The Pomp Podcast - Nic Carter, Partner at Castle Island Ventures: The Quality of Crypto Data and FUD Dice

Episode Date: May 15, 2019

Nic Carter is a Partner at Castle Island Ventures and a Co-Founder of CoinMetrics. In this conversation, we discuss financial service organizations interest in cryptocurrency, the quality of data in crypto, what areas of Bitcoin and crypto Nic is excited about investing in, and then we play a game of FUD dice. ----- Monarch is building the future for those interested in one wallet that consolidates the best services and functionality into one simple and easy to use app, Monarch will empower users to control all aspects of their Financial Kingdom from the palm of their hand.  You may have heard the phrase “Not Your Keys, Not Your Crypto”.  With Monarch, you own your keys and seed, meaning You own your crypto.  With Monarch, you can Store, Receive, Send, Swap, Buy, Sell and earn interest on Crypto, track your portfolio, the news, the market cap and more today! We're constantly adding new services and updates too! Learn more today by visiting MonarchWallet.com/pomp or download the wallet for FREE today from Apple or Google. Visit https://monarchwallet.com/pomp/ to get your free tokens! ----- 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. Nick Carter is a partner at Castle Island Ventures and a co-founder of CoinMetrics. In this conversation, we discuss financial service organizations' interest in cryptocurrency, the quality of data in crypto, what areas of Bitcoin and crypto Nick is excited about investing in. And then we played a game of FUD dice. I really enjoyed this conversation and had a lot of fun. I hope you enjoy it as well. Monarch is building the future for those interested in one wallet that consolidates the best services and functionality into a simple

and easy to use application. The Monarch app and wallet will empower users to control all aspects of their financial kingdom from the palm of their hand. You may have heard the phrase, not your keys not your crypto with monarch you own your keys and your seed phrase meaning you own your own crypto with monarch you can store receive send swap buy sell and earn interest on your crypto you can track your portfolio in the news and you can check the market cap daily they're constantly adding new services and updates and you can learn more today by visiting monarch wallet.com slash pomp again that's monarch wallet.com slash pomp or you can download the wallet for free today from Apple or Google. 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. can get into what you're doing at Fidelity. Sure. Well, I don't know if prolific is the word, but so just go with it, go with it. Prior to Fidelity, I was actually a business school just before that, University of Edinburgh, doing a master's in finance. And before that, I was just a,

I actually worked as a journalist, believe it or not. Really? Yeah. So I wrote about corporate law, which is like one of the dullest topics imaginable. But it actually ended up being like fairly useful because like so much of this industry is based on like reading like the regulatory tea leaves yep and be like what's the sec going to do next uh so in some ways it was like good preparation for that absolutely but uh yeah i decided i wanted to get in finance i was very into crypto this was sort of in in 2014 so i was into bitcoin at the time um i hadn't done anything with it seriously and i was like well can i learn how to value these assets like these this new asset class how do i value them and i was like well i might as well

go to business school and take cues from like equity valuation yep uh but um turns out nobody at the business school cared about crypto in 2016 which is like unsurprising i don't think many business schools cared uh so there wasn't any uh cryptocurrency content which is again not very surprising uh so then i wrote my thesis i actually had to go to the course director and ask special permission to write a thesis on crypto assets. Wow. So, and they gave me dispensation and then it was a hit, so it was successful. But it was, I think, the first thesis written at the University of Edinburgh Business School

about crypto assets as an asset class directly. And you wrote this about crypto in general, about Bitcoin, crypto in general with a focus on Bitcoin. How did you kind of break down the thesis? So, it was actually about the corporate governance in crypto assets. So, they covered Bitcoin or lack thereof, basically. So it did cover Bitcoin and other sort of very, you know, decentralized public blockchains. But for the most part, it was a cross-sectional survey of 50 tokens, cryptoassets, whatever you want to call them.

And I was trying to determine whether investors and ICOs had genuine governance rights, such as they might be accustomed to in, you know, in equity land. And of course, the answer was no. I was going to say surprise. Yeah. And this was 2016, 17. It was still fairly early, and nothing was very developed in terms of modes of governance, as we've seen some successful experiments today. Back in the day, basically, I was saying, look, there's no transparency here. Investors don't have recourse.

They're not really buying any cash flows or anything. They're not buying liquidation preference. of this was fairly obvious, but this was my effort to do a systematic kind of takedown and see what investors actually were getting access to when they bought tokens. And so, I think it's very obvious to people what they're not getting access to, right? Because they basically look at the equity world and they make comparisons. And if you do a chart, it's literally like equity land, yes. Token land, no. Did you come away with anything that the token investors were getting access to or like anything that was on the, you know, quote-unquote positive side?

Well, I mean, for, you know, authentic decentralized cryptocurrencies, I think it's extremely positive. You get access to a spot on the registry, which is worth something for sure. But for what I call pseudo equity, so tokens which are sold to mirror equity or to resemble equity, you're not really getting any of those guarantees at all. So that's why I've, you know, long been suspicious of them basically. Yeah, I think that if anyone has followed you on Twitter for any period of time, the thing that you can appreciate is not only do you have a position, but the way that you approach that position is very rational, which I think in crypto, the default is just yell scam, right? Anything that you don't like, people just yell scam, whereas you take a very systematic and rational approach explaining why maybe something isn't as enticing as it otherwise could be. Well, I've done my fair share of scam calling.

All right. So, you write the thesis, it's well received and then you end up at Fidelity. Coming from somebody who is a Bitcoin fan and believer, why go to Fidelity? What was kind of the thought process and then what were you doing there? So, I was actually looking to, even though I wrote the thesis on crypto assets, I didn't believe that there was a job market for finance grads in crypto. Oh, interesting. And I thought to myself, I'm like, yeah, like I love crypto.

I would love to work in it. But there doesn't seem there don't really seem to be many firms active there. You know, it's just it's still incredibly niche. And so I reached out to the only analyst that I'd heard of in crypto, which was Chris Berniski. And I sent him my thesis. And amazingly, he like answered my cold DM, which was super cool of him. And he was at ARK Investments at the time. And he actually brought me into New York.

I got to meet the team. It was just amazing. especially as someone who's a complete no-name. And then he actually introduced me to Matt Walsh, who was starting a crypto fund at Fidelity. So I actually owe a huge amount to Chris Berniski. And this goes to the merit of keeping your DMs open, which is actually why I keep mine open all the time.

Yeah, so I keep mine open as well. You get your fair share, I'm sure, of the crazies and the trolls and all that. I'm sure you get more. I just don't want to answer anymore. I used to try to answer everyone, even the trolls, and kind of troll them back a little bit. But now I'm in the just – I'm just going to respond to people who actually are important. But so Chris at the time is at ARK Invest, which has this really cool kind of research-first approach to investing in public equities. They actually went into crypto as well.

