The Pomp Podcast - Dovey Wan, Founding Partner at Primitive Ventures: Whats Really Going On with Crypto in China

Episode Date: November 12, 2019

Dovey Wan is the Founding Partner at Primitive Ventures. In this conversation, Dovey and Anthony Pompliano discuss the current crypto ecosystem in Asia, how most Westerners are misinformed about the landscape in China, what's happening on the ground in the country, and why Dovey created a holding company instead of a fund for Primitive. BLOCKFI-----BlockFi allows you to keep your crypto, put it up as collateral, and receive a USD loan funded directly to your bank account. They do loans ranging from $2,000 to $10,000,000, and they're perfect for helping you reach your financial goals of all sizes. Visit BlockFi.com/Pomp to learn more about putting your crypto to work without having to sell it. CRYPTO.COM-----Crypto.com is a pioneering payment and cryptocurrency platform that seeks to accelerate the world's transition to cryptocurrency. With the vision of "cryptocurrency in every wallet", the Crypto.com App offers a full range of financial products with competitive pricing, well designed UX and high security. It is the best place to buy, sell and pay with crypto. COINMINE-----The Coinmine One is like an Xbox that turns your electricity into Bitcoin. You just plug it in, connect to wifi, and tap on the crypto you want. It’s so easy anyone can do it. Everything is controlled from the Coinmine mobile app and the Coinmine keeps getting better with over the air updates that add new coins, features and services to your Coinmine. Visit coinmine.com/pomp to get a Coinmine and earn crypto for powering a new world. ETORO-----This episode of Off the Chain is sponsored by eToro, the smartest crypto trading platform, and one of the largest in the world. Join 11 million other traders and create an account at etoro.com and build your crypto portfolio the smart way.

What's up, everyone? This is Anthony Pompliano. Most of you know me as Pomp. You're listening to Off The Chain, simply the best podcast in crypto. Let's kick this thing off. Dovey Wan is the founding partner at Primitive Ventures. In this conversation, we discuss the current crypto ecosystem in Asia, how most Westerners are misinformed about the landscape in China, what is happening on the ground in the country, and why Dovey created a holding company instead of a fund for Primitive. I really enjoyed this conversation, and I hope you do as well. Want to know who has the best URL? Crypto.com. That's right, Crypto.com. They're a crypto platform with one goal, motherf***ing mass adoption. That's why we're all here. We're trying to get crypto in every wallet. Crypto.com is helping people do that through buying, earning, lending, and card payment. Everything you could want at Crypto.com. Go help your boy

out. Tell him Pomp sent you. Download the app or visit Crypto.com. Pomp's got you, always. Ever wanted to get into mining and didn't know how? Don't worry, your boy Pomp's got you. Everybody got some electricity and Wi-Fi. All you got to do is go to Coinmine.com. You buy a Coinmine. It's like an Xbox or a PlayStation that helps you turn your electricity into Bitcoin. That's right. You purchase it. It shows up at your doorstep. You pull it out of the box.

You plug it in, connect to your Wi-Fi. Five minutes or less, you're mining Bitcoin. All you have to do is control it from the mobile app they provide, and then you receive over-the-air updates that add new coins and new features on a consistent basis. Kind of like how Tesla does over-the-air updates and updates the car software. Just you're updating your CoinMine. Consumer mining made easy. That's right.

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Anthony Pompliano is a partner at Morgan Creek Digital. All opinions expressed by Pomp or his guests on this podcast are solely their opinions and do not reflect the opinions of Morgan Creek Digital or Morgan Creek Capital Management. You should not treat any opinion expressed by Pomp as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his opinion. This podcast is for informational purposes only. all right guys bang bang i'm here with w we are in san francisco uh thanks so much for taking the

time to do this thank you pom all right uh i have come to learn about all things crypto in china from uh from the expert uh let's start with uh with your background you had a life before uh bitcoin and crypto what uh what'd you do yeah so um so i was born and raised back in china and um So I did my undergrad there and in like software engineering. And my dad is also the first generation computers, just like software engineers and back in China. Yeah, so like when I was 20, so I moved to US in Pittsburgh and I did my master in Carnegie Mellon in information system management. And like afterwards, and I moved to Bay Area and I spent about four years at eBay as a engineer, a product manager. So that was about 2012.

So I was doing this marketplace-compatible analysis. That's when I learned about Silk Road. Okay, so let me get this straight. So you were getting your master's at Carnegie Mellon. You move out to eBay. And while you're doing the marketplace analysis at eBay, you discover Silk Road. Yeah. Jesus.

