The Pomp Podcast - Haseeb Qureshi, Advisor to Metastable Capital: The Smart Contract Wars of Crypto’s Future

Episode Date: June 12, 2019

Haseeb Qureshi is an advisor to Metastable Capital. In this conversation, Haseeb and Anthony Pompliano discuss how success metrics for blockchain protocols are different from traditional companies, why narratives follow rather than lead, how to think about the smart contract wars, and why Bitcoin holders are so important. -----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. -----If you enjoyed this conversation, share it with your colleagues & friends, rate, review, and subscribe.This podcast is presented by BlockWorks Group. For exclusive content and events that provide insights into the crypto and blockchain space, visit them at:https://www.blockworksgroup.io

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. In this conversation, I talk with Haseeb Qureshi, formerly of Metastable Capital. We discuss how success metrics for blockchain protocols are different than traditional companies, why narratives follow rather than lead, how to think about the smart contract wars, and why Bitcoin holders are so important. I really enjoyed this conversation. Hasib is incredibly intelligent, and I hope you enjoy it as well. 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 uh hasib um it is uh the thursday of blockchain week so uh everyone is uh still surviving that's right thanks for coming in this morning and uh doing this yeah thanks for having me for sure um all right so for those that don't know maybe let's go over your background first uh so you can kind of understand your perspective, and then we'll get into some of the things I want to talk about.

Totally. So I'll give you a very short version of my background. So before I ever got into the tech industry, I used to be a professional poker player. I did that for about five years. Were you any good? I was pretty good. I was sponsored by Fulltail Poker, played high-six poker. Oh, awesome.

Long, long... Online, or...? Mostly online. I was mostly underage while I was playing, so I was playing from when I was 16 until I was 21, professionally. Anyway, so after that, I ended up getting into the tech industry. teaching myself how to code, I ended up working at Airbnb, and that's kind of where I first caught the crypto bug. So I worked for a little while at Earn.com, did some security research, I ended up

working on a startup with a buddy of mine, and then I joined Metastable Capital, which is a crypto hedge fund based out of San Francisco. And I left there a couple months ago, and now I'm just doing the crypto world tour. Yeah, there's a ton of stuff going on, so it'll keep you busy for a That's right, that's right. Yeah, there's no shortage of stuff getting me busy. For sure. All right, so you have a bunch of these unique views. One of the things I want to talk about that we're showing before the show,

let's just start with this idea of a lot of the things that happen in crypto are different, right, in terms of the way that we look at what makes something successful, a project or a company successful. In the traditional tech world, there is this thought that there's revenue, right? So if you make profitability, that's a good signal of a strong business. But then also in the more kind of innovation technology world, there's the idea of usage, right? And so how do you get a lot of users getting on our thing? And you'll hear a lot of social networks or messaging applications talk about daily active users, number of messages sent, time spent, all that kind of stuff. Those are the really kind of what I'll call the metrics of value in the traditional world.

In crypto, it's a little bit different, right? And so maybe kind of unpack a little bit, you know, what do those metrics look like on how to measure the success of something? and how you think it's a little different than the traditional businesses. Right. So traditionally, the way you look at a business, generally speaking, when you're looking at consumer software companies,

you're looking at monthly active users, daily active users, revenue per user. In crypto land, it's not really obvious that that quite translates. So you look at something like DappRadar and you'll see daily active users, right? But to my mind, and usually the number you'll see is pathetic because, you know, it's in the single thousands, it's in the hundreds, right?

But generally speaking, I think this is the wrong way to measure value running through these systems because these systems are, you know, they're primarily financial in nature. So if you measure the daily active users for something like, let's say something like Tron Bet, right, which is basically just like Satoshi Dice on Tron. Well, this, it's a gambling application and the amount of revenue that this thing generates It's dependent on the amount of value flowing through the system. And if somebody's betting, you know, $10,000 a bet, then that's worth a lot more than 1,000 people betting $1 each, right?

So, and if you sort of scale this argument up, look at something like MakerDAO. MakerDAO has, you know, the CDPs is in like the thousands, right? Low thousands, something like that. But there are so many folks who have so much capital locked up in the CDPs is that the total revenue that eventually flows to maker holders becomes actually really significant, even though the number of users is quite small. So, you know, I sort of analogized it earlier to the idea that,

look, if you have, you know, 10 million users, but they're all, you know, you're monetizing them with ads, right? So you have just some website that's static and you're showing banner ads or something, right? You're not making a ton of revenue on each of those users, so you multiply this really big number by this really small amount of revenue. However, if you're, let's say, an enterprise software company and you're selling million-dollar enterprise packages,

then you, with only a few users, end up creating a huge amount of revenue. And so you see different applications along this continuum, right? Ones that generate very little revenue per user, and so they need a lot of volume, and ones that can generate a lot because they scale with the financial use case.

