The Breakdown - Why Post Malone Is Against CBDCs

Episode Date: August 11, 2023

On today's week catch up: Post Malone and Rogan discuss CBDCs; SEC to appeal Ripple and more. Enjoying this content? SUBSCRIBE to the Podcast: https://pod.link/1438693620 Watch on YouTube: https://www.youtube.com/nathanielwhittemorecrypto Subscribeto the newsletter: https://breakdown.beehiiv.com/ Join the discussion: https://discord.gg/VrKRrfKCz8 Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW

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. What's going on, guys? It is Friday, August 11th. And today we are talking about everything from an SEC appeal to post-Malone discussing CBDCs. Before we get into that, however, if you are enjoying the breakdown, please go subscribe to it. Give it a rating, give it a review, or if you want to dive deeper into the conversation, come join us on the Breakers Discord. You can find a link at the show notes or go to bit.ly slash breakdown pod. All right, friends, well, at the end of this week, I got called away for some urgent, very quick

travel, and so I've had to scramble my schedule a little bit. Given that, you can kind of think of today's episode as a little bit of what the weekly recap normally does, doing a sort of grab bag show of a bunch of things we haven't had a chance to talk about yet. And tomorrow, I'm doing sort of a hybrid of Long Read Sunday and a weekly recap, where I read a couple essays that I think were about the most important things that happened this week. Then Sunday you get a throwback Long Read Sunday that is really fun. And anyways, all of this is my way of not having to deny you shows as I traveled. So with that, let's get into this grab

bag and where we're going to kick off is with the SEC and Ripple. The SEC has indicated to the court that they will seek to appeal last month's ripple decision. If they are allowed to proceed, the regulator will ask the court's permission to appeal the parts of the decision which went against them. In a letter to the court, the SEC indicated that it would appeal, quote, the courts holding that defendant's programmatic offers and sales to XRP buyers over crypto asset trading platforms, and Ripple's other distributions in exchange for labor and services did not involve the offer or sale of securities under the Howie test. Now, of course, you'll remember that last month's decision found that direct sales of XRP tokens to institutional investors violated securities law,

while sales to retail investors through exchanges did not. This is obviously a major significant moment when it comes to the question of whether tokens or securities or not. It's so significant, in fact, that some congressmen have suggested that the notion at the core of the decision, which is that tokens can be offered in a sale that constitutes a securities offering, but that that doesn't necessarily make the tokens themselves securities, should be named after the judge who made that doctrine, i.e. the Torres doctrine. Anyways, the point is, this was a big deal. The SEC are requesting what's known as an interlocutory appeal.

That's an appeal that occurs over a decision partway through a legal case before it is fully decided. The regulator claimed that dealing with the appeal at this stage could save the court from dealing with two separate trials in the future. The SEC proposed that they could file a brief outlining the appeal in more detail by next Friday. Ripple has the right to respond to this letter and will similarly be able to respond to a full brief. Now separately, the judge has laid out directions for Ripple and the SEC to schedule a trial date in Q2 of next year. The trial will deal with the outstanding matters from last month's order, specifically the allegation that Ripple executives aided and abetted the company in breaching security.

law. This trial will not reopen any of the issues that were already decided last month. The SEC is expected to ask for the trial to be postponed until the appeal is dealt with if they are successful in their application. Now, Bloomberg's senior litigation analyst, Elliot Z. Stein, gave a little bit of context about what happens next. Stein wrote, Defendants have until August 16th to respond. Remember that both Judge Torres and then the second court have to allow an interlocutory appeal before it can actually happen. That of course brings up the question, will it actually happen? paradigm policy director Justin Slaughter says he thinks yes. He tweeted, I doubt the judge rejects it.

It's odd they waited until the trial schedule to appear, which is why I thought no interlocutory appeal was coming, but that likely won't prevent Judge Torres from granting the appeal request. Former lawyer Scott Chamberlain thinks the opposite. He writes, my bet, Judge Torres denies the request. She studiously avoided new law. She found the token is not the security, accepted the SEC's characterization of the transaction buckets to be analyzed, and simply applied Howie and its progeny to the SEC's chosen buckets. SEC failed because the undisputed facts didn't support all the Howie prongs for two of its three chosen transaction buckets, not because Judge Torres shifted the legal goalposts

on the definition of those prongs. So next up, we're waiting to see if Judge Torres grants this request. Next up, Representative Maxine blow a kiss to SBF Waters is apparently concerned about Pi USD. On Wednesday, Representative Waters released a statement regarding the PayPal Stablecoin announcement. She wrote that she was, quote, deeply concerned that PayPal has chosen to launch its own stablecoin, while there is still no federal framework for regulation, oversight, and enforcement of these assets.