It's a competitive analysis because back then Silk Road is considered as a really bad example of the marketplace. on how like no regulation and no internal policy can actually you know facilitate all these like just like criminal transaction things like that and so like that's when i learned about suitro and when i learned about bitcoin and so like when the first thing i learned about bitcoin because i realized how powerful this you know like native like uh native internet currency can facilitate take global liquidity um because i when i so when i was doing my master um so like the private school tuition here is not cheap and and and so my mom basically and then so like it's the same for like all these i um oversee chinese students actually so because we all have to get the money out so

from renminbi so like to the local chinese currency and then into us dollar right how do people normally do that yeah and so uh like the tricky part is and then every individual can only transfer up to 50 000 us dollar every year okay so 50 000 limit to transfer out of china every year per individual exactly so like there's a cap right and so like the cap right now is even more limited but like back then was like 50 so like back then was 50 uh 50 us dollar and so basically like 50 thousand dollar can only cover like tuition and then so my mom has to ask the other relatives and then use their like per capita like use part of their cap yeah exactly yeah so so like basically like that things becoming more

and more difficult and and and so like that's when I realized holy shit so if I can use Bitcoin actually to like transfer all this and just like pop this like value transfer and just like currency remittance and then so there be much easier and it's just not for me and it's basically for all these are obviously chinese um and yeah so like that's how i got into crypto and then the other very interesting like coincidence um like one of the co-founders of uh definitely and let's stream lab like tom dean and so he works at ebay as well and we were actually product manager like peers and so like he taught a lot about crypto and we exchanged a lot of ideas about um just generically about

native like internet economy right so because if you consider what is the core thing to build a good marketplace is the trust it is all this protocol but it's all like top down right traditionally we have only three business model for consumer internet marketplace advertising and subscription slash like virtual goods right and then all this actually requires that data monopoly like which means you want to acquire more data and like close source and then so like further on so you will build better protocol and then better like like targeting mechanics and etc uh based on the monopoly of your data right and so that's when we talk a lot about what is open economy looks like uh and and like fast forward and uh i quit ebay in 2015 and and then so i joined a local

vc firm and like just a generic vc firm here so here in bay area um so i cover anything on marketplace fintech and um like like like crypto used on the fintech so because that 2014 2015 is everything about blockchain but not bitcoin right so it's all about this like enterprise blockchain service company and it's no different than so than like any SaaS business right so it's actually all SaaS right people building this like it's it's just it's just a database management yeah so it's basically just like a database management technology right and and then so that's what we consider like blockchain back then and so have been looking into this space and and like actually like Streamlabs is my first and just the model company of

definity so that was my first investment as like a vc okay so because that's like tom's company and so i know tom from my ebay time and then so he quit before i did and and then so when i quit ebay and then joined a vc firm and like his company is my first investment and then so it turned out to be a blockchain slash like crypto company yeah yeah absolutely and so when you first saw bitcoin you saw the use case with uh getting money out of china and kind of the the lack of censorship etc that was interesting so it is not about censorship it's just about efficiency efficiency okay so it's just efficiency and it's low cost and it's like instant and so it's not about censorship because that we are still be able to get money out so it's just a lot of hassle and

a lot of overhead and it just doesn't so it just doesn't like it's harder yeah yeah and and when you see that uh and you see silk road was it something internally at ebay you guys like wow silk road is really interesting and like that is uh gonna eventually become a competitor to ebay or was it the exact opposite we're like that's exactly the opposite that's exactly what is wrong yeah yeah right yeah exactly so it's such a bad example so we consider that as a really bad like case study for how things can go wrong uh and then so it eventually you know like like like went wrong as well and but but but i think regardless of like what the upper layer application is and like the underlying like the underlying currency and just like the median like the median

of a change so like it's actually like so it's actually like what excites me the most so that is bitcoin and then what and then any other native cryptocurrency out there um and then like fast forward and um uh so i remember that was in 2016 like like like the second half of like 2016 and and then um uh like zcash right and and so i so i have been looking into zcash for so for like a long time and uh i remember like i think september or like october 2016 and so that's when they launched and and and then um so i brought this up to my former firm saying like we should invest in this because like what really excites me about Zcash is that before Zcash and there's so many other color coins right and like pure coin name coin whatever and those are all feature specific

coin right like Zcash is actually the first like uh feature agnostic but orthogonal enough comparing with Bitcoin because Bitcoin still has this fungibility problem um etc and and like Zcash is definitely one of the kind yeah and so I brought this up to my firm and so there's a concern about regulatory etc etc privacy yeah so so so we we didn't end up investing but I but but like because of that and so becoming really good friend with like Zico and then so like that's also when I met like Eric yeah so who is my current co-founder of primitive ventures and so today you and Eric, our co-founders of Primitive. What is Primitive and what is your guys' focus?