So that's for the application side. Now, for something like Bitcoin or Ethereum, I think the only thing that we really know how to measure these things is just how long are people holding them, right? Because ultimately that means, look, they're holding on, they're taking them out of circulation, and they are, you know, net long, this asset. So that we know how to measure. Now, let's take Bitcoin and Ethereum as kind of two separate systems, right?

Sure. With Bitcoin, the store of value use case has, you know, been beaten to death. And the static supply, right, of just this is a scarce asset. Obviously, the longer you hold, right, the less that there is circulating. And so, therefore, the ones that are circulating become more valuable. With Ethereum, it's a little bit different. It's not as scarce of an asset. It's got a little bit different promise to the user, or at least the narrative is different.

Do you think that the number of people, or I'm sorry, the amount of Ether that is held is as important as the amount of Bitcoin that is held? Or do you think about those two things a little differently given the systems? Yeah, that's an interesting question. I mean, there are a few axes. There's some similarities. There are. There are. I mean, so one thing I would say is that, like, the idea that Bitcoin is special is in some way a relatively new idea.

Like, this didn't exist at the time that Ethereum was first developed. Like, well, this is, like, store of value is only Bitcoin and nothing else can really be that. And you've probably read some of this, you know, archaeology that some folks have done of, like, how Bitcoin narratives have evolved over time. First it was payments, and then it was machine-to-machine stuff, and then it was like, oh, well, it's going to be a store of value, it's digital gold. The narratives in some way, I don't think they are leading so much as they're following what's going on with prices and how people respond to these things. So here would be my claim, right? Right now, the inflation rate between Bitcoin and Ethereum is actually pretty similar. So they're both around 4%.

Now, Bitcoin is going to have within a year. So that'll be knocked down to close to 2%. So Ethereum, on the other hand, has no predetermined monetary policy. If you listen to what the core devs say, they say it will probably be going down as we go into proof of stake. But there's no really hard promise or commitment, one, to be a deflationary currency. They've never signaled that they intend to be a deflationary currency the way that Bitcoin is. But more specifically, they haven't committed to any specific monetary policy quite yet. Right. It's definitely nowhere near as rigid as Bitcoin, which is almost, you know, it's not impossible to change, but it would be an incredible lift.

I totally agree. Totally agree. It wouldn't be called Bitcoin anymore. If somebody decided to fork the monetary policy and everyone moved over, we'd call it something else. So I think, you know, at the end of the day, that that rigidity around monetary policy is really important. Right. But the difference in the inflation rates is not significant and won't be significant. Maybe in a year, it'll become a little bit more significant. But the reality is the dominant thing that's moving the prices of these things is not the inflation rate. The dominant thing that's moving the prices for these things is just the demand for these particular assets, the balance of supply and demand. I think you're saying, correct me if I'm wrong, is that the inflation rate has an effect, but it is drastically less of an effect than the demand component. That's right.

And clearly, those things are linked in some way in that people look at Bitcoin and say, well, this is a deflationary asset. That's awesome. That's what I want, right? But the inflation itself is not driving the value, right? Inflation, by definition, is a tiny amount of this currency in the differential between Bitcoin and Ethereum. It's more that everybody else sees what everybody else sees, right? It's sort of Keynesian beauty contest, where everyone thinks that everybody else thinks that Bitcoin is going to keep going up because of its deflationary nature, right? But there's no reason in principle why, as more people keep coming into the space,

I mean, that's the primary thing that drives the demand for these, the prices for these things. It's just the more people come into the space and buy this stuff, the more things go up, right? Now, inflation is a downward force on that, right? But if you have more than enough people coming in, it doesn't matter. You break that ceiling and the prices go up, right? The same thing could happen to Ethereum. I mean, obviously, it has been for basically since it launched. The question is, how long can that continue, right?

I mean, most currencies have a national rate of inflation in large part because more people are born and more GDP naturally is created over time. So that might mean that in a steady state, even if Ethereum has 3% inflation, it might be like, well, that sort of keeps up with the national growth rate. Or maybe the growth rate is even bigger than that. So to my mind, the monetary policy of Bitcoin is not what determines its price. it's in a way what determines its value on the market as a particular kind of product that but that product as a whole is what determines price got it and so how do you think about value in terms of the protocol versus the applications right some people are very familiar with this whole idea of fat protocol thesis

yeah in the internet it was not the fat protocol thesis right right applications accrued the value not the protocol yep crypto where where are you at with kind when that value accrual happens. Yeah, so I've been thinking about this question a lot lately. So if you look at the way that Joel Manegro initially posted the thesis of FAT protocols, right, people sort of treat it as a theory. It wasn't really a theory.

