this is not the Bitcoin narrative that a lot of people grew up with. Bitcoin is digital gold. It's only meant for like hoddling. And they have spent so much of their time hating all the experiments that are happening. outside of Bitcoin. That when they start seeing similar experiments happen within Bitcoin, there's a natural kind of negative reaction to it.

Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the Big Picture Power Shifts remaking our world. The Breakdown is sponsored by Nidig and produced and distributed by CoinDesk. What's going on, guys? It is Monday, December 27th, and we are back with another episode of the breakdown's end of year. extravaganza. On this episode, I'm joined by Munib Ali. He's the co-founder of the Stax Protocol as well as the CEO of Hero. Now, Stax is really interesting because it is deeply invested in the Bitcoin ecosystem, but has a very different take on how to build on Bitcoin and what

Bitcoin can be used for and where it fits in this larger system, as opposed to some of the more dominant views you'll hear on places like Crypto-Twitter. I think especially in the wake of a year where we had Taproot go live, and where there's never been a more growing conversation about things like Defi on Bitcoin, I'm excited to share Moonib's perspective on these and other issues. All right, Munib, welcome back to the breakdown. How are you doing, sir? I'm doing great. So, listen, this is, like I was just telling you, one of my favorite series of the year, really fun chance to think about everything that made 21 so interesting.

And so let's kick it off by asking you the question, what was the most significant story in the crypto industry in 2021? I think for me, it would be the rise of Solana. Like, not just the rise of Solana. I think what I mean by that is that before that happened, like before this year, there was a lot of kind of sentiment in the industry that Ethereum is the only game in town. Whereas there are so many people who are building other types of smart contract platforms. And I think it was really the rise of Solana and that some of the world.

the other newer blockchains like Avalanche and others, that by the end of the year, suddenly it's like everyone has taken a U-turn. Like, instead of thinking that there is only going to be Ethereum, now everybody believes in a multi-chain world. And I think that a multi-chain world is also a more decentralized world. Like, it's actually better to have 10 really strong and really different smart contract platforms than just one of them. So I do think that this year, it really solidified that there are going to be several different

type of smart contract platforms out there. So this is super interesting. I think that there's definitely no way to argue that sort of the layer one battle wasn't a huge, huge part of the crypto industry this year. I guess just a follow-up question because I'm interested in your take, does the average crypto industry participant still view this as a zero-sum battle between these kind of layer ones? Or is there some start of a sense that it's just different chains make different

tradeoffs that could make them well suited for different use cases, I guess, is how I would put it. Yeah, I think some people definitely still have a zero-sum type of mentality. You know, I'm mostly from the Bitcoin community. I know there are a lot of people in Bitcoin who still have a zero-sum mentality, and I try to change that. I think we have actually seen some zero-sum mentality from a bunch of the Ethereum fans as well. But interestingly, in my experience, in a lot of the newer L-1s and the newer projects, I think they are much more collaborative.

they're much more friendly with each other, and they kind of like see this as a growing pie, a growing ecosystem, and they would much rather try to grow the pie for everybody instead of having this like zero-sum type of mentality. So interestingly, I feel like some OGs have more of a zero-sum mentality than some of the newer players, which is a very interesting sign and very healthy sign as well. The sort of cynical but also I think not unreasonable human psychology take is, you know, you love the thing that made you rich. of a phenomenon, you know, like, I sometimes wonder how much that has to do with it. Sure. I definitely think, like, you know, like for example, you know, if you spend time in the,

in the Bitcoin community, and there's a lot of narrative around, hey, Bitcoin is the only kind of like real asset, everything else is kind of like, don't even look at it. And if you, if you track down where this message is coming from, this message is coming from people who sit on a lot of Bitcoin. Like, I was fortunate enough to be early in Bitcoin as well, but I think I've tried very hard to remain open to new things that are happening in the industry. And in fact, like spending a lot of time and energy on bringing some of those really interesting use cases to Bitcoin itself. But I think it's very easy to, if you were early on a project and you're actually sitting

on a very large bag yourself, it's very easy to then become complacent and basically start saying that, hey, everything else that's coming up, like, it's not very interesting. Everybody should kind of like stick to the original protocols. So you live in an interesting space in some ways relative to a lot of folks in that you guys have chosen to build on the Bitcoin ecosystem, but are definitely stretching it, right? And you have people who are super excited about that, but also you become the recipient almost of more ire from the sort of hardest core. How have you found those lines and how have you kind of reconciled them? Yeah. So I think what we have done for those who are not familiar is if you look