Yeah, sure. So Primitive is actually not a typical fund or VC. We are a global crypto asset holding company and we basically do everything out of our own balance sheet. So that's why it makes us extremely flexible and we can do direct investment and we can do mining operation. We can basically incubate other projects or like company and speeding out and we don't have um like type of asset like restriction on like what we can invest on and so you can consider us as a um just like all-in-one platform and yeah so like that is primitive and we have office here in san francisco in boston um like eric spends like most of his time in like east coast boston and like nyc and so i spend um half of my time in u.s and then like the other half in

um asia um yeah and and and so we also have our in-house engineers and like doing like like different research and trying out different new ideas and like for instance so you might heard of the game um satoshi treasure is what's considered as a ready player one like crypto version like ready play one it's a global scale uh like crypto asset treasure hunt yeah so you guys created satoshi treasure which literally is the idea that there's keys hidden all over the world and then you guys on a periodic basis release uh like the puzzle like yeah like basically hints yeah people can take those hints and try to figure out where the keys are and the part to me about satoshi treasure that's so interesting is i don't have to play by myself like i can actually team up

with you because you have a key i have one key right then we go get five other people and we build teams yeah and then now you're playing this global treasure hunt that is specifically built on teamwork and collaboration and then if our team ends up unlocking uh if we get access to how much bitcoin uh so it's basically like a million dollar worth of bitcoin okay and then also we got another a million from my kids foundation okay so there's two million dollars worth of bitcoin that's up for stake how many keys do i need to actually get uh the win yeah so like this is actually the beauty of like cryptocurrency and um when we have this at private key and it is not just a single key and so we use this shamir secret sharing scheme and then basically split so basically

split this single private key into a thousand key shards okay so there's a thousand shards of this one private key yeah and then the other thing is in order to win the whole pot and then so you need to get up to 400 keys okay so i need 400 of the thousand in order to be able to get the pot Yep. How many does the most successful team have so far? So, so far we have released seven or eight. And so, like, seven or eight, like, just puzzles. And then so there are also, like, two different kinds of the keys.

One is the generic key. Like, basically you and I can get the same key. And then so it's basically, like, duplicable, right? And then the other one, so the other type is going to be the unique key. And basically, if I have one unique key, you can't get it. Yep, yep, yep, right. And so I didn't look into the recent stats, but I think most of the teams right now,

they're pretty much on parity. And so they all got this, you know, so they all got this, so just a generic keys out there. And then there are different team formation across the world. And because this actually requires global collaboration, right? Because sometimes the key can be in Tokyo, can be in Beijing, can be in, you know, San Francisco. And then, like, the key itself is actually a QR code. Like, the interesting thing about a QR code is it can be hidden into anywhere.

It's not just physical place. It can be hidden in website. It can be hidden into, you know, like, the background of a music video, like, things like that. um so like there's a lot of like different medium that we can actually hide the key sharp got it okay and so as you continue what is the goal of the game right obviously that somebody's gonna win this two million dollars with the bitcoin but like why did you guys start satoshi so like so because when we start like satoshi treasure like so because like we have been thinking like what can drive like massive adoption right like the current key feature of crypto we have to admit

that like even though we have been saying okay it's that sovereign resistance whatever blah blah blah but we have to admit that the current most active users of crypto are traders right so the biggest use case right now is speculation and trading yeah so like exchanges have most of the users like like exchanges have the best idea you right and but like if we even look at exchanges uh like the biggest exchanges like the retail exchanges out there like binance and then so might have like so their DAU probably anywhere from like 50,000 to like like to a hundred so to a hundred thousand at like so during like current market climate and so most of the others are on the lower end of let's say like 50,000 right and so it's tiny so it's a tiny small DAU

like this scale of like you should be like so just comparing with any internet scale like product right and then so when we think about what can drive like mass adoption and then we think about what are the young people like to do and then so what can actually like unite the other community right and uh and so if we think about the current crypto games out there they're actually not crypto game so they're just they're games that have crypto incorporated as a payment or whatever right so it's not crypto native right and uh and then so that's why we think about what can be crypto native and then so we can so like what can a specific like like gamification mechanism is fun is playful and then can also advocate users like to learn about crypto if you want to play the

treasure hunt so so if you want to play such a treasure you have to learn like what is the key what is private key what is public key and how to use the wallet and then like most important thing is proof of work right you have to spend actual work like to get a key like we human like like we only like care about our own investment yep our time effort money whatever so when you have your investment and actual work into a specific thing and when you unlock the achievement and then like the feeling will be completely different than any random airdrop yep yeah yeah yeah it's the whole adage that like the things that you work for you treasure the most right and so if i just give you something for free then it's just well it had zero cost basis for me so if it works yeah

there's no sound cost like there's no opportunity cost basically this is treasure if you want to play it and then so people all want to win the prize because it says so it's a significant enough of the money and but that require proof of work and also what's interesting about this is we also mimic the difficulty adjustment because like the more people played about it and then the more competitive it will be and then the more difficult like the puzzle gonna be and then so this like difficulty adjustment is also what would mimic from the actual proof-of-work consensus algorithm and then also because it's like a like a massive like global collaboration scheme right and

then so that is also what like Bitcoin like offers us right yeah like so it's like a trustless so it's like oh so like talking about this like the trustless element of this game is also so interesting uh because i previously uh if i want to join your team right and then so you also want to make sure like say for instance uh like once we get to the point that okay a team have like 398 keys and i have like 201 like unique key and then so we might want to like joining forces and then like to win the pot right and then but the thing is that how like because i cannot show you the qr code because like you can easily just like duplicate that right and then so there will be an interesting like zk layer on top of that and then how we can so how i can prove to