It's more of an observation. It's like, hey, look, isn't it weird that, like, Bitcoin is super valuable and none of the businesses seem to be nearly as valuable as the protocol itself? And you keep noticing that pattern over and over again. Well, and let me caveat this. It's the businesses that are built on top of Bitcoin, it's not the businesses that are built around Bitcoin, right?

Because, for example, most of the exchanges, if you had invested in the seed or Series A and bought Bitcoin on the same day, the equity has accrued more value. It's accelerated faster than Bitcoin's price, but that's a business not built on top, it's built around infrastructure, right? Right, yes. You're specifically talking about the businesses built on top of the protocol, right? That's right, that's right. Okay, go ahead. So the question you want to start with is why. And Joel Manegra doesn't give an answer to the reason why.

And it's very hard to come up with a good reason why. But why is it that the thing, you know, take Ethereum. It's a more obvious example than for Bitcoin because, you know, Bitcoin is a relatively scarce number of things that you can really do on top of it. But for Ethereum, the whole idea is that you can do things on top of it, right? So why is it that things on top of it are accruing so little value relative to the core protocol? So there are a couple ways to answer that question. The first and most obvious way is that, well, the core thing, right, the core, the native token, whether it be Bitcoin or Ethereum, it has this money-like property or it sort of serves as like a call option on this thing becoming money.

And that can be really valuable because if it becomes money, then that's a huge TAM and so on and so forth. And it just happens to be the case that all of these things have built into the base layer this money-like token. And if we treat that thing as money, then it becomes really valuable, and that's why it's accruing so much value relative to the other businesses. So that's one way to justify the FAT protocol's observation. But I think it sort of falls short in my mind, in large part because none of these things we're really treating as money, especially not right now and not anytime soon, and we haven't in the past.

So one way I've been thinking about it is that protocols are FAT, when they're monopolies and so here's what i mean by that you know if you if you imagine in your head like the fat protocol stack like the way he draws it right there's like this big fat thing at the bottom which is the core protocol and then he's like tiny little businesses on top um and if you think just like classical economics right when do you see distributions like that when do you see that like one layer captures almost all the profits and everybody else is commoditized usually it's when that person has a monopoly right and so what does it mean to have a monopoly at a protocol i think what it means is that basically there is no substitute for this

particular part of the chain right so basically the monopoly is more in the the structure and the design right than it is in let's say usage or some other uh well i think it's both it's both so but do you think that it's the the usage comes because of the monopoly in the structure right So, for example, take smart contracts, right? Ethereum has a massive lead, right? We can get into kind of how you think about the smart contracts playing out. Is that because they were just first? Is that because of the structure?

Like, how do you think about the quote-unquote monopoly they have today? Like, why do they have that monopoly? I mean, that's a really tough question to answer. Yeah. Let's rewind back. Let's rewind back to when Ethereum hit the peak of, like, you know, $1,200 or whatever it was. A lot of that was clearly driven by the ICO bubble, right? And why was Ether so valuable because of the ICO bubble?

Ether itself ICOed however many years ago, but all these other ICOs were driving up the price of Ether. Why? Because the only way to raise money on Ethereum at that time through an ICO was raising it in Ether. Ether was the reserve currency for ICOs. In a way, Ether had a monopoly on being the mechanism of fundraising. Right. Now, when that fell apart and the ICO bubble really died down, that ceased to be the case. Now there are many stable coins on top of on top of Ethereum. Right. Pretty soon we're going to have Cosmos and Polkadot and the ability to tokenize assets from other chains and use them on a chain like Ethereum or any other smart contract platform. And what that means is that now Ether is not the only game in town.

Ether now has to compete as a monetary asset against all these other potential ways to raise money. This is a competitive force. This basically says, hey, Ether, you need to fucking lower your price because there are other people competing now for the same monetary layer that before you were the only way for anybody to get access to a monetary asset. So it's almost saying if you're the only one and you have the monopoly and the demands there, price will be high. That's right. Right, that's right. But rather than in a traditional business where when competition comes in, margins shrink, here there's price compression because of the increased competition. Right, because there are substitutes, right?

So, you know, in Bitcoin, there are no substitutes, right? There is nothing else you can use. If you want to use the Bitcoin chain and you want to have a Bitcoin-like asset, there is literally no other game in town, right? There's nothing that even comes close to the properties of Bitcoin. Well, and it's properties and adoption. Yes, exactly. I mean, that's part of it, right? Like the idea of having this massively censorship resistant, totally immutable, you know, chain that's very unlikely to be modified or, you know, the governance is likely to change, etc. Right? That if you want that, there's nothing else that competes with it, even close to competing. That's what makes Bitcoin such a monopoly in its own category of being a sort of speculative store of value. For Ethereum, and I think for many of the other assets going down the chain, this will be increasingly less true over time.