He helped facilitate that for them or kind of ignite some of that. Why choose to go to Fidelity? Yeah, well, I knew that Fidelity had a positive view of crypto. although I didn't know very much. And when I went for an interview, I sat down with Matt Walsh and David Knitsky, and they were both Bitcoiners. And I was like, wow, like, how did this happen? How did Bitcoiners infiltrate Fidelity? The infiltration is like already complete. And when I went, I was basically conducting a litmus test like, well, you know, are we ideologically aligned here? You know, is it like a total

paradox to be at a large financial institution and also believe that crypto itself is a real transformative movement. And everything I understood from that visit was that Fidelity is super, super aligned, especially the top leadership there is very much aligned with the ethos of the crypto industry and with Bitcoin in particular, which was just revelatory for me. I knew that Fidelity is this behemoth of asset management. And I guess they did get turned on very early to the concept of cryptocurrency as an asset class as opposed to just Bitcoin as a new technology.

So they made that transformation relatively early on. And through Abby's guidance, they totally embraced the concept and now have multiple business lines. Yeah. So before we get started, we were talking a little bit about just kind of large financial institutions in general, you know, I think there's a lot of people who are opportunistic, right? In the sense of, oh, crypto is hot today. You know, we're super excited about crypto. Oh, now we're in 2018 bear market. We forgot to talk about crypto for the last 12 months, right? And

I'm sure when it comes back, like they'll be the biggest enthusiast again, right? So they're kind of, I'll call it this false bravado around the asset and they only are excited about it when it is kind of beneficial to them. It doesn't seem like Fidelity is that way. Fidelity kind of do the bull and bear markets for a while now has been enthusiastic and building real technology, real teams, et cetera, around this. Was that your experience? For sure. Yeah. So I wouldn't have gone there to work as the crypto asset analyst if I didn't believe that they authentically were invested in this space. And they've been methodically building towards a presence in crypto assets from 2014 onwards to present. So it does take

a long time to like change the tack or to even introduce new business lines that are behemoth like Fidelity. But yeah, they've been pretty, you know, resolute in their progress towards this. And the custody, you know, business line, which is out now is good evidence there. Absolutely. What was your biggest takeaway in terms of like the advantages that a large financial institution like a Fidelity brings to Bitcoin and crypto ecosystem that maybe we wouldn't have access to otherwise, right? Like, because in my perspective, everyone always thinks about the challengers, right? Like innovation comes from the challengers, et cetera.

But there is value, I think, to having a lot of resources, experience, large teams. Like, what was that takeaway for you? So they have some really key advantages. So custody is an industry where trust really matters and brands matter a lot, especially if you're an institutional allocator. you may not necessarily trust any of the new startups that are doing custody in the space. And that's not because they have no technical merit, but it's just because it takes a lot of institutional knowledge to do something as critical as custody, right?

Especially in terms of mitigating key man risk. These are the kind of things that have undone custodians in crypto that don't have that accumulated, you know, thousands or hundreds of years of institutional knowledge. So that's one thing that an existing asset manager custodian can kind of do well. And there's also just the brand element. So you may not necessarily trust a Coinbase for your custody if you're a pension fund. And then it's the ability to interface with regulators and the SEC, for instance, for clarity on what constitutes a good control location. And so it's partly just the platform that being an institution of that significance brings you.

Yeah, look, I think it makes a lot of sense. And your idea of kind of trust, right? The trust is, what is it? I think Warren Buffett is the guy who's got the quote that says, you know, it takes a lifetime to build a reputation, five minutes to lose it. trust is very similar, right? And that you can literally spend, you know, I was 100 years old at this point, right? Building that trust. And if for some reason something was to happen, that could disappear very quickly as well. Yeah. And this is, I think, maybe a little underappreciated within the industry. People sometimes say, well, why would you need to custody your funds with a third party, with an institution? The whole point is to, you know, custody them yourself. And this is totally valid. But for larger institutions that want access to this or larger funds that want access to the asset class, they just in practice cannot get

direct access. And they don't want to take on that risk. They don't want to have a ledger in the drawer of the chief investment officer's office or something. When we went through the due diligence for public pensions, I remember sitting there with like an outsourced uh third party that was helping them with like operational due diligence stuff and uh they didn't even necessarily know all the questions to ask right because you don't normally have to ask like hey do you are you guys holding the stock certificates here right like that's not a thing uh and so there's a little bit of two-way education going on of like you know if you ever diligence another crypto manager you probably should ask like is there the ledger in the drawer

right uh but but it is i mean like there's a lot of crypto funds actually manage quite a bit of money, where there's one, maybe two people who have access to funds, right? Trevor Burrus, Jr.: Or a treasurer or something just in there. Jason Kuznicki, M.D.: Crazy. Trevor Burrus, Jr.: Yeah. Jason Kuznicki, M.D.: Absolutely. Trevor Burrus, Jr.: This asset class is very paradoxical, because we never have had these bare assets, which are just strings of information.

And turns out, custodying a string of letters and numbers is extremely challenging. Jason Kuznicki, M.D.: For sure. Trevor Burrus, Jr.: So, we're collectively still learning how to do it. Jason Kuznicki, M.D.: And I think also, an element I think a lot about is many of the people who are making the investment decisions are investors and they don't come to the table with a lot of technical knowledge, right? So other people on their team have the technical knowledge, but the actual, you know, the CIO doesn't come from a computer science master's degree and having worked at a tech company for 20 years, right? It's just that that's a hard transition for

people to make. And so I think that there's a lack of technical knowledge, which leads to even a fund manager, in many cases, actually trusts a third party to custody the assets better than their own self or their own team. Yeah. I mean, it makes sense because it is a deeply technical challenge. I mean, try setting up an air-gapped Monero wallet or something. It's a huge pain. So they shouldn't really be undertaking those kind of engineering decisions. Absolutely. So they probably should be outsourcing it. So, you left Fidelity, started Castle Island, and then you also run Coinmetrics. Maybe just give us a quick overview of the fund and then of Coinmetrics.

So, Castle Island is a C-Stage venture fund. We're based in Cambridge, Massachusetts. We raised in summer 2018, and we are focused exclusively on businesses building in or around or adjacent to public blockchains. So we believe that this is a sea change in terms of this institutional technology, which will totally revolutionize the way that value is conveyed worldwide, but it also needs lots of enabling infrastructure and technology to function well. So, custody we've been talking about is one thing. Things like key management on the trading side, execution, any of those trading facilities that will allow conventional allocators to get access to this asset class, and then things

that will make it more useful for normal individuals like merchant payment processing, anything on the lightning stack. So, that's where we're concerned, is the intersection of financial services and public blockchains. And then, of course, we're looking into some, you know, applications, maybe gaming, NFT, et cetera. But we're still pretty early on the application side. And I think we're, you know, this is a bit of a meme at this point, but it's still in the infrastructure phase. For sure. Where did the name Castle Island come from? Castle Island is a place in kind of South Boston. There's a fort. It's a pentagon.