at Ethereum or Solana, they have smart contracts right at layer one. So what we're doing is on the Bitcoin side, it's a two-layer solution. So Bitcoin is the money layer. So it's decentralized, durable as the money layer. And then there is a separate layer, which is the programming layer, and that stacks. And I really like the decoupling of the money layer from the smart contracts layer, right? Because the smart contracts layer can change and adapt and can have new features, but we never need Bitcoin to change or we never want any modifications to go to Bitcoin. So interestingly, I think from one side, it's the most obvious thing ever, right? Bitcoin is a trillion dollars in crypto capital, which is mostly just sitting there passively

and trying to turn that into productive capital so that people can actually deploy it into smart contracts, people can build interesting applications, use cases, decentralized exchanges, stable coins around Bitcoin. It's like a no-brainer, right? In hindsight, you know, people look back and be like, that was the most obvious thing to do. Why would you just let, you know, a trillion dollars of capital just set? they're massively. But at the same time, this is not the Bitcoin narrative that a lot of people grew up with. Like, they're growing up with the narrative of like Bitcoin is digital gold.

It's only meant for like hoddling and you're not supposed to kind of like do anything else with Bitcoin. So that's where some of the friction comes in. And when people are coming in and saying, hey, we want to build new stuff on Bitcoin. And they have spent so much of their time hating all of the experiments that are happening outside of Bitcoin that when they start seeing similar experiments happen within Bitcoin, there's a natural kind of like negative reaction to it. Interestingly, I think like I feel a lot of those people are actually a loud minority and there's a ton of support for Bitcoiners in general. I actually think that the majority of Bitcoiners already own other assets, right?

Like if you look at some of the surveys and the data that has been done, I think a lot of people own Bitcoin and other things as well. Right. Like I'm a Bitcoiner. Most of my kind of like positions are in Bitcoin, but I definitely hold other assets. And I feel like the ones who are more on the extreme side tend to be the loudest as well. And I think sometimes that message gets more amplified than maybe it represents reality. It's enormously difficult to figure out where crypto Twitter ends and the real world begins if you are an active participant in both, I think.

What's something that happened this year that you would never have predicted? Never have predicted. I can give you a small example just from this stack. ecosystem that I think for us, like, we were really motivated by making Bitcoin productive, making Bitcoin programmable. So our main net launch happened this year, tons of growth. But I never kind of like was paying, I wasn't paying attention to Bitcoin NFTs, right? Like our lens was more around people would earn Bitcoin, people would be interested in, like, decentralized way of exchanging Bitcoin. And then Bitcoin NFD is just like organically emerged.

And there are so many like marketplaces. And Bitcoin culture, started getting represented in these NFTs, right? So any Bitcoin culture thing that you can think of, like, you know, Citadel or Bitcoin Pizza or, you know, faces of Satoshi, like artists basically started expressing themselves as Bitcoin NFTs through Stacks. And that was, like, quite surprising for me. And then I started, that was my entry point into NFTs as well, because this was happening within the Stacks ecosystem.

So I started playing around with these things. And I think I really started appreciating the power of NFTs after I got my hands dirty and actually actually kind of like, you know, created them, started building collections and so on. So that was something surprising that happened, which was a very good surprise in the Stacks ecosystem. NIDIG sponsors this podcast and they're integrating Bitcoin into everyday life, not only for Wall Street, but also for Main Street, because NIDIG is built for Bitcoin and Bitcoin is built for everyone. Learn more at nidig.com slash NLW. That's nydig.com forward slash NLW. What's something that you're paying attention to right now that you think others should be paying more attention to or that you're surprised that there's not more of a focus on?

I'm paying a bunch of attention to the increasing number of developers and the increasing number of very serious entrepreneurs. Like people who have actually built and sold startups before, they're now entering the crypto industry. And I think that's a very, very healthy sign. And I don't think that some of these things get enough attention, especially in the Bitcoin circles. If you look at the general discussion topics in the Bitcoin circles, people are hardly ever talking about the number of developers that are building in the Bitcoin ecosystem. And I think that should be a very, very important discussion topic and a very, very important metric to track. If anything, this year, so many Bitcoin developers have actually basically announced that they're leaving. like Bitcoin CoreDeps.