you that i have the key without reviewing the actual qr code so that's a very interesting like cryptography problem that we are currently working on with many other researchers out there and like engineers and and then like it's the whole idea that like gaming can drive innovation the same way that like say race cars drive innovation in the automobile industry right it's the competition is something where everyone is trying to win something there's a prize right and so you're incentivizing innovation through competition yeah same thing with gaming yeah and then like also like the game itself has drive a lot of people from arg community just alternative reality community and then people who have played uh pokemon go people who have played

like ingress like just launched by nyan did right and um and also we are currently collaborating with many universities out there and just a college kids like so they love this type of like gameplay and and then so so they're so they are super into crypto and then also you know scavenger hunt is something that had been doing like since like very young and so they're very familiar with uh like the rules and and just like uh like the policy out there so um so i think it's a perfect like hybrid of both being like crypto native and as well as um just like uh massively and just like like average people can easily get on board of this yep uh let's talk asia and china Yeah. You spend a good portion in China. You were born in China. You speak Chinese, which is helpful.

Both Mandarin and Cantonese. Okay. So you speak both. What is going on in China with Bitcoin and crypto? We just saw that the president obviously had a bunch of pretty bullish statements. But from your perspective, what's going on there? Yep. Okay. So first of all, and I think it might be helpful to give just a macro background. So China has been on this 10% GDP growth for the last 30 years, which means the living standard doubled every seven years, which is insane. Pretty credible.

Yeah. Yeah. Right. It's like a miracle. And also China's governments, they're really good at top-down planning, and they're really good at infrastructure building. So building railway, building high speed roads, and building all these skyscrapers, et cetera. And the Chinese economy has been developing from early days on tech cell, low-end manufacturing industry, and then now probably more into consumer electronics.

But what's the next? Because the economic growth has been slowing down. And the government, they actually need to have another top-down planning on what is the next thing to focus on. And what can further drive this economic engine. right so i think the emphasis and promotion of blockchain is actually no different than like ai and like 5g so ai and 5g has been a huge emphasis for the last like five years right and that's also what's considered as a technological infrastructure yeah basically they're doing the top-down plan that you're describing where they're saying okay the future

is going to look different than the past we need to be the leaders in certain categories of technology or aspects of development one of those is ai we want to be a leader one of them is 5g we want to be a leader another one is going to be blockchain we want to be a leader right and they're doing it uh in many cases ai and 5g they've done it before most other countries have either recognized this important or two made a national commitment to it and blockchain it looks like same thing's happening where they're realizing early this is going to be important let's make national commitment and because of the structure of the country when it comes top down then everyone mobilizes to make it reality right exactly um so like if you look at how fast that ai and 5g has

been developed in like local china crazy yeah and then so you won't be surprised in about i would say three to five years and then a lot of things gonna be on this like blockchain rail and like blockchain infrastructure um so i think like when so for most of the western audience here just like this is a very typical china thing to be honest and also it's not the first time that presidency uh publicly promote blockchain okay when was the first time the first time okay the first time is at a science specific conference it's like a nationalized sign it's so it's like a science conference yeah so it so um so i remember it was back in 2017 or like 2018 so like the chinese government has always been pro blockchain so like this time uh so like this time is definitely

different because it elevate the priority of watching as a um so as a neutral technology to the same level of ai and um uh and so to ai yeah so basically what uh the president said was one it's important two we want to be a national leader three the idea that it's neutral right it's not good

or bad it's just technology yeah it's like the neutral technology and really what I extrapolate out from AI 5G

blockchain etc that emphasis of top down is they believe that China can become a greater

superpower in the world if they are leaders in these technologies because it'll help drive innovation it'll drive economic activity

it'll drive GDP and you get all these benefits from being a leader in that space right is that fair to say yeah so i think they're like so if we think about what is like the real intent right and so there will be twofold uh uh specifically about blockchain so like the like the domestic

like so is that domestically and um so domestically in china has been on this um huge problem of shadow banking business and so explain that problem the shadow bank so the shadow banking is um right now over 10 trillion of banking asset is actually outside the visibility of like pboc okay so the people's bank of china has visibility to majority of the assets in china but there's 10 trillion dollars it's like 10 trillion basically outside of their purview yeah so so so like which means that 30 percent of the empty money supply so it's as 30 percent close to 30 percent of the m2 monetary supply is from this 30 percent of m2 monetary supply is outside of the pboc's purview so where if it's outside of the pboc's purview where is it um it's all from this is this like

private banks or no so so it's like a lot of this like financial institution or just like peer-to-peer lending company and like uh micro lending company and then even the other wealth management companies selling your just like selling individual high yield products and then So these are all shallow banking, yeah. And because it will actually inflate the empty monetary supply. And all these are outside, like just like the control of like PBOC, right?

And so that's why like the blockchain, like the biggest purpose, like the most, so like the most important task of this like blockchain promotion, in my personal opinion, is actually mentally, financially, structurally prepared for the upcoming digital remedy. And that's the DCEP thing.