Okay. And there's no, like, particular significance. The one story we can tell about it is that um it castle island is neither an island and it's not really a castle um and it's kind of in that same sense we're like blockchain uh vcs but uh we don't really like the word blockchain um and we don't do tokens so we're kind of beset by paradoxes yeah i love the uh the the whole like contrarian aspect of it right uh we were contrarians when we started because SAFs and tokens were still really popular then. We resolutely did not do those. But now, I guess, our perspective is a bit more mainstream.

It is funny how all it takes is an 85% drawdown in some liquid tokens to get people to start paying attention to maybe where the sustainable value is, right? When everything's going up and to the right, it's easy to just everyone thinks they're a genius. Okay, so Castle Island, you guys raised that fund. You're deploying capital out of it. And then you've got Coinmetrics as well. Yeah. So Coinmetrics is a portfolio of company of Castle Islands. It's also a company that I founded and it started as a research project actually way back when I was in business school. So what I was trying to do was build quantitative models to understand whether the valuation of cryptocurrencies was related to their underlying characteristics. My thesis was that there are these many economies, and if we could deeply understand the flow

of funds within the economy on-chain, then we could potentially predict valuation or at least understand valuation a little bit better, because we kind of lack standard multiples. Obviously, there's no PE ratios or earnings or even a concept of revenue in public blockchains. So, I was trying to build proxies for that, or at least understand the economic characteristics of these blockchains better. So, I started, together with a friend, scraping data from a variety of blockchains, and then initially just posting online, posting CSVs. And we created a charting suite as well, so people could track transaction value over

time versus price, things like that. And this became really, really popular over the last two years. And when we started Castle Island, we thought, well, we have a great thing here. We have this huge amount of organic interest. All these funds are using our data, all these media outlets. Why not commercialize it, retain the open source and free ethos, and all of our code that we use to scrape these chains is open source and available on our GitHub. So we'll retain that and then also sell a subscription so that we can plow that back

into R&D and make the free product better and better. So commercializing it, the objective was basically to increase the transparency of the industry and give people a better idea overall of how blockchains are used, what they're used for. Because it's like this eternal question, there's three, 400,000 transactions on Bitcoin in a given day and nobody knows what they're for. Whether it's like payouts from mining pools, Venezuelans sending money back and forth, just sending money to exchanges. There's very little insight into what the nature of the Bitcoin economy is. And that's what I want to discover. And so that was really why we started CoinMetrics.

Got it. I think of Bitcoin from a transaction settlement network as like a sleeping giant, right? The metrics I saw recently were in Q1 of 2019, Venmo did, I think it was like 20, $21 billion of transaction volume. And so let's call it, they'll do something between 85 and 90 billion for the year. Bitcoin last year in 2018 did over $410 billion on-chain, right? And so you start to look at this and you're like, this thing is exponentially bigger, right? Or materially bigger than Venmo, which is something that you and I think of as pervasive in the developed world, right? If you look at Apple Pay, same thing, right? It's just like, it is much, much bigger, I think, that people realize. And now the question becomes, why? What are people doing

with that stuff, right? Why is all that transactions happening? Totally. And then that's what we sought to investigate. I mean, I remember seeing these figures. I'm like, what the hell are people using it for? Like a couple billion dollars a day? Like, what is happening here? Like people are just sending money to Binance and BitMEX is like that all it is. And so like, it is actually a very challenging exercise to investigate the ground truth. It requires a lot of like tagging exchanges and custodians. Most of the volume in practice is related to exchanges, but you know, the mainstream media tends to characterize that as speculation. I see more as saving. I view Bitcoin as a savings instrument. So, lots of the volume is just related

to individuals depositing on exchanges or withdrawing from exchanges, for sure. And I guess there's also a bit of a disanalogy between the Squares and Venmos and Bitcoin, because Bitcoin is like a kind of full stack settlement network, whereas those payment networks are dependent on the current, you know, settlement infrastructure. So that's why I sort of like to compare Bitcoin to like Fedwire or Swift, although it's not a perfect comparison. But yeah, it is really, it scales not with count, not with transaction count or by adding more data to the ledger exponentially, but it scales in terms of transaction value, I

think. And there's kind of a growing awakening that that's maybe the better way to understand the network. feel like some of these large financial institutions will be able to use Bitcoin or other public chains to do a lot of what they're trying to do today? Or do you think that they're going to naturally just refuse to do that and end up using these private chains that they're all building? Oh, I mean, that's a really challenging question. It seems like we're at the tail end of an R&D phase where the belief within many of these institutions was that the public chains

or a distraction private chains were, where the interesting R&D was happening, and hundreds of millions of dollars of R&D were plowed into this idea with private consortia and these consortium chains and enterprise blockchains. Now that it's been a good four or five years since the dawn of the enterprise blockchain, a lot of those initial really hot startups and ventures have begun to fall apart a little bit or just not really bear fruit, not pay off the way that people expected them to. And that's because I don't think there really is anything like frankly, fundamentally new about enterprise blockchains, although I'm sure we'll see some interesting developments

in database technology. But I do view the key fundamental innovation here as creating a digital commons where no No one is excluded from transacting, and the nature of the ledger is auditable and very well understood. I think public blockchains are the key linchpin here. Whether or not larger regulated enterprises will be comfortable transacting on them is another matter entirely, and it'll take them a long time to get comfortable with it. However, we're seeing steps in that direction though.

I think EY, it recently came out that they were productizing usages of Ethereum on mainnet, not a fork of Ethereum, but like Ethereum itself. Obviously the custodians custodying Bitcoin are using Bitcoin itself. And JPM, there's a question over what JPM coin is, but it's very plausible to me that they would transition that from Quorum to Ethereum mainnet because the architecture is so similar if they ever wanted to actually open that thing up. So I think it is a very slow process, which is totally fine, but they're gradually getting attenuated to using this public infrastructure. To me, it's like every individual goes through a journey, right? They discover

Bitcoin. Oh, this is interesting. Let me learn more about it. I don't know if it's going to work. Let me go figure out maybe it's tokenization or it's like enterprise blockchain, right? They like kind of work their way through the ecosystem and they figure out, oh, ICOs were cool. Okay, maybe that's not going to work. And then they eventually just end back up at, oh, Bitcoin's real. Right. But like there is this journey that people take where they are kind of exploratory in these different ideas. Enterprises are no different. There's many more people. So they're kind of doing the same thing. The difference is you and I don't have hundreds of millions of dollars in our back pocket to go to R&D of enterprise blockchain. Right. But like that's

the way they learn. Yeah. Fidelity went through the same thing. They looked at enterprise blockchains 2014, 15. So they started with mining Bitcoin and they're like, well, maybe there's more to it. Maybe blockchain itself is a general purpose technology. Let's look at that. And then they circle back around. And personally, yeah, I, you know, I, that's okay. Yeah, I think so. I mean, you know, you're operating on incomplete information at first, so you do have to explore every possibility. And I mean, I don't know if the, if there's like a right place to end up, whether that's just Bitcoin or it's warranted to be more open-minded than that. But I certainly went through a very similar process too. Yeah, absolutely. All right. I want to talk

about something that you're very vocal around, which is this proof of reserves, right? And this idea that exchanges and kind of the solvency of these institutions that are in crypto, that are handling people's funds, maybe just describe like what is proof of reserves and why you think it's important to get started? So the reason that I care about this concept, proof of reserves, is that exchanges are such important members of the crypto industry, but they have typically abused that privilege, I would say. And you don't have to look far for examples of this. Obviously, Gox is one. Very recently, Quadriga was operating in a fractional reserve and collapsed. I don't think the key loss story that was the cover story is really the case.