I'm talking about general developers who are kind of like in the broader ecosystem in developing, but we are actually losing core developers in Bitcoin. And I think not enough people are paying enough attention to this. Just this morning, we announced a small initiative to actually support Bitcoin core development. And I think we need not just that,

but we need to attract like a ton of more developers. And that is a metric that doesn't get enough attention in the Bitcoin space. Yeah, it's fascinating. I did a show on Bitcoin Core Developers leaving and what might be behind that. But I think it is an important thing to hone in on. I also think whatever the answer is, it's an immensely solvable problem. So I think I am not overly pessimistic, but it does seem like something that's worth paying more attention to for sure. Let's talk market cycles. So I think a lot of people tried to figure out, was this year going to be a repeat of 2013? Was it going to be a repeat of 2017? How much does this sort of halving-based four-year cycle still characterize the industry? what's your take on all that? Are we in a super cycle? Is there just something completely new that doesn't have the right name or framing yet?

What do you think about the market cycle and where we are in it? Yeah, I really like this model from Chris, from a placeholder. He basically thinks that any early industry, people try to make sense of data and they come up with the models. But once enough people start believing in the models, the models actually become almost like self-fulfilling.

So if you think about this, if enough people believe that crypto is cyclic and it's going to go in four-year cycles, they can make it happen, right? People can have their positions that once Bitcoin, whatever, crosses 100K, maybe so many people will sell that they would cause a crash. I think we're so early that the market sentiment could actually turn the markets, if that makes sense. I've seen some discussion around super cycle.

For me, the super cycle theory makes sense. if you think about in terms of like that's the escape velocity theory, right? That now you're actually going mainstream. And if you have crossed the chasm and have touched mainstream, then maybe this cycle is going to look very different. And the name that people giving it is the super cycle. I think it's fascinating. I ask that question every interview because I think it's such a,

everyone's trying to get their hands around it. Let's put it this way. The confidence interval that people kind of share with it tends to be pretty low, which makes it a really fascinating place to take it. to. What was the most important macro event, geopolitical or macroeconomic, to shape Bitcoin or crypto this year? I think some of the inflation numbers are insane, right? Like, I liked Bitcoin even before some of the crazy stuff that happened, but some of the numbers, like, you can't even

believe it, right? Like, there's a stat that 80% of the dollars in circulation right now were printed in the last two years. I mean, that is just insane. Like, if you, like, I've seen graphs where the, the dollar supply is like going up, going up, going up, going up in the last two years, it's just like a hockey stick, right? It's just like going up like a hockey stick. And I do think that something big is going to happen as a reaction to such a big change in the world economy. And Bitcoin is basically like the biggest hedge that you could really take against that, right? So I feel like I was interested in Bitcoin, like even before any of this happened. But now that this is happening, like even if I wasn't into Bitcoin, I would have been into Bitcoin by now. Yeah. That is the story

of a lot of folks, both who have been in the space, but who have also come into the space in the last year, which sort of brings me to my next question. When the history books are written and the future looks back at what 2021 meant for Bitcoin specifically, what will be the story, what will have been the important thing? I think for this year, maybe like, you know, Taproot would get a mention or at least I hope that it gets a mention. It was the first major upgrade of the Bitcoin network in the last three to four years. And interestingly, it was a relatively pretty friendly upgrade and a very smooth book, right? Which actually goes to show that, hey, Bitcoin can change a little bit. Like, it's not going to drastically change, but it can't change

a little bit. I also think that the other interesting thing is how if you go back like five, six years, pretty much like any new blockchain was basically like a fork of Bitcoin and just using proof of work by default. This year, there's so many projects that have moved away from proof of work. The biggest one is basically Ethereum. Obviously, it's not live yet and it's in the pipeline, but they've made their plans pretty clear that they're moving away from proof of work. And then some other projects like Zcash are looking into it, right? Which I think starts to differentiate Bitcoin and Bitcoin's a relationship with energy, a lot of the other. lot more than the rest of the industry, which is a pretty sharp contrast now compared to like