So let's talk about this. So, well, before we talk about DCEP, let's talk about China and Bitcoin, right? So China has been very pro-blockchain, obviously, President's comments, etc. Bitcoin has not been so well accepted, right? There's been, at least from the Western point of view, there's been banning of Bitcoin trading. There's been banning of exchanges. There's even been reports that there's been banning of ICOs, right? All this kind of stuff.

What's actually going on? Like, how does the Chinese government look at Bitcoin specifically? Yeah, so I think, so like, first of all, there's no banning on Bitcoin, like per se. Like, I can still hold Bitcoin. Yep. So I can occasionally buy Bitcoin, like through PO2P, through PO2P OTC. And then it's kind of like a gray area, like if I trade heavily, and then what is that? Like, what does that mean?

like what has been banned is all this facilitator and then liquidity platform of cryptocurrency not specific to so not specific to bitcoin and also what has been banned like officially is the privately issued token basically is ico okay so they banned icos and they banned the centralized exchanges uh yes okay so okay the ban is um whenever there's like a top-down policy like that and the private sector will always have way to navigate through okay so even though so so i think that that's why a lot of like westerner like don't understand how to do business like back in china so there's a lot of room to be flexible and then to be just you know like so to be sneaky around it there's a separation between the policy and the enforcement yeah right it's basically the

difference yeah and the uh it's very similar to here in the u.s right the the example i i used recently with somebody from China was they were explaining to me the policy is set but it's not always enforced in certain jurisdictions enforce it some don't and so you got to kind of understand the local politics if you will that's very similar to here in the U.S. take marijuana for example in some country in some counties or states it is illegal at the federal level and they heavily enforce those laws so they will arrest people for minor possession etc but then there are some places at the state level like Colorado for example that has said no we are going to legalize this at the state level and not enforce the federal law so i think there's a fundamental

difference here is that u.s government or like u.s that regulation has always this flexibility between the federal level and like the state level right when so just when it comes to china like everything is actually federal level yeah everything is the federal so like this like at the state level ideally so they should follow the policy and they should follow the regulation but the thing is that China so back in China things are managed by people but not by law there's always like people over the law and there's always people over the like the regulation and even the regulation itself is not definite regulation so like like nothing is that deterministic right and then so the regulation itself is kind of like premature like many of

them so there's always this loophole then like you can try right say for instance um uh like like but the ban on centralized exchanges but hobby and okay and gate.io and they're still happily operating in like mainland china and even growing really fast and then so then why right um so there's a lot of like reason behind it like say for instance like right after the 2017 like ico slash exchanges ban and who'll be okay and then all the other remaining exchanges that who didn't shut down so they all reincorporated as like a foreign entity but the operating entity are still back in china right and then from that perspective and then plus they have good relationship with the regulator and they have all this like you know cover up and like so and then local endorsement

things like that so they can still grow and like operate and so like that's why doing business in china you have to manage a lot of uncertainty because even the regulation like things should be set like it can be fluid yeah and then there's always this like room pretty fuzzy thing and like okay so so that's bitcoin specifically what is the chinese um kind of thoughts around one of the big knocks against bitcoin right from detractors is that uh the chinese control all of the mining right like bitcoin's controlled by china um and i think a lot of it has to do with the mining pools less so from mining itself like uh so i would say mining itself as well so both pool and mining okay like the local farms basically like where the machine like so chinese miners like

basically like the hash power like what like like you said who the hash power belongs to yep and like conservatively so conservatively i would say 60 so 60 to 70 percent of the hash power are belongs to people in chinese yeah in china yeah got it skirt skirt want to know who has the best url crypto.com that's right crypto.com they're a crypto platform with one goal motherf***** mass adoption that's why we're all here we're trying to get crypto in every wallet Crypto.com is helping people do that through buying, earning, lending, and card payment. Everything you could want at Crypto.com. Go help your boy out.

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If the Chinese government is saying, we want to embrace blockchain technology. We're not so excited about the Bitcoin thing, but it's there. And now they're talking about DCEP, which is the Digital Currency Electronic Payment System, or a digital renminbi. Talk a little bit about, from your perspective, what they're doing, why they're doing it, and how this is going to get rolled out. Yeah, so before we get on to that, one thing I want to add about the Bitcoin thing is, right now, local Chinese can still buy Bitcoin easily. Because China has a really good Bitcoin supply. Right. Like 70% of the Bitcoin production is at Bank of China. So local Chinese have no problem buying Bitcoin.

They don't even go through like local, so just like local Bitcoin. Where do they buy it? So all this OTC. So there's a very... There's like somebody in their local town who's doing OTC transactions. Yeah. So it's a super established like OTC network. Like over WeChat or Weibo or something? So it's all over, so basically because China is already cashless, so it's very easy to transact any like cash equivalent, like just like deals, right?