So, you know, and like, unfortunately, I would say more people use or have access to crypto indirectly through exchanges than they do directly have access. And you can kind of look at the chains and confirm this. So there is an estimate in the Cambridge benchmarking study that about 130 million people have accounts on exchanges globally. And if I take a guess about the on-chain owners of Bitcoin and Ethereum, it's probably more in the low double-digit millions in terms of on-chain wallets. So, in practice, people own Bitcoin or Ethereum or other cryptocurrencies indirectly through exchanges. So, they use exchanges as banks. They're not just using them on a pass-through basis. And so, since exchanges resemble depository institutions almost more than they resemble, you know, like Shapeshift, for instance, would be one where it's a pass-through.

They're not trading accounts. They're actually banks where people are leaving their funds in. Yes, because that's what people are used to, you know, and they don't quite see the disanalogy between like Chase and Coinbase. So, and you know, not to demean Coinbase, but exchanges occupy this like, you know, something like 15, about 15 to 20% of all Bitcoins are held with these custodians. So it's really important that they're behaving well, but they just tend not to. Even the regulated ones, the regulatory framework in the U.S. is like this patchwork of state by state regulation.

You got the bill license in New York, but there's no real federal regulation there. So exchanges operate in this gray area a lot of the time. And I don't think it's really an answered question of what would happen if Kraken and Coinbase became insolvent. Would all those funds be available to depositors? So the idea behind proof of reserves is that using Bitcoin's cryptographic properties, exchanges can actually prove how much Bitcoin they have in reserve. And it's really not difficult to generate this proof. And just real quick so that people who are listening understand fully, when you talk about reserves, explain exactly what you mean by that. A reserve is simply if I'm a depository institution like Coinbase, I can prove to you that I have a certain number of Bitcoins under deposit.

So you're holding it in some, whether it's hot storage, cold storage, whatever it is, you actually have those funds that you're saying that you have. Yes, under your control. Yeah. And that doesn't alone prove that you're solvent. Solvent meaning that you are able to fully redeem all accounts on demand immediately if you want. Because the default assumption is that you're operating at full reserve in crypto. That you can, even if there's a bank run where every depositor wants their funds back right now, you can in theory service that. Yeah. Because the thought process is that the rehypothecation, all the fractional reserve stuff is not happening in crypto.

That's the hope. That's the theory. And so what I am suggesting is that exchanges should be offering up these proofs. And you can do it in such a way that it doesn't compromise user privacy and that it doesn't even reveal your entire balance. You can pair it with a proof of liabilities, which is here are the accounts under deposit and here is how much is in each account. And it gets into a little complexity, but you can generate a proof of solvency on this basis. So there's a paper called Provisions, which has a zero-knowledge proof, but again, not to get into the details. You can, in theory, pair this with a proof of liability and essentially prove that you are operating solvently and that you're not misrepresenting the funds under custody to your depositors.

And I think this is important. And Quadriga is a great example. So, Quadriga for a long time was insolvent. They didn't have enough funds to cover all the deposits. And if there had been a bank run, that would have been exposed. Well, I mean, and it was exposed. It just so happened that it was catalyzed by the death of the founder. But for years, they weren't able to cover user deposits.

And this was like the biggest exchange in Canada, I think. So, this is a really big deal. And if the depositors instead demanded a proof of reserve attestation, they would have known years in advance that there was either a fraud or something shady happening there and lots of harm would have been avoided. So this is a pretty critical issue and it's surprising to me that people aren't taking it as seriously. So two questions. One of them is selfishly just out of personal interest. In this situation, would there be a way for an exchange to basically say, yes, we have the reserve that we are expected to have to a non-technical person who may not understand proof of reserves, the actual underlying technology of Bitcoin or other crypto assets? It's like almost like, it's funny to say this, but like a better business bureau rating, right?

Of like, hey, you get an A plus or, you know, you kind of get a credit rating, right? Like you are deemed by somebody that says, yes, you have what you say you have. Or do you think it actually needs to be a little bit deeper in terms of the disclosures and the ability for people to check? So the only way to really check is if you pair it with an actual auditor, so a conventional auditor. So, the auditor has to attest to the fiat liabilities, and then the exchange can, with this Proof of Reserve tool, very trivially show to them that they have the reserves. So, Proof of Reserves is not a new concept. It actually happened a lot on exchanges in 2014.

So Kraken did it, Bitstamp did it, I believe, Huobi did it, if I'm not misremembering. So after Mt. collapsed that was the catalyst and lots of these exchanges were like we're gonna prove to you that we're fully backed and so they did it on a one-off basis and that was actually you'd basically go in your account and like hit a check box and be like verify account and then you it would it would create a proof for you um but so the and the funny thing is that like kraken in particular said that this would be something they do on an ongoing basis and then they stopped after the first one So, this is just me reminding them of, you know, that they claimed they would be doing this on an ongoing basis.

But today, there's basically only one exchange that does this, a small UK exchange called CoinFloor. And to their credit, they've done a proof of reserve attestation 60 months in a row. 60? 6-0. Oh, my God. Yeah, so they do it. Five years. Yeah.

And it's like a little crude and like to some degree it requires them leaking how many Bitcoins they have under custody. Why would somebody not want that note? Take the scene of the exchange owner. And so, yes, I understand the value to the users or my customers that the proof of reserves are there. Is there a business reason for not participating? What would their response be? One reason would be if they were actually performing secondary lending. But in that case, they are effectively behaving much more like a bank where they're lending out deposits. So basically if they're doing that and they're not telling people they're doing that, then that's a problem. That would be. But so if they admit that they're doing it and everyone collectively agrees, okay, that's fine, then they're not going to be able to prove reserves because they wouldn't have reserves because they'd be operating like a conventional bank. But for an institution that's meant to be full reserve, which is de facto all the exchanges in crypto,

they shouldn't really have a business impairment aside from maybe they don't want to leak some data like how many Bitcoins they have on their card. But to be frank with you, you know, firms like Coinmetrics can find that out without too much difficulty. I mean, at least these wallets are known. The wallets are known. You can inspect the chain. Yeah. So, you know, Coinbase has like 800,000 or so Bitcoins.