It was true early on just because of kind of technological limitations. But as the space opens up to more competition, I think all of that is going to go down. So I think what we will eventually see as the space matures is massive compression on everything besides Bitcoin in terms of the sort of fatness of the protocols. Got it. And I guess as you're seeing this play, let's keep going down the Ethereum rabbit hole a little bit. By far the most dominant smart contract platform. Is it defendable, right, in the sense of 10 years from now, Ethereum's still kind of the king? And I'll caveat this or kind of compare it to take Bitcoin.

bitcoins properties I think nobody else is closed adoption is actually a huge defendable mode yeah could be wrong but I just don't see anyone unseating it for that specific use case right aetherium feels to me like it is more vulnerable doesn't mean that it's gonna get unseated right yeah but it just feels like it's not quite as defendable as let's say bitcoins dominance for that use case right so how do you think about you know that smart contracts and how this is gonna play out you know and maybe not even like hey who's gonna win but just, like, what are the key components to pay attention to as this plays out?

Yeah. So it's clear there's a huge battleground that's shaping up right now. We can see, you know, the armies coming over the hill, right? They're all aware of where each other are. That's right. That's right. Yeah, yeah. And, you know, there's a sense in which, like, everybody wants to be there first,

but nobody really wants to be there first because it's like you're the first one to get pounded on. So, you know, you see, like, Algorand and Infinity. You want everyone else to kill each other, and then you come in. That's right. That's right. Yeah, yeah. That's ultimately what you want. And so nobody wants to look stupid being the first person out there

and then just get, you know, chopped in the back of the head. So here's my take, right, is that it's very clear Ethereum is not going to be able to compete on performance within the next couple of years, right? Ethereum 2.0 is extremely far away in terms of, like, having enabled smart contracts. That is, like, the last phase of Ethereum 2.0. You know, first they'll have just staking and then transfers

and then data, which is still pretty tough to work with, before they actually get full smart contracts working. So three to four years from now, that's a lot of time for the ball to be in motion. And I think it's pretty plausible, if not likely, that somebody else is able to run away with anything that requires high, meaningful levels of throughput. I mean, the saving grace for Ethereum

is that maybe layer two really catches up. So we've seen things like these ZK roll-up chains, plasma chains, different designs for ways that, even with a fairly non-performant base layer, you can build somewhat high-throughput applications. But it's just going to be a lot easier and a lot nicer if you have these new next-generation blockchains where you can do everything at the base layer.

You don't have to think too hard about it. You don't have to have some crazy, fancy design and exit games and all this bullshit that goes into making Layer 2 really work robustly. Everything is just easy, right? Now, that said, it's a little bit too easy to claim that, well, you know, performance is, you know, once we have high-performance chains, people will just go there, right?

Because we already have some high-performance chains. We have EOS and Tron, and think what you will of them, and I don't think much of them. But there's clearly, like, they are not being tested in terms of their scalability. Do you think that it's these, I always think of this as trade-offs, right? So if you want high throughput, you have to give up something else in many cases, and it might not be one for one,

but there's just, you know, design decisions you have to make. Totally. Do you feel like the high throughput, even though people are focused on it, maybe that's the wrong thing to be focused on because the ones that have the high throughput, people aren't using, they're not, you know, it's all the downsides as to why you probably don't think it's highly of them. Right. Is it because that's the wrong thing to focus on for a smart contract type platform or is it just we're so early that we don't really know how this plays out? Right. I think we don't know yet. Okay.

So, I mean, if you look at EOS and Tron, right, and these are actually super interesting case studies in, like, smart contract platforms. Yeah, if you come at this stuff from a, we should encourage experimentation, right, and we should see as many attempts at success as possible, it's fascinating to watch all this play out. For sure, totally, totally. And, like, you know, both EOS and Tron are interesting places to move the lever in terms of decentralization versus throughput versus, you know, centralization and so on. I mean, I think I question their motives sometimes in the way that they run those businesses. but I think, in principle, something should exist there where those things live. However, there's this really fascinating dichotomy that you see in the way that these chains are being adopted, right,

where if you look in China, right, in China, people love Tron. They love EOS. Like, if you find, like, the very best, brightest entrepreneurs, they're like, well, yeah, of course I'm going to build on Tron. That's where the users are, right? Like, what else would you do? If you look in the West and you look at all the high-profile, of really respectable teams here,

they would not touch either of those chains with a 10-foot pole. Yeah, it's the exact opposite. They actually make fun of them. Yeah, exactly, exactly, right? And a large part has to do with, like, the developer culture, where in the U.S., it's kind of like,

look, I wouldn't be caught dead writing PHP, right? Like, look, if I can't get, like, a cool hipster language to write with, then, like, I'm just not going to write code at all. Whereas in China, like, they just don't give a shit. They are much more pragmatic, much more just about, look, let's just build a business and get real users, right?