And so Huobi, OK, and Gate, all these local, so all the local exchanges, they have this centralized portal for like information matchmaking. So I can always like go up there and then like check like who's like selling or buying Bitcoin. Got it. And then we can just connect over WeChat and whatever, and then transact the fiat on-ramp over WeChat or even banking wire. And so that's not a problem. So the Bitcoin local liquidity is extremely good back in China. So there's no problem of like Chinese cannot get on to Bitcoin. Okay.

So that is actually a prerequisite for the digital renminbi. Yep. Because if you think about if you want to rock any digital like US dollar here in US, people are still holding this US dollar bill, right? So there's still like a ton of transactions that happen on physical dollars. The Chinese population has been trained and has created a habit around digital money already. They're used to digital currency, whether it's based on a blockchain or not. In the U.S., although 92% of the money supply is quote-unquote digital, it's much more credit-based and it's much more based on multi-day settlement of money. Whereas in China, that's not the case.

yeah it's just instant right so it's like like i don't bring any cost with me any cash with me i just bring my phone your phone yeah you don't need to bring cards right you just literally your phone has everything in it yeah and then like and then right now a lot of most of this just like like just like cash has been obsolete right so like cash has been awesome so like cash has been obsolete for like three five years and and and then so i think that is actually what like pave the path for this digital renminbi and then uh and then like pbos understand okay it's just a change of the back end it's just change of the monetary supply like previously we are like printing out the physical like renminbi bill yeah and then sending shipping to

physically shipping to all the commercial banks and then all the commercial banks and leverage it there's like fractional reserve right so they leverage this up and then using the cash as a reserve like just like like uh like at the local level and then but like right now we can basically switch so we can basically just flip the entire thing uh onto this blockchain infrastructure and make anything as m0 because it's back to the full reserve system and then so that's how like i said like like that's how they can fight the shadow banking business because everything going to be M0 they have the full visibility on the entire economic activity and then the other thing is they can actually also program monetary policy like think about this like if I want to

cool down the versed market like which is it so like which is in such a huge bubble back in China right now if I so if I want to cool it down I simply just subtract like 10 trillion digital renminbi flowing into that market right so all this monetary policy like adjustment does not have to become from this like clumsy discussion or like implementation and then from central bank indirectly inference the commercial bank they can do it just over a button right so basically we're talking about is they create a much more uh controllable um kind of um uh transparent system right so they have transparency so it's programmable monetary policy and like fiscal policy as well are you worried as you move towards that world uh or we all do uh that the chinese

government can increase surveillance oh so like that is that is not a worry like that's like a fact right yeah because that's the point of this like like yeah so because like when it comes to digital fiat and there's no anonymity so like the anonymity level is it is it's just the same as the credit card right it's the same as a credit card it's the same as like wechat pay and alipay and and then so like that's why the digital renminbi is not cash cash like cash has the best like the physical cash has the best anonymity right so it has the full privacy and and it's fully decentralized and it's fully decentralized if i hand you cash nobody knows who i am nobody knows who you are no one can stop us yeah exactly so like that's just the fact that there's no financial

private so like yeah when you have the electronic financial system or a digital financial system uh you decrease the anonymity to zero right and there's so fully understand who's transacting with who how much where what they're buying etc so you have a full surveillance system yeah so like the centralized platform they always have the full visibility of like so of like what's going on and so everything gonna be held on the private cloud of the pboc okay so like it is not cryptocurrency it is just it's just a digital currency in a centralized database and it it looks and feels from a user experience standpoint very similar to a digital currency but it's not a cryptocurrency and that it's not uh permissionless it's not open there's no level of privacy it can

be censored etc yeah and so like i think a good analogy here is i have so i i so i have been using this analogy is um so have you watched the so you must watch the movie the matrix matrix oh matrix yeah yeah so like the digital fiat or any fiat coin is basically like the agent smith there okay so yep so it looks like human so it looks like cryptocurrency yep but actually it's not cryptocurrency so it's just the opposite yeah yeah basically it's the same user experience It's basically the Chinese government is saying, yes, this user experience is the future. Yes, people want to use this. Yes, it is more frictionless and people will ultimately use it.

But our back end is going to be something that is beneficial for the PBOC and for the Chinese government, not beneficial for the people. Well, so I would argue that, right? And what is good for the people? Okay. Like what is good for people? like most like 99 of the average chinese citizen and then what i care about is can i maintain my living standard like can i further make my living standard better and like what's good for people is like so they are prone to things that make their life easier and more convenient um and also like

if pboc can so can pull it off and then fight shadow banking and then so that's actually good for a people so because why is it good if the government can fight the shadow banking because I should yeah because you're the banking right now like like it's a huge problem a lot of people go like you said go bankrupt because of flesh out of banking my difference and so so they borrow money from all this I very like extremely high interest like lending platform and then so so they basically went bankrupt and then so and then many of them are in this like like that like spiral of so of this like very immature just like credit facility right uh and i think the