You know, Zoppo has roughly, you know, a quarter, three quarters of a million Bitcoins. So you can look at their vaults on chain and see like Coinbase is like 25% of all Litecoin. It's not that difficult to find out what their cold wallets are. If they're concerned about leaking the number of Bitcoin they have, that's already basically in the public domain. It's already out there. Yeah. Going off of this, how does this work in the legacy financial system, in terms of quote-unquote

proof of reserves? Well, there's no requirement that banks do this in that way, because banks are guaranteed by the FDIC, so if a bank becomes insolvent, the government still guarantees all the deposits. That's why I'm not banging on the door of my credit union and be like, what are your reserves? Prove it to me. Because even if they fail, I'm going to be getting my funds out of there up to, what

is it? $250,000. Yeah. But they actually still have an expectation of proving capital reserves, I believe. ratios for mid-size depositor institutions in the U.S. happen to be corrected on this, but I think they're like 10% to 12% or something. And do you think that that type of assurances will come to crypto? Or do you think it's just a different beast in terms of being able to get some sort of... I think maybe Gemini is FDIC insured or has something similar to

the insurance? I'm not 100% sure. Yeah, maybe not. But yeah, so what about like, do you think that there's a world where we see either FDIC insurance or something similar to crypto. And then this proof of reserves thing maybe doesn't become non-existent, but just is less important because there is the assurance there. Yeah. I mean, that certainly could happen if these exchanges become more tightly regulated. But the nature of the industry is it's so permissionless that exchanges just, they can appear entrepreneurially, especially in non-U.S. jurisdictions. And then there's not that backstop of government assurance, and in that case, we then have to default to things

like just trusting the brand, trusting them not to misbehave. And I don't want to trust them. You know, I would prefer that they are providing us with cryptographic assurances. But in the U.S., it certainly could become more tightly coupled. Maybe we'll get federal regulation regarding exchanges, and maybe it ends up looking much more like the traditional banking system where they have to prove capital ratios. don't even have to prove 100% reserves, for instance. What is your take on the percentage of institutions that are probably either intentionally or unintentionally involved

in something that would be exposed negatively by proof of reserves? Are we talking about half the industry, single-digit percentages, 100%? Just ballpark, what do you think it actually would would be? So, for the regulated exchanges, like the federal or the serious regulated exchanges in the US, I would say most of them are totally solvent. But if you like tick down the exchange list on CoinMarketCap, I'm sure a really large fraction of those are not fully backed at all. And I'm not saying that because I have any particular knowledge, but just from historical

precedent. These things often are either exit scams by the creators or they get hacked and they lose some Bitcoin. They want to cover it up. This happens all the time. Bifnex is a great example. We know right now that there is a large fraction of the funds belonging to them, which are not accessible to them. But the interesting thing is that we know that. So we have the benefit of that information. So then we can withdraw our funds before it collapses. Yeah. Maybe give an overview of like your understanding of what's going on with Bitfinex and Tether, right? I think everyone saw the news and just knows that, hey, the New York Attorney General has stepped in, right, is how I'll put it. I don't even think people actually understand is it, are they suing

them? Are they charging them with something? I'm less concerned about like what the nomenclature of what the regulators are doing and more about just what is the relationship between Bitfinex and Tether and then what's going on between the two that has caused concern. Yeah. I mean, And it's incredibly murky territory. My understanding is that essentially the leadership of Bitfinex and Tether is effectively the same. They share a parent company for sure. Yeah.

And there was a liability which occurred when this entity crypto capital had that $850 million seized and then it was co-mingled between the two with Bitfinex using the funds held in reserve for Tether to handle that, which was, I guess, I mean, they altered the terms of service for Tether to say that it could be backed by this quasi-loan, but it was probably pretty deceptive to co-mingle the liabilities of Tether and Bitfinex, which should have been totally distinct. Yeah. Because I think one argument is, basically, Bitfinex is doing an intercompany loan, they're

the borrower, right, from Tether, and so that's not abnormal. On the other hand... Yeah, that's common, but... You're not telling the customers this, you're changing terms of service in kind of murky ways, right? I mean, there's a whole bunch of questions, I think, where people are like, what the hell is going on? And this is actually roughly on the same topic as Proof of Reserves.

we are in this parallel financial system where we can't rely on state authorities as much to protect users, we have to default to more transparency by these institutions like Tether that are trusted by many people. And unfortunately, they haven't really been able to provide that level of transparency over their history. And this is another great case. They were very untransparent about what was actually occurring there, especially when they change the terms of service to say, well, we're not fully backed by dollars in the bank

account, but we're backed by a loan. They owe us, all of these institutions, exchanges, custodians, crypto banks, et cetera, because they live, for the most part, outside of the traditional financial system, they owe us more transparency than those institutions do. So far, they've failed to deliver that to us. Yeah. that is really interesting i think in my opinion is um all this news comes out right and i think the really hardcore crypto enthusiasts or the people who are paying attention every day

are like whoa the attorney general stepped in there's a lot of weird stuff that probably is in the gray areas going on uh this should have a major impact if you looked at the prices within 24 hours of the news tether was down like half you know 1.5 i think bitcoin was down less than 5%. It didn't really have the impact that I think a lot of people would have previously thought it would. If you said to them, hey, the New York Attorney General is going to step in and this is what's going to be revealed, I think people would have thought that's a really bad situation. It leads me to think, how important is Tether to the crypto ecosystem? And let's go to the really bad situation where Tether just completely blows up. How does that play out?

Well, that would be bad. I think the reason the market... That's the understatement of the year, Nick. I think the reason the market maybe didn't react as much as we would have expected is because the market appears to be telling us that they believe that Bitfinex will actually remediate the situation. And that might be because they're training this on the model of the last time Bitfinex had like a serious unplanned for liability when they're hacked in 2016, I believe.

And they were able to claw their way out of that bad situation. So potentially, traders are saying, well, actually, we think Bitfinex might be good for it eventually down the line. Although, I mean, it looks extremely dire for them, to be frank with you. What I think Tether does, Tether is like a euro dollar on Bitcoin, and it allows dollar denominated risk to float around the crypto industry. I think essentially what it does is it allows a lot of these totally unregulated exchanges which are not connected to financial infrastructure in any way to operate with traders having

the option to transform their risk to dollars denomination, which has meant that there's this cottage industry of totally unregulated exchanges which have emerged. If you look at what Tether trades against, it's everything, you know, it's like the long tail of assets. So a Tether wipeout would be, I mean, it's a really significant fraction of Bitcoin volume too. Although it's hard to determine what's real and what's not, but it's like a large fraction. But it's also a large fraction of other kind of long tail coins.

So if it gets wiped out, I think it has a very negative effect on Bitcoin, but also on long tail, I think that's something that's being overlooked. Yeah. Do you think it's something where it blew up? Are we talking about 50% drops in prices, people completely are insolvent, and customers are stuck in terms of they can't actually get funds that they want access to? Or do you think it's less like Armageddon Day type situation and it's probably much more, hey, this is bad. But there's definitely in the short term, you know, a painful situation. But if you look at over the long term, you know, people will talk about it like a Mt.

Gox. Hey, that was really bad what happened. But we get over it and kind of keep going. What I think is actually likely to happen here, if Tether ceases operations, it would be because regulators actually step in and, you know, assert, you know, jurisdiction over them. And this kind of reminds me of the way that it happened when online poker was shut down in the US in 2011.