And so that's kind of led to the fact that, you know in in the west we look at chains like tron or eos and just like they seem like ghost towns in terms of you know what is actually built for a western american audience with like high you know high quality entrepreneurs and developers and so on there's not really a lot there so the one question is okay well maybe what they need to start building these businesses on these you know next-gen blockchains just one that's kosher enough that like you know a high high quality team could be like cool i'll build on algorand or cool i'll build on you know whatever space mash blah blah lot right and hopefully this is one thing that i personally am betting on is that that's part of

what unlocks this next generation of businesses that were held back by by ethereum and the fact that ethereum is so unscalable that it's hard to build high throughput businesses on top of that the scariest thing is if we get those chains and no one uses them right how much of um let's say the the winners right and and i don't even know if there's gonna be one winner or let's say two or three yeah but but just there's going to be a set of winners could be one or many how much of that is driven by the technical capabilities versus what I will call the marketing and adoption right so like in traditional businesses we see all the time where you know that the Betamax or VHS is like the perfect

example yeah we see like inferior technology when simply because they have a better message to get better adoption it happens faster you get network effects and it's over yeah yeah is that part of this or do you feel like the best technology actually can win and should and ultimately will win it's definitely not the case the best technology will win okay all right so i think there was a component for sure for sure i think there was a moment in time where that was true okay that moment is long past okay right like there are now so many there's so many different uh so many different plates to eat from at this point right that like ultimately in order to even get on people's radar in order to get

entrepreneurs to adopt you you have to cut through the noise right I mean just look at coin market yeah so many of those things claim to be smart contract platforms right like how would you know the difference if not for a good go-to-market and distribution strategy I always laugh and say you know look Bitcoin it could be a smart contract platform right like you know if you looked at it through that specific lens I guess you can do some type of smart contract whether it's I change you know all the stuff that's right if that's the word you're competing for right then that's how you would describe it right I

I think actually the people who have been really intelligent, it's like, hey, smart contracts are actually going to end up being a core component or a core functionality of pretty much almost every chain, right? It's just programmable contracts, right, or code. It's what else can you do? It's how do you do it, right? Like the differentiator is not that, hey, you have a smart contract capability, right? Everyone's going to have that. It's all these other components. Is it high throughput?

Is it this? Is it that? right um is that part of what is keeping ethereum so relevant and so you know powerful it's just the fact that they had the initial adoption and now they kind of have um like the inertia behind them or do you feel like there's just not a great other option yet and so people people are willing to leave you know in droves right if something else comes along so that's a tough question it's like the stickiness yeah yeah i wish i knew the answer to that yeah but like i i want you to Totally. No, no, no, no. It comes back to this, there's this famous saying, I can't remember, some bank robber who was asked, why do you keep robbing banks?

And the answer is like, because that's where the money is, right? And so why do people keep building on Ethereum? Because that's where the money is, right? I mean, the users who do exist, that's where they are. All the value locked up in DeFi, that's where it is, right? And it's also the most proven chain that we have that have a lot of this function out. For some definition of proven. Yeah, of course, right? Well, just like compared to EOS, et cetera, right? It's just, I think Ethereum, people are comfortable with it.

They've got the most experience writing in it. Like there's libraries, right? I mean, like all these things that, again, aren't necessarily the component that makes you successful. It helps along the way. It reduces the friction, right, to being successful. It does. It does. But at the same time, it's like, it's a really, it's an extremely constraining chain to build on, right?

Like, there are some things you just literally can't do because either one, it's too fucking slow or it's too expensive. Like, it'll just bankrupt you. If you have to write to every single block in the Ethereum blockchain, it's just too expensive, right? So, you know, if you look at a chain like EOS where it's just a tiny, tiny fraction of a cent to send a transaction just because, you know, there's not that much contention for blocks. There's a different kind of business you can build there, right? You can subsidize people's first interaction with you if you want, right? You can say, great, I'll pay for your gas on your first transaction, totally free, and that's sustainable, right? Whereas, you know, I saw that CryptoKitties, they're launching a new blockchain game, and they are, you know, they raised like $30 million or something.