shadow banking is definitely a problem of the entire society and then so will cause a lot of like problems down the road um so if ppoc can fight the shadow banking and i think it's definitely good for the people because um shadow banking has been a huge just like just a draw and like black hole of like sucking in a lot of um just a liquid cash and just like cash reserve of the average so of the average um chinese citizen and the other thing is from like global perspective and uh as we all know that china's government is very into this one belt one role like initiative and explain the initiative yeah so one belt one row means there's a asian so there's an asian um transportation like soup roll so that's literally like like the ancient soup roll um when the uh

when like china doing business with many other middle east countries and like turkey uh like pakistan etc and there's about 60 member countries along this ancient soup roll and so like so that's why what the one belt one road initiative is uh the chinese government wants to use its own experience like to help the other develop also to help the other developing countries helping them on infrastructure projects helping them on this financial infrastructure potentially and if you right now go to countries in like africa in like even like more deeps let's say for instance and you will see a lot of this like um chinese so chinese state-owned company doing their local infrastructure projects there and so like there's a lot of like chinese workers that

working and living there and even in some area uh renminbi has better liquidity than many other global currencies out there so i think from global perspective the digital renminbi can further enhance uh like the basically like the demand of like renminbi as like so further enhance the uh the demand of renminbi as a global currency and then so it will also help the chinese people because they don't have to do all this like very clumsy like foreign exchange and and just say uh just i switch money to us dollar and then uh use the us dollar in like their um uh local just like local states that where like they might be um uh working in like a foreign country so i think like like they will further help the local liquidity especially so especially along this at one belt

one role uh membership so membership uh countries countries um so that will also be good for the people as well for sure and so do you think that the digital renminbi fits in with the kind of the social credit system like how do you see the digital currency with the social credit system yeah i think the social credit system is one thing that the western community has been you know like overrated or okay so the western community thinks it's way more important than it really is so it's not so it's not important is the social credit system um so first of all like china right now don't even have a good like very basic financial credit system okay so financial credit system isn't even that good in china yeah yeah so like that's why there's this huge like

shadow banking business that because that there's no good enough like credit facility from just iced so from standard commercial banks right okay yeah and so like the so the credit data is very scattered around okay it's on so it's with Alibaba is with WeChat it's just almost together around so there's not even a good like basic financial credit data like like repository out there okay And then so not even saying this like social Skynet like level credit system. So where is the social credit system today? Like when you're in China, do you see anything to do with it?

No. No. So like, okay, if you go to any just like credit checking system, so if you put in my Chinese ID, like large chance and you know so little about me. And because there's not enough like data synchronization. Yep. So I think the Western imagination of the Chinese social credit system is definitely not there, and then probably even one-tenth or even less than that. So the system isn't nearly as complex or developed as the Western world thinks it is, but in the future, go out 10, 15, 20 years, could the digital renminbi end up being part of that social credit system and actually increasing the surveillance and increasing the negative side effects? I think like once the data is there and then once like once the data is there and once like so once majority of the economic activity is on this transparent ledger to PBOC and to CCP, they can do whatever they want, right?

Yeah, got it. What are you most excited about with Bitcoin, crypto and blockchain in China? Like what's the most exciting thing that you see right now? I think the most exciting thing, like, first of all, we have all this mining infrastructure, right? And mining has been very, like, very, I would say very manual and very primitive. And because when people think about mining, they all think about have a ton. So have, like, workers and just sitting in, you know, data center and manage all these boxes. I think there's a lot of things that we can do in the mining space

and then how to tokenize mining pool and then so how to make mining cloud-friendly. And there's a lot of innovation. So there's a lot of innovation in the area. So I have been working with some of the top mining pool founders out there. And then so to basically make mining more resistant and then also to make mining more accessible to these smaller scale miners.

I think that would be the trend. And then also mining is actually a global energy arbitrage play. We have seen a lot of Chinese miners go outside China with their existing experience on building mining facilities. And so they're like companies in making this a lego like mining facility so it's like everything is like a lego and they basically

convert everything from the container uh so from the actual shipping so like the actual shipping container because that logistic cost is a so it's like a huge cost like when it comes to mining uh if when so uh in raining season and you want your miners close to the den like close to the hydropower yep when it is dry season and you want your miners close to the coal right so there's a huge transportation uh like involved and then how to make the transportation is that why we see on like recently rainy season ended right and we saw a drop in the hash rate for a day or two and then we see and then we see it recover quickly or is that more just coincidence than oh so like that's more like so statistical thing okay because it's never accurate to look at daily

hash rate yeah yeah yeah so uh raining season definitely contribute to uh well like raining season like the end of the raining season contribute to the increase of the cost basically you will have like more expensive electricity supply but not necessarily leads to the hash power drop got like the hash so people actually have to shut the machines off they just pay more for power yeah so they will just ship it to like the coal like power supply or like the like Like wherever in like, so in like in Mongolia or Xinjiang, that's where most, so most of the coal power is and, and, and like the hash power correlate with the price. It's like a lagging indicator.

Yeah. And as an investor, what area of the world are you most interested in? Is it Asia and China? Is it the US? Is it broadly you're interested everywhere? Like, like how do you think about the geographic breakdown of investment opportunities? I think crypto is the first sector that U.S. has no unfair advantages. If you look at our whole stack, mining is not here in U.S.