End quote. PayPal instead, of course, chose to launch the stable coin under the regulatory framework and supervision of New York State. Waters implied that the state regulation is inadequate compared to as-yet hypothetical federal regulations. She wrote that, quote, given PayPal size and reach, federal oversight and enforcement of its stable coin operations is essential in order to guarantee consumer protections and alleviate financial stability concerns. Now, Waters is, of course, the ranking Democrat member of the House Financial Services Committee and has been in charge of negotiating Stablecoin legislation over the past 15 months.

The Republican-sponsored Stablecoin bill was finally passed by the committee during a tense hearing last month. In that meeting, Waters voted against the bill, but several younger Democrats defected from their party line to vote with a Republican majority. The Stablecoin legislation is now eligible to be introduced for a vote on the House floor. Water's key issue with state regulation is that it removes the Fed as the final arbiter on stablecoins. During debates around the stable coin legislation, she had said, the Republican bill undermines the Fed's role as our central bank, making it harder to protect the economy against inflation or support maximum employment if stable coins are broadly adopted. Now, of course, Republican

Committee Chairman Patrick McHenry does not share Waters' concern that putting dollars on a blockchain will threaten to collapse the power of the strongest central bank in the world. On Monday, he remarked on the PayPal announcement by saying, this announcement is a clear signal that stable coins, if issued under a clear regulatory framework, hold promise as a pillar of our 21st century payment system. In her statement, Waters also suggested the Republican bill had slim chances in the Democrat controlled Senate urged Republicans to, quote, come back to the negotiating table to craft a bill that actually works. Now, Twitter response on this was about what you would expect. Castle Island Ventures partner Matt Walsh said, Maxine Waters is, quote, deeply concerned that PayPal chose the

NYDFS path versus the federal path. Federal path for issuing a stable coin literally doesn't exist. What planet are we on? Austin Campbell tweeted, Politician blocking federal legislation concerned company did not file for federal license that doesn't exist because of said politician blocking legislation. You don't get to burn someone's house down and then call it a fire hazard. Next up, crypto infrastructure firm fireblocks have disclosed a set of vulnerabilities which they are referring to as BitForge, impacting a number of popular crypto wallets. The vulnerable wallets use multi-party computation or MPC technology, which is typically used in advanced user-facing and custodial applications. Fireblocks are

classifying BitForge as a zero-day vulnerability, meaning that it hasn't been discovered by the developers of the affected software or hackers in the wild. Coinbase, Zengo, and Binance have all collaborated with Fireblocks to fix the vulnerability within their custody systems. What's more, Fireblocks have said they reached out to other teams that might be impacted in accordance with a 90-day responsible disclosure process. The biggest worry is that this vulnerability was found in MPC wallets, which are intended to be some of the most safe wallet designs in the world. Fireblock said in a statement that, quote, if left unremediated, the exposures would allow attackers and malicious insiders to drain funds from the wallets of millions of retail and institutional customers in

seconds, with no knowledge to the user or vendor. Fireblocks characterized an attack exploiting the vulnerabilities would have been practical. They highlighted that the complexity of the vulnerability meant it was highly unlikely that a bad actor would have discovered the issue in advance of Wednesday's disclosure. Now, MPC wallets add an extra layer of security by re-encrypting a private key and splitting it into multiple parts to be stored across multiple devices. The intention is that no single trusted device can access the crypto wallet without assistance from additional trusted parties. The BitForge vulnerabilities would have, quote, allowed a hacker to extract the full private key if they were able to compromise

only one device, which of course would have undermined the entire multi-party security design. Now, overall the whole process seems to have been a win, at least in the sense that this was discovered before it was exploited. Still, it's just a reminder that even when it comes to self-custody, things are scary out there. Now let's close with a little bit of a whistle-stop tour in the world of CBDCs. In the UK, the Bank of England has set up an advisory group for its central bank digital currency as it enters the design phase of the project. The British CBDC, which is still not officially referred to as brick coin, will be designed with help from a panel of experts across finance, economics, business, and more. The BOE said of the academic advisory group, quote,