And part of that they're using to subsidize their gas cost for your first interaction with that application. They need a lot of money to do that, right? Like, you can't do that if you're some guy in your garage, like, bootstrapping your own little game. And that's a meaningful constraint. And chains that have better economics and are much cheaper to administrate and have, you know, much higher throughput, ideally would ameliorate some of that difficulty, right? All that stuff adds together to make one package of, you know, what does it mean to build your business on one chain versus another? Got it. And so, you know, we've talked about a bunch of different features and components of these chains.

um one of the things that uh kind of was a narrative left has kind of seen a resurgence mainly because of non-crypto stuff is privacy right yeah um and you know i think that's facebook is you know they'd be the first ones to say hey they haven't had the most luck there uh they're now getting into crypto right and so uh you've got some unique thoughts around this like privacy is a feature yeah talk like about like what does that mean right because we've talked a lot on the podcast about like privacy by design but like what do you mean by privacy as a feature so this is a really interesting idea i think it's like i think kyle from multi-coin talks about this a lot like the idea of great yeah that's right that like great artist steel and so great you know great

chain steel um so there's this idea that like well okay you know you look at a system like zcash or like monero and it's like well you know we have a sufficiently complex smart contract platform we can just like implement you know the zero coin protocol on top of a smart contract platform and get the same properties, right? So there's companies like Aztec, ZKDAI, there are a number of different projects that are, I think Zether is another one, a number of different projects that are trying to implement privacy on top of other chains, right? So I mean, obviously, Ethereum is the most common one. But in principle, you could implement privacy primitives on top of Bitcoin, on top of really any chain that's sufficiently manipulable, right? Now, for Bitcoin, I think

it'll basically never happen. And I think it would actually be super fascinating if we actually came to a point where there were some ideological battle over Bitcoin becoming private because of the fact that Bitcoin has become so financialized and the fact that it becomes much less auditable

if it sort of goes dark. But take something like Ethereum, right? The question is, okay, Ethereum 2.0, much higher throughput, much more scalable. Could they add privacy on top of it, right? Now, they would never add privacy at the base layer, but somebody could go in

and they could build privacy and to, you know, they could write a smart contract that allows you to make private payments, right? Would something like that displace Monero or Zcash? Because basically what you're saying is if the core protocol itself is not private, there's an ability to build, it sounds like two separate things. So one is you could basically take Ether, for example, and you can put it into private scenarios, right? So the infrastructure provides privacy, so it's a private wallet, it's a private exchange, you know, all this kind of stuff. but then there's also privacy of Ether itself.

So there's a way to take Ether and make it now private, not just the infrastructure around it. That's right. So you can make a sort of meta-Ether on top of Ethereum that is fully private. Without setting off the trolls, it would be like Ethereum private. It would be like Ethereum private, yeah. I don't know if anyone should go do that. We are not condoning that.

That's right, that's right. That would be a good name for it. So the really interesting thing there is I, so as much as I love those projects, I think they're fascinating works of cryptography and engineering to make those things work. I'm very skeptical that those kinds of things will work relative to chains that are, you know,

tailor-made for privacy. And there are a few reasons why. One of the reasons why is that there are other aspects of the system that leak privacy, like the network layer, for example. It's very hard to make that private unless you make the whole thing private by design. So you're saying that you are more bullish on taking Ethereum or some other component and adding privacy as a feature of it than... No, the reverse.

Oh, the reverse. The reverse. I'm less bullish on that. I don't think that fundamentally that's going to work or be a good replacement for a Zcash or a Monero. Got it. So the Zcash and Monero, because it's more holistically designed for privacy as the core component, you think that's the... That's right. That makes sense to me. And I think the other reason why, which is something that's really gone underappreciated in a lot of these projects, is that all of these privacy chains have had massive bugs in the past, right? Like they've had places where the privacy was totally broken or, you know, Zcash recently had this massive inflation bug that they managed to catch and kind of keep under wraps and eventually disclosed once they moved over to Sapling.

Imagine if that had happened in a smart contract on Ethereum, right? if that happened to smart contract on ethereum you're hosed right like yeah nobody ethereum is not going to hard fork just for your one smart contract right now if you're zcash you can hard fork the chain and like everything's cool because it's all one big experiment like to try to make this cryptography work and like look there's no way that that's the last bug we're ever going to have in these systems so i think at some point we are going to find some smart contract that has private tokens on it on on ethereum or something um and it just gets broken and all the money suddenly it's just orphaned yeah it's just like floating out there and nobody can get any of it

and that will sort of be like a dow hack type moment people be like shit absolutely this is hard uh what's your thought around um the software bugs right so when people ask me all the time they're like what would be the what's the thing i most fear as to bitcoin not being successful yeah and i think a lot of people talk about regulation like all these like external forces right i always just go back to a software bug right like to me that is the the most critical thing it um and could taint the system as fast as possible uh and also the thing that i personally have the least control over understanding of right so it's scary and it also could be impactful right how do you think about that right uh yeah is my fear um unwarranted right and then i guess

It's just like, how important is that, right? Or how likely is it that that actually is something that could happen? Yeah. I mean, honestly, my answer would be that I don't think that's, for Bitcoin specifically. Okay, for Bitcoin specifically. For Bitcoin specifically, I don't think that's a fear worth having. Okay, all right. And there are a few reasons why.