Trading activities as well as trading facility are majority not in U.S. And I think here in U.S. we have probably advantages over protocol and engineers. talents and then also just business model innovation right like DeFi and all that so I think like crypto generically as like a whole ecosystem is so it's very global and then very decentralized and so that's why we are global from day one and I don't see us has specific advantages and it might have like disadvantage like when it comes to like taxation when it comes to like regulatory uncertainty and so like there's definitely things and so a lot of

investment opportunities outside us difference in like Asia is really good for all this like application level innovation like wallets like exchanges and then like gaming as well and also this centralized like financing platform lending etc and anything about mining is that definitely in Asia so I think we have to first to have this value judgment on like which area is a specifically good for what and then so like that's how we can make further due diligence and my assessment on specific investment candidate got it all right before I finish up I always ask a couple of rapid-fire questions what do you

think is the most important company in crypto other than primitive ventures the most important company in crypto uh i personally think right now is binance why uh because at binance um so right now like so so because if we think about the systematic risk of our so of our whole industry uh if there's any bug in like the bitcoin code right uh and also if there's like potential just like tether collapse okay so it might be tether plus binance okay it might be tether and binance both of them yeah and then so if there's any major major hack of binance and then so those are the three things that i think can be the biggest systematic risk of our so of our industry uh and tether and binance like definitely responsible for the last two right okay uh

what is the one regulation you would change or improve if you could uh here in u.s or or china wherever here in US I would definitely change first the taxation right now if you trade Bitcoin to Ethereum and you have to pay capital gain and that's insane and then so we should like tax all this as sugar water company but not like trading crypto for like so for a capital gain because I previously did like the asset swap like we don't have to pay tax right and like that's also the biggest problem why all this side volumes are outside of US and then that is also the easiest thing to fix other than all this like very fuzzy uh like definition about

what is that security what is token etc what is right because like taxation is very straightforward just that don't tax this certain behavior um that's one thing i would change here in u.s uh so that would definitely keep many crypto players stay here in u.s uh and and then so So China, I would say I would definitely try to legalize like fiat on-ramp for any like crypto purchase. Basically have like, it can be like state-owned exchanges allow fiat on-ramp to buy Bitcoin. Like the biggest adoption bottleneck I see for like crypto and for Bitcoin as an SOV is like the fiat on-ramp channel. It is not sufficient enough. like that's one thing i want to probably potentially can do it in china if we can

pull it off and so they will be huge for sure what's the most important book you've ever read the most important book is what's life from uh like uh schrodinger what is that like what is life no what's the book about like the book is about how life is actually a computer and then So how life is all about minimize the entropy growth. That is actually what Bitcoin did, right? So like the Bitcoin keep things in order within the system, but like dumping the, so but like Bitcoin mining is actually dumping the assets

like entropy out of the system. And then Bitcoin mining is like we basically like counting hash is useless work, but that's actually necessary. Like if you want to keep the entropy low within that system because overall in the universe like entropy is always positive yeah yeah absolutely and uh before you get asked me one question to end it we talk about aliens believer or non-believer you think they're real yeah statistically it's definitely real why because we can't be the only

like just the universe is too big yeah yeah do you think they look like humans no i don't think so so what do they look like uh what they look like okay so my favorite like alien movie is arrival okay so that is my perfect um imagination of what alien is yeah so it's all about information transformation yeah so it's not about how the physical setup is yeah yeah it's just about the intelligence yes okay what one question do you have for me to finish up? I think the question for you is, so if you are Satoshi, if you are Satoshi, and then is there anything you want to change on Bitcoin? I don't think that you can, because with hindsight, although there are things that people may say are not ideal,

if those things had been changed we might never get to this point so like the exact creation yeah launch uh the the characteristics the uh adoption the hacks along the way of exchanges like everything got us to this point and so if you go back and change any of that we may not get to this point and i look back and i say like it's pretty fucking incredible that we got here right like literally in 11 years we're talking about senate and congress in the united states the president the chinese government like like it has arrived bitcoin and blockchain technology has hit the global stage uh and so if you go back and you change any one thing in that process we may not get here and so it's just just take the flaws along with the the pros and move

on right yeah it's all about chaos engineering yeah chaos engineering exactly all right listen thank you so much for doing this. Uh, I hope that people really, um, understand kind of what's going on in China and, uh, and the larger Asian market after this. And then, uh, we'll have to do this periodically so you can keep educating everyone. Yup. Thank you guys. Hey everyone, pop here. If you liked this episode of off the chain and want to help us take crypto to the top of the Apple, Spotify, and other podcast charts, please do us a favor and rate review and subscribe to review. Simply go to the off the chain homepage, scroll down until you see the five blank stars, taking 15 seconds to fill those stars in and leave a quick review goes a long way in helping us

take the entire crypto ecosystem to the top of the charts i appreciate you listening and see you next time on off the chain Thank you.