I had funds on full tilt for sure. The government just stepped in, froze everything, and had this long process of accounting and remediation and some of the poker sites were operating at a fractional reserve actually, great like prelude to crypto. Eventually, you're able to claim and get your funds back, although you may have taken a haircut. I think with those websites, one day people just went and there was just basically a website photo from the FBI. It was like this website has been seized by the FBI. Is it Black Friday or Black Monday?

Yeah, it was a dark day. It took years for everybody to get their funds out. I think it would be freeze operations and then there would be process of claiming to get your funds back. So, to the extent that Tether is three-quarters backed right now, that's kind of what depositors can expect to get out of it, if that happened today. That makes sense. Let's go back to Castle Island for a second. Any portfolio companies that you're really excited about that you want to kind of talk

through and explain why you guys are excited about them? So, there's one that actually was just announced today. Okay. All right. is a regulated spot futures cryptocurrency exchange. So, they are bringing kind of a maturity to this industry, which contrasts nicely with what we've been talking about thus far. So, they're an exchange in kind of the same way that the NYSE or NASDAQ is an exchange,

in that normal individual or retail investors cannot get an account on the exchange. So, it always struck me as kind of weird that on BitMEX, for instance, you had these like large quant firms trading against random global retail investors, it seemed very predatory. And I think that's why BitMEX is kind of a dangerous place to trade. So, ARISX is a conventional exchange in that you would have to go through a brokerage to get access to them if you're a retail investor. And I think this is just better for consumer protection essentially. They're also unbundling exchange and custody, which is really interesting. Obviously, that's the default in normal capital markets.

All right. So, this is really important, right? Because this is one thing that blew my mind in crypto is in the traditional financial system, you custody your funds in one place and you trade with those funds in another place. They are not vertically integrated Yeah. In almost every situation. It has always struck me as really bizarre that exchanges have to, as you say, vertically integrate and engage in these extremely different kinds of activities. One is custody, which is this like, you have threat models and it's a huge significant

challenge, requires enormous engineering resources. And the other one is matching trades, which is a totally different kind of competency entirely. So ARIS is focused on the exchange segment, not on the custody, which I think is healthy because now we're seeing institutions specialize. And the other thing is that they will have market makers live on the platform on day one. So spreads will be tight.

There will be surveillance. The whole thing is probably much more amenable to what the regulators want out of this market. So of course, crypto is much bigger than regulated spot and futures trading in the US, but this is really important in terms of market structure, in my opinion. It almost feels like the adults are showing up a little bit, right? I actually, in my opinion, look at what I'll call crypto incumbents, right? The people who have built very large multi-billion dollar businesses in crypto with exchanges in custody to date, they're adults, right?

been able to do this in a mature, regulated, kind of safe way. But there's not that many of them, right? I mean, we probably could sit here and name 10 or less that have been able to do that successfully. And now what we're starting to see is the people crossover from the traditional financial world who understand everything from the unbundling to the regulatory kind of bent in how to interface with those regulators. Do we just see consolidation with the crypto incumbents? Like, Do these new players to the market just start buying up the Krakens and Coinbases and just saying, hey, you guys have users, you guys have been doing this a long time, got a lot of institutional knowledge, but let's come together?

Or do you see this like battle for the user kind of play out over the next five years or so? I think the incumbents, you know, the traditional crypto exchanges that we know and love will always probably have a place in the industry. In particular, you know, retail investors love them. It does appear that they've stepped back from competing in the more institutional space. So like Coinbase just shuttered their office in Chicago and had departures on that front. And then meanwhile, you have custodians like Fidelity that are stepping in and exchanges

like ArisX and Bakkt, which are now entering. And it seems that they're much better placed to compete in that side of the market. So, I think that eventually the industry will consolidate around a few of those kind of more sophisticated players. But I'm certain that we'll also always have appetite for exchanges like Coinbase and Binance and so on. Yeah. That makes sense.

Let's talk about the maturation of Bitcoin real quick and just kind of how it interfaces with institutions. If you're one of these large financial organizations, what do you do with Bitcoin? Just buy a bunch of it, put it on your balance sheet, do you mine? You know, is it almost like the simple things that you and I would think of that you can do with Bitcoin are the things that they should be doing just at scale? Or do they just ignore it? What do they do? Well, for the most part, they ignore it.

But to the extent that they are engaging, it's mostly on the, you know, well, how do we if we have clients, like what do we tell them about it? Can we custody it for them? But I think a lot of the reluctance to engage with it has been due to, obviously, the perceptions related to the facilitating the darknet markets and so on, but also the instability of Bitcoin. Events like the fork in August 2017, the hostile, the competition from Bitcoin Cash and so on, that contributes to this air of instability. There have been a couple of critical bugs in history. It's still software and, you know, you could even say experimental software.

And you don't really want to, like with gold, there's no risk that the gold in your vaults transmutes into lead all of a sudden. But with Bitcoin, there's kind of like a slight risk that there's a critical bug and something terrible happens. So, I mean, nothing that's not recoverable in my opinion, but the fact that it is, it's not you know perfectly understood yet um kind of explains the reluctance a little bit i gave somebody this uh this comparison the other day and i said it feels like to me the institutions are like the roman empire uh emperors right and so they're all dressed up really nicely in all

their jewelry and their white cloths and everything and they go to uh the arena and they watch the gladiators fight it out right and they kill each other and they they're just you know savages in the arena and it's entertainment right for the kind of elites to watch this happen and they're betting on it they're doing all the stuff but they'll never get into the arena right and so i feel like if you compare the large financial institutions like they're the elites in the white cloths watching and then it's like crypto twitter is like the gladiators in the arena and just like all of the uh the drama and the just absolute um just ruthlessness i think right if If you look at some of the forks and the soap operas that go on around this stuff, it just

feels like two different worlds. It's like totally paradoxical to sit here. I'm a Bitcoiner, hardcore, et cetera, ideologically motivated, and here I am talking about the institutionalization of Bitcoin, it's like, Nick, that's completely paradoxical. This thing is, we were meant to take down the banks and so on. To some degree, that's totally true. I think the demographics that are best served by crypto are outside of the U.S. or they're people that are marginalized or not well, they can't engage with the current financial

system well. So whether that's sex workers, people in countries that are under sanction or where SWIFT doesn't work or operate or individuals like in the cannabis industry, even if what they're doing is totally legal, you know, those are the use case where crypto kind of makes perfect sense for them. Or if you're trying to send remittances to a channel where there's not a good efficiency there. So, you know, the immediate, you know, demographic that can benefit the most from crypto is, you know, the marginalized, those outside the U.S., you know, for the most part. So I'm definitely aware of the kind of the paradoxes in here and here.