So one is that Bitcoin is completely auditable, right? There's really nothing that fancy in Bitcoin. Like, it's actually all fairly straightforward cryptography. This stuff has been battle tested longer than anything else. And it changes fairly infrequently, right? And in large part, what that means is that there's not a lot of room for error, right? It's part of the design of the development process. That's right.

That's right. It's slow and methodical. That's right. That's right. Like, it's all, you know, this is the mothership. This is like the nuclear launch codes. We are extremely careful. It's like $150 billion today.

We're not going to screw this up. That's right. That's right. But here's the thing. Let's say that it did get screwed up, right? Let's say that, you know, there was this famous inflation bug a while back that didn't end up getting exploited. Let's say it did get exploited, right? The nice thing about Bitcoin is that it's very easy to see, right?

The moment that happens, what do you think happens? Every exchange stops trading, right? People stop registering transactions as being valid on the main chain. People realize, like, shit, there's about to be a chain reorg. You know, everybody in core comes online. They go and fix the bug. Everybody realizes, look, that block is invalid because it broke the canonical rules. And things would roll back.

There'd be, like, you know, 4, 5, 6, 10, 20 block reorg. That'd be very sad. But then we'd move on with life and Bitcoin would still be Bitcoin, right? Do you think that that would be, I don't want to say fatal, because I don't think it would be, it wouldn't be fatal. I think the answer is no, it would not be fatal at all. Not necessarily to the chain, because the chain would continue. But do you think that it would change the value proposition of Bitcoin? And this is somewhat tangentially related to the whole Binance, you know, the hack, et cetera.

Like, to me, it's, the tech would play out how it would play out, right? So I frankly don't have enough of an understanding as to exactly how you would execute the reorg, why, how many blocks back, all that kind of stuff. So I'm just going to say developers are smart and they would figure out how to execute that correctly. What I personally look at is does that change the narrative and does it diminish or at least kind of minimize the value proposition of Bitcoin? Because now we did reorg, right? There was a problem. It just takes away some of the core components that we all brag about Bitcoin for. Yeah.

I mean, honestly, my answer is no. I don't think it changes it. I think it's one of these things that before it happens, people think that it's going to be some terrible, life-changing event. And then it'll happen. It'll be like, wow, that was weird. And then we'll move on and Bitcoin will still be Bitcoin. Very interesting. What I think is much more concerning is the economic model rather than the security model.

So, I mean, you just mentioned the Binance hack, right? The Binance hack, perfect example of this, right? When that $30 million worth of Bitcoin was stolen from Binance, if they had decided, I mean, $30 million is a lot of days of block rewards, right? So, technically, I think there was, like, 30 blocks when the idea was floated of, like, hey, why don't we maybe incentivize a reorg? 30 blocks is a lot to reorg, right? Normally, I think the largest organic reorgs that we've seen in, like, the last four years are, like, three blocks. Nothing longer than that. Wow, so literally 10x.

Yeah, yeah. So, that's, like, massive, massive reorg, right? If you do 100 blocks, that's when shit starts breaking, right? Like, your nodes will start failing. Like, transactions basically get reversed in a way that can't be replayed because of the coin maturation of block rewards. So a lot of stuff gets really janky if you reorg past 100 blocks. But, like, 100 blocks is still, you know, that's still worth less than $30 million, right? So it would be in Binance's interest, if they got hacked, to go and do this really, really massive reorg, right?

Now, in a world where we see hacks like this and people realize, like, look, I don't know, I lost a lot of money, dude. I don't know, $100 million a lot. Yes, I understand I'm hurting Bitcoin or whatever, but, like, I just need to make my customers whole, right? They would be, in some sense, they'd be crazy not to try to get some of that money back, right? It's in their own economic interest, even if the value of Bitcoin drops somewhat. If it, you know, depending on their balance sheet, if it drops like 50%, but that's more than 50% of their balance sheet, it's in their interest to do that, right? If that sort of thing starts happening and we start seeing massive reorgs on the Bitcoin chain, when it's operating normally, when everybody agrees like, yeah, this is how Bitcoin works, right? This is supposed to be the economic model.