group we seek to generate expert academic input and promote interdisciplinary discussion on a range of topics related to retail CBDC. In February, a consultation was conducted on the digital pound which concluded in June. The BOE plans to run its own experimentation and design phase over the next two years, according to people familiar with the matter. The BOE will also be recruiting members for its CBDC Engagement Forum, which was set up to help it, quote, understand the practical challenges of designing, implementing, and operating a CBDC. The Central Bank has also begun to ask stakeholders for information on use case examples for offline payment and merchant needs surrounding the design of the digital pound. No word yet on whether the Orwell estate will be

consulted on the CBDC design. Moving over to Russia, that country will enter a new stage of its CBDC program next week with real-world testing across 13 banks. A law authorizing the issuance of the digital ruble was signed into law last month, while the Russian central bank's testing and design process has been ongoing for over a year. In Wednesday's announcement, the central Bank said, quote, the launch of pilot operations with real digital rubles is the most important stage of the project. This will allow us to test the operation of the digital rubble platform already in an industrial environment, work out all the necessary procedures with the involvement of clients, adjust processes if necessary, and make sure that the client path is convenient

and understandable for users. The deputy governor of the central bank said that citizens should be able to access the digital ruble from 2025 on. During this pilot phase, 13 banks will test the digital rubble with a select group of their clients. The test investing will focus on digital wallets, peer-to-peer transactions, purchases of goods and services using QR codes, and simple automated payments. The central bank announcement said, pilot participants will be able to pay with digital rubles at 30 retail outlets located in 11 Russian cities. Now, lastly today, both on CBDCs and in general for our show, Popstar Post Malone spoke extensively about what he saw as the dangers of a US CBDC in an appearance

on the Joe Rogan podcast this week. Now, rather than me summing it up, let's just listen to a clip from that exchange. Apologies in advance and listener beware for the colorful language. I decided it made more sense to leave it and warn you than to censor Joe and Posty. So how do you feel about the government's digital currency that they're going to? No fucking way. No way. That's what I think.

I think that's checkmate. That's game over. That is fucking checkmate. Because if they apply that to a social credit score, if they decide somehow or another that you need some social credit score system, It's for the benefit of society and they outline that they can you know track your behavior and your tweets and all your things and you get a A score and if you're already doing that they they just haven't released a fucking report cards Well they haven't they haven't they haven't sent the report cards home to the parents yet Right it's already it's everything is already imprinted everything is already tracked everything is already there

But they just haven't given a they just can't control you to the same extent that they would like and what they would like and what they would like to do is to be able to strip you of your money and to be able to lock you down and then make sure that you comply so that all the other people also comply because they don't want to be stripped of their money they don't want everything they work for just be taking away instantly overnight and be powerless no one to call no one's gonna answer your phone they just decided you fucked up and the rules of the rules and so then where does that money go who takes your money who takes and that that's what thing when people start profiting off of confiscating people's digital currency is It's going to be a real fucking problem. Well, people, it's not all fucking currency is digital. Yeah, but the idea of them controlling all of the money. And it's all unilateral. It's all the same fucking thing. It's all the same fucking thing.

That's a problem. And here's the, here's the problem I think, is that people are going to do it due to convenience of it. Yeah. Now, one strain of commentary that I saw around this was Bitcoiners being flustered. that neither of these guys mentioned Bitcoin. And while I understand where they're coming from, boy, is that the wrong takeaway from this?

Post Malone has 31 million followers across Twitter and Instagram. He's one of the biggest musicians in the world, full stop. Rogan gets 11 million listeners per episode, on average, even when it's not a huge celebrity. I think in a lot of ways, this conversation about the concerns that come with the Central Bank digital currency is going to resonate a hell of a lot more for a lot of people, given that there wasn't some specific coin solution being shilled.

Now, of course, for us Bitcoiners, we know we have a preferred alternative. But you have to think, if we're playing the long game, having people be bought into the fact that there might be a problem here is much more important than forcing them to adopt a preferred solution right away. So to the extent one cares about this set of issues, I think this was a pretty seminal pop culture moment, even if Orange Coin wasn't on set. Anyways, guys, that is going to do it for today's episode.

I appreciate you listening as always. Until tomorrow, be safe and take care of each other. Peace.