Yeah. Makes sense. Before we finish up, you brought these dice. Tell us a little bit about the dice and then we'll play a game for a couple of minutes. So the dice, initially I made a meme actually on Photoshop where I was sick of the Paul Krugman's of the world trashing Bitcoin with the same 10 lines of attack. And so I decided to parody the critics and put all their different critiques on a different side of a 12-sided dice. At first, I wanted 20 sides, but my dice manufacturers told me they couldn't fit them on the panels because they're too small. So, we have edition one and edition two of the Bitcoin FUD dice here with us, and each

side is a different critique, and it's basically a parody of the kind of op-ed columnists that hate Bitcoin. All right. So, I'm going to roll this three times. Each time, I'm going to tell you what the critique is, and then you disprove the critique. critique. So, the first one is high fees. Yeah, high fees, man. It's a very common line of critique, that's for sure. So, I guess one of the critiques relating to fees is that Bitcoin is a poor payments network if fees

got too high, which is actually fair, which is why we have to build in this layered manner, maybe with the base layer being more of a settlement layer and other layers being the actual payments layers. But yeah, I mean, I fully expect fees on the base layer to be, you know, in the multiple dollars range in the future. Ah, toxic fans, the savages in the arena. Yeah, I think we're both very much accustomed to this. Yeah, so the interesting thing there is conflating the fans with the thing itself, you know. So, Bitcoin is like a neutral technology. It doesn't really have opinions. It's just a technology. But the

fans are not neutral. So, the question is, is the technology valuable and useful regardless of the behavior of the fans? And I think it is. Yeah, I agree. And I always joke around and says, you know, Bitcoin doesn't care about your politics, your religion, your technical charts or anything else. It just is, right? It just exists, and then it's how you and I use it that we'll talk about it that I think drives the sentiment. All right, last one. Oh, high fees again. They really like the high fees.

Selfish mining. Oh, yeah. This was an old critique by a Cornell professor that I think before he released the paper, he said that his result had broken Bitcoin. It's like, sell your Bitcoin. My paper disproves Bitcoin. That was a classic. But yeah, I think selfish mining actually is a potential edge case with mining, but it doesn't seem to be kind of a big deal.

What is the claim with selfish mining? That miners can subvert the mining process by withholding blocks and giving larger miners an advantage, I believe. But you know, Bitcoin seems to be fine. I don't know who wrote it, but I guess they were inaccurate in breaking Bitcoin. So maybe they'll try again. So many professors have tried. I think it's this condition I call Satoshi M.V., where, you know, they were maybe have been active in cryptography or distributed systems engineering and they didn't invent Bitcoin.

But Bitcoin was the biggest thing in their field ever. And so they just, you know, they're so pained by this that they then engage in this like Sisyphean effort to reinvent Bitcoin or invent a better alternative when, you know, Bitcoin is perfectly sufficient and we don't need all these professor coins. so uh one of my favorite parts about this whole like professor envy or satoshi envy as you call it uh is the idea that normally if we knew who the creator was they would just like ad hominem attack non-stop that one person right and tell us how stupid they are how bad they are you know there's probably some scandal whatever uh when you don't know who that person is you can't attack the person that's you have to attack the idea yeah right the idea is pretty good so far so good Ten years in, hundreds of billions of dollars a year is not too shabby.

All right. Before I finish up, do rapid-fire questions. What's the most important company in crypto, in your opinion? Ooh, okay. I believe it's Fidelity Investments. Fidelity? Oh, why? I'm not just saying that because, you know, I have many friends and colleagues that work there.

But I think custody and, in particular, defining a good control location, I think the SEC will give us clarity on that soon. That is what will make institutions comfortable with engaging with not just Bitcoin, but cryptocurrency more generally. Got it. What's the one regulation you would change or improve if you could? So, aside from the control location, which is kind of esoteric, I would say the IRS, I would ask for a safe harbor or an exemption in terms of the tax treatment for small uses of Bitcoin for purchases.

Yeah. That makes sense. What do you think your most controversial thought in crypto is? That time that I advocated for a dynamic block size on Bitcoin to optimize for a high level of fees or a stable level of fees. People didn't like that. Listen, we all have that one moment where we said something. Oh, I figured out how to fix Bitcoin. I just found out about Bitcoin.

I'm here to fix it. I literally do not know somebody who is well-respected in Bitcoin today who, if you ask them, usually you have to ask them in private. what's the one thing that you've said about bitcoin that maybe you would take back they all have one thing yeah right totally so we've all been savaged by the herd yeah and by the way that makes you appreciate it right you realize hey man this actually this thing works what's the most important book you've ever read um i'm a huge talib fan um i think uh that's like maybe every like white male my age is as well but um i would say fooled by randomness uh his first book actually. It really taught me how to think about probability, about trading. Yeah, really just an

outstanding book and underappreciated relative to the rest of his canon. Yeah, that makes sense. Where can people find the dice? They can find them on the Casa store. Casa is a portfolio company, full disclosure. I gave them a box of the dice to sell. I think you can buy them on the Lightning Network. C-A-S-A is the way you spell Casa. Yes. If you want to go check it out, i just go to the website i think they have a store there um all right before i let you ask me a question to end uh i talk about aliens believer non-believer uh not not believe not believer you do not believe in aliens you think they do not exist well i mean i don't think we've been visited by aliens i agree with that i think space is you know pretty big like odds are there

is probably life out there um if there isn't then that's totally cause for concern like i'm a big believer in fermi's paradox and the great filter so if there wasn't any extraterrestrial life i'd be very worried about us because then it's like well what's going to kill us off you know um is there a stage of civilization where you just collapse uh but uh i don't believe that we're currently uh you know in touch with aliens yeah i so i agree with you that they likely to exist i agree we probably never talked to them they've never talked to us or contact each other whatever whatever the light shield or whatever those people want to say um but the one thing uh you just made me think i don't know why i thought of this could you imagine if we were just living going through

life and then all of a sudden you woke up one day you're the only human left on earth like there's just some catastrophic event and literally you're just walking around everyone else is dead and you're the only person i have thought about that really yeah like what do you do i don't know it's like i am legend you can just do whatever you want like do you just go get like a burger you know and like trying to live your life or well the burger is not going to be good like in a week's time and then you have to hunt deer in the street or something it would be pretty lonely yeah for sure yeah yeah all right no one no one else on twitter too oh twitter would uh that would actually be the most devastating part depending on who you ask some people may say twitter would be better

they could just say all their nonsense into the ether and no one would care twitter's fascinating to me because uh it's the one place you can go and uh you can say pretty much anything you want everything from like here's the food i'm eating to i'm in this city to like i've got this grand idea about you know crypto or whatever and you'll one find other weirdos that agree with or disagree with you uh two nobody is shy about letting you know their opinion and then three is uh you are guaranteed if you tweet enough to meet people in real life who are the lurkers who they're like oh i read all your stuff like i don't even didn't even know you had a twitter account yeah right and uh and so you always got to just kind of keep in the back

of your head there's people who are watching this who have i have no clue who they are yeah that was the i'm sure this happens to you a lot but i started getting recognized on the street uh happened to me a couple times and i always thought i was like pretty marginal you know and i was like oh god like twitter is now beginning to cross the threshold into real life yeah it is uh it's gonna be pretty crazy i think when uh the next bull market occurs in the sense of um people are going to be kind of three, four years older, right? So you kind of get the folks who came in as 20 to 25 year olds are now going to be like 25 to 30 year olds, that type of range. And so I think they're just going to be more active, more social, like all of that. And then

you're going to get the new wave of all the kind of college kids coming in. And so it's just, I just keep thinking about, you know, is it double or triple the size of what we saw in 2017? Oh, man. I mean, if you think about it, if Bitcoin and crypto achieves the significance we think it will, some of the Twitter influencers of today will be politicians, you know, and cult leaders in the future. So I guess we can look forward to that. My goal is to get Jameson Lopp to come out of hiding. That's the goal. Have you not had him on? No, no. He would come on. I actually haven't talked to him about it, but I should get him on here. But just the idea of like he's so security kind of focused, right, to actually get him to come out publicly and say, this is where I live.