You start seeing miners diverging from the idea that their national equilibrium, their optimal play is to be honest and follow the longest chain. When that changes, that's when I'm more concerned for Bitcoin, right? When we start seeing shenanigans like that as being normal and just happening as, like, run-of-the-mill events, that's when I think the value proposition of Bitcoin starts becoming more tenuous. I mean, look, and this, I think, is related to the idea that, like, you know, CZ just mentioned it. Like, it was like an offhand comment kind of, right, in a live stream a couple hours after it happened, right? So, I mean, anybody who watched that, you know, he just wasn't himself, right? And so he's kind of looking, he's got all these ideas, whatever, he mentions it, and there was such a visceral reaction to this, right? I mean, it just went through the entire community, and it was highly debated.

That's because of it being such a big event. Right. If it becomes steady state, and it's almost like the visceral reaction goes away because everyone just expects it to happen all the time. Right. I think that's what you're talking about right now. And notice the way the response happened, right? It was like, it was a religious outpouring. It was like blasphemy, right?

Literally some people said that. That's right. That's right. And so here's the question, right? Like, why do people feel the need to respond that strongly to the proposition? And the reason why is that they know that in some sense it is economically rational for somebody who loses that amount of money to incentivize a reorg to get some of their value back, right? That – Bitcoin sort of works on this assumption that people don't coordinate in that way, right? We know that if they do coordinate, if they do collude, Bitcoin breaks.

Bitcoin only works if you assume that people are not colluding, right? Or they're not cooperating in that kind of way. Or if they're trying to, they can't actually do it. Right, exactly, right? So in a way, like, we have these sort of weird, squishy assumptions inside of Bitcoin, which with the internet and with mining pools and with all this stuff is, like, kind of not true, right? We know that, like, all the people who own all the mining pools can just call each other on the phone. They're probably all in the same WeChat group or Telegram chat or whatever, right?

And, like, you know, if, let's say, there was some massive bug, they would all turn their miners off, right? They wouldn't want to be mining for 20 blocks if they were just wasting money and electricity, right? So we know that, in some sense, clearly they can coordinate. The real, the blasphemy was, shit, he's actually going to try to coordinate, right? And it's scary to know how easy it would be. Well, and I also think it's not only is one person going to try to coordinate. It's one person has a lot of influence and reach. That's right.

So if they said, hey, let's coordinate publicly, probably could get some coordination there. Oh, absolutely. Absolutely. For sure. Yeah. I could talk to you forever. Of course. For those that don't know, he's got to run and go catch a flight.

I don't want to make them late because then they'll be mad. But before I let you go, I'll just ask three quick rapid-fire questions. Go for it. Most important book you've ever read? Most important book I've ever read? Probably Siddhartha by Herman Hesse. Okay, why? um it it's it's one of these books that makes you uh makes you question what it is you're trying to

do with your life oh interesting okay um what is the one thought that you have in crypto that a high majority of other people would disagree with you on like your most controversial thought ah geez um most controversial i get i guess probably um so actually i did it i did a debate with Preeti Kastureti on True Story about this, that I don't believe that Bitcoin will ever be more than a store of value. Okay, and what is the upside potential if that is true? Let's say that's the absolute bullish case and it happens.

Yeah. What does that upside look like? I mean, the upside is still fairly substantial, right? Like in the trillions of dollars of market cap, it becomes this sort of digital gold-like store of value asset. But I don't think there's any world in which Bitcoin becomes money. Becomes like the global reserve currency.

Yeah, I don't think that happens. guys uh come back to uh most important company crypto uh he thought he tricked me i i'd say um i'd say morgan creek no no no come on wait well let me ask this what type of company do you think it's exchanges do you think it is um custody like what what's an area that you think is really important yeah i mean i mean all those things are really important um i i mean i i guess i'd have to i guess i'd have to say binance because i feel like binance i mean it's part of it right like I don't want to give just, like, a boring answer, like, well, yeah, liquidity markets, whatever. I think the answer is that, you know, decentralized exchanges have kind of gotten a bad rap over the last year

because, in a sense, they've kind of failed, right? They don't have a lot of volume. But in a way, Binance kind of proves the idea that, like, it's sort of a decentralized exchange all but in name, right? Where it's, like, that's basically what we'd imagine a decentralized exchange would be like. It's, like, you know, it's important in Malta. It, like, trades anything. Like, they'll list whatever the hell is going on. They're just, like, very opportunistic.

And people love that shit. and VPN into it from everywhere in the world and they want to get on there. And there's plenty of people who don't like it but the majority of people love it.

Right. Because ultimately what they want is liquidity. Right. And that's kind of the story of decentralized finance that yeah anybody in the world

just VPN in and trade their assets. Right. There's a kind of beauty to it that I think sometimes goes underappreciated in crypto. Absolutely.

Awesome. All right. Look, you gotta go catch this flight. I do. I really appreciate you doing this. We have to have you back

because we could talk for hours. Totally. This was a pleasure, man. Thanks so much for doing this. Yeah. It was a lot of fun. Hey, everyone. Pomp here.

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