three, four years ago where proof of work was like the kind of like the dominant thing and everyone was doing it. And now Bitcoin is becoming more and more of an exception that, and it is doubling down on it, right? Like, I don't think that Bitcoin would ever move away from before. If anything, it would differentiate Bitcoin's security and Bitcoin's economic model a lot clearer from some of the other blockchains. Yeah, I mean, I think this goes back to what we were talking about before, too, of different prioritization, different tradeoffs leading to different use cases in the real world, too. What's something that you're pessimistic about for the next year? In terms of being pessimistic, two things come to mind. One is there is going to be a bear market

sooner or later. And I've seen this before. I've seen this story like a couple of times before. the young blood that gets into crypto every bull market, they're sometimes very quick to leave as well. And it's both true for like some developers, entrepreneurs, but also like investors. Right now everyone's like scrambling to start their like Web 3 slash crypto fund. And we've seen this story before where a lot of these people like call them like tourists or something. Like they get disappointed and they kind of like miss the real picture of like, you know,

they're not mission-driven. They're not driven by the love for creating a decentralized future. They were following a trend, and then the trend shifted. I don't know if you caught Brian Armstrong and Threader some story when Coinbase went public, but they were describing these bare markets when 30% of the employees at Coinbase would just leave. And the type of morale hit that it takes for a company

when that type of a downturn suddenly happens. I think I am pessimistic about that because in many ways, the bigger the industry gets, the ratio of the true believers to people who are just following a trend actually becomes worse in a certain way. And so that's one thing I'm a little bit pessimistic about. The other one that I'm hopeful, but deep inside pessimistic is actually like the state of the mainstream Bitcoin community. I feel like they've really cornered themselves into a bubble at this point. like where the very little interaction with the rest of the industry, they've become extremely close-minded,

they're even like cutting off their conferences and their Twitter spaces and their interactions to, hey, we are Bitcoin only. They're like more maxy than the original Bitcoiners, right? And I think that trend is as a little alarming. And I am a little bit pessimistic about it because once people start to become more radical, and then the only way to become part of the in-crowd is to one-up the other, right? Like, hey, I am even more radical than you, right? If that becomes kind of like your score, that, hey, you're going to rise up the ranks

by showing how radical you are, that's not a healthy sign. And I think I really hope that the Bitcoin community can break out of that bubble and return to the more truth-seeking, open-minded, mission-driven type of values that we use to add more. One thing that I will say is I've noticed a lot of, for the first time in a couple years, a lot of new voices start to percolate who are trying to claim Bitcoin for their community in a way that hasn't, that they view as underrepresented. So a lot of progressive bitcoinsers, a lot of LGBTQ bitcoinsers who are kind of unwilling,

they're seeing the same thing that you're describing, but they're saying, fuck it, I'm going to do this anyways. And I'm going to be a Bitcoin or whether you say I can be or not. not. Not that I think most Bitcoiners would say that those people don't have a seat at the table, but I think it's a positive thing. Part of what makes Bitcoin great is its permissionlessness, right? The flip side is the positivity of seeing people not being willing to let any calcification of the Bitcoin community be for them. So we'll see what happens. For sure. For sure. I'm 100% agree with that. Yeah. So let's flip the question, though. And I almost started to,

but what's something you're optimistic for next year? I do think that I am, very optimistic of the young entrepreneurs or entering the industry and the kind of capital support that they're getting, it's fascinating, right? Like, it feels so powerful when people who are currently working at, you know, the Googles and Facebooks all the world who come back and tell you that crypto and Web 3 is like the hottest topic. All the engineers are intrigued by it. They're planning their exits. They would jump at opportunities at crypto startups. And I think that's like such an amazing sign. And I'm very, very optimistic about that. What is, as we round out this conversation, one prediction you have for next year? I think that we will continue to see more successful

independent blockchains appear. Like, I don't, we are still in a growing market. Like, I'm basically predicting against consolidation. I don't think more consolidation is going to happen in the next year. if anything, we'll actually see more high-quality projects emerge, and there will be more progress towards a multi-chain world than consolidation towards any single chain. I can't wait to see how it all plays out. Muneb, awesome to have you here, as always. Appreciate the time and looking forward to seeing what you do in the new year as well.

Awesome. Thanks so much. Always fun to be back here. So what do you think, guys? Are smart contracts on Bitcoin the future and have T's on Bitcoin? Bitcoin, defy on Bitcoin, is this where we're headed? Definitely going to be super interesting to see how this plays out and how entrepreneurs pick up the ball and run with it. I want to thank Munib again for joining the show today. And until tomorrow, be safe and take care of each other.

Peace.