Right. Because then that means that we live in a very different world than I think we live in today. He would need to really amp up his security measures at that point. Yeah, for sure. All right. What one question do you have for me to end this thing? Okay. So, let me see. On the spectrum of beliefs about crypto and blockchains, I'll just briefly describe them and I want you to tell me which you think is the most defensible based on the evidence you've seen so far.

Oh, okay. Interesting. So, on the one hand, you have full-on no-coinism, you don't own crypto and you don't believe it will matter. Okay. And then you have the kind of intermediate step, which is like, you believe in blockchain technology, but not really in crypto. Then you have just pure orthodox Bitcoinism. You really only think Bitcoin is the interesting thing here. And then you have like the more

progressive, like multi-coinism, like there will be many assets, many chains. And then like the more extreme, like kind of techno-utopian, which is we will have DAOs, virtually everything will be tokenized, like crypto is going to massively take over and will gain political significance and so on. So like where on that spectrum do you think the evidence falls in favor of the most? Okay. So I'm going to answer this in kind of two different ways. One is for the mass consumer, I think that no coinism is like the most rational thing for them, right? So they don't necessarily, they're not early adopters, right? They pretty much, their life is not going to be impacted. They don't think about investments, right? All this kind of stuff. They just go about

their life every day. For that person, the odds that this is important or worth paying attention to today is like near zero, right? So from a rationality standpoint, if you are just an everyday person with no technological bent, no interest in technology or investing, and you just want to kind of, you know, go to work every day, come home to your family, enjoy your life, and that's it no coinism to me is very rational it makes total sense yeah and like it's just a probability game right of like how many new things come along in technology it's not like they're freaking out because of ai i mean you don't need to care about it or like innovations in machine learning or like self-driving cars by the way at some point there's going to be an app on your

phone that uses a bunch of you know technology you've never heard of before but you don't care because it gets you from point a to point b right and you're like oh it's a map like that's not a map, right? It's like a futuristic map, but okay. So I think that that is like the most rational thing for probably majority of the world, right? In terms of just on a pure aggregate number basis. Now, if you go to what I'll call like the technologist perspective, this is somebody who understands technology, maybe as an early adopter or an earlyish adopter and has a specific interest in this, right? So they're even, they've looked at it. In my opinion, it is Bitcoin has the highest probability of being successful, right? So if you just look at all, if you line up all of the

different tokens and use cases, Bitcoin has the highest probability, everything from Lindy effect to just size to that's, you know, kind of where the name brand or kind of mind share goes, all that kind of stuff. So I think that's like a high probability, in my opinion, relatively low risk today, right? In terms of it's not going to go to zero. Now, if you look at everything else, I think that's really where it gets interesting. So it's, you can be Bitcoin, nothing else. You me, Bitcoin's important and there will be other things, or you can be like, Bitcoin is no more important than anything else, right? I tend to be in the second category, which is Bitcoin is the most important. Bitcoin has the highest probability of being successful, but it is not, Bitcoin is the

only thing in the world, right? And I think that part of this is, you know, there's an argument to be made about like, all these other tokens are just R and D for Bitcoin. So like in that world, it's not that those other tokens are not important at all. They're actually important from an R&D perspective for Bitcoin, right? So you can make that argument. But really where I get to like Bitcoin's the most important, but everything else, the only thing else I'm really interested in is this idea of automation, right? What I mean by automation is if you think of assets that we've previously had, we've had analog physical assets, we've had these electronic QSIP assets, right? And then we eventually got computer files that are digital assets. Those computer

files have always been non-financial instruments so music and all this kind of stuff blockchain triple entry accounting they cannot be financial instruments to me it's less about anything other than now the machines and algorithms are going to be able to use a digitally native asset with digitally native accounting or triple entry accounting to conduct transactions right and so if you look at this as automation i'm less interested in like does this chain win over that chain or this token versus that token it's just what are the things that can interface from a technology standpoint are compatible with an automated future i don't think we know yet right it's kind of how i'll leave it and the reason being you know look we can talk about one that

to me makes a lot of sense but i have questions around it so recently um jaguar land rover announced that they're going to use iota right they're going to build this digital wallet in a car. They're going to pay people for data that they contribute. Uh, and then it sounds like the IOTA team's goal is to eventually then like whatever balance you have in the digital wallet, you can pay tolls. You can do like all this stuff, right? If it works, that's pretty transformative. Yeah. So here's how I come out on it. One is sound idea in terms of like, I actually believe that a car will be part of this like internet of things, right? To some degree it already is. Seems inevitable. Yeah, totally. Two is if you then wrap like the smart city concept around it,

Again, high probability that we'll get somewhere there in the future. My big questions come down to, do you need a different token? Could you just do it with Bitcoin, right? Is maybe the other tokens like a gateway drug, right? So like a Jaguar Land Rover scared of Bitcoin, so they end up using something that they think is a specific use case token, and then eventually they kind of go through their path and end up at Bitcoin. Can you just support multi-currencies, right?

So could it be a digital wallet? And you and I like Bitcoin, somebody else like something else. And, you know, somebody else says, hey, I'm a dignitary. I want to use a regulated, you know, digital dollar. Right. And that's what they want to use. I don't know how it all plays out. But I do think that Bitcoin is really important. And this idea of automation, it just there's so much unknown. Yeah. And it's I really want to see it happen. I tend to probably agree with you that like most of it is going to consolidate in and around Bitcoin. Right. So whether it is, are all the transactions done on the settlement layer? Are there other layers that are built? You know, is it tangentially related? I don't know exactly, or I just go build it all myself. And so I think that's what we spend our day, you know, investing, trying to figure out. It's like, where's the world going in that vein?

That's right. Well, that is a tremendous answer, man. Extremely well thought out. We are literally paid to think about this all day long. as I joke with people all the time, the podcast is just the fun stuff, right? We actually do real work around here. I guess you can call it that. Yeah, exactly. All right. Listen, this has been an absolute pleasure. We will have to do this again for sure in the future and just keep us updated as you guys are progressing. Well, thanks for having me on,

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visiting monarchwallet.com slash Pomp. Again, that's monarchwallet.com slash Pomp, or you can download the wallet for free today from Apple or Google. Hey everyone, Pomp 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