The Pomp Podcast - Tom Shaughnessy, 51percent Founder: Crypto Research in the Wild West

Episode Date: January 25, 2019

Tom Shaughnessy is the founder of the institutional crypto research platform 51Percent. In this conversation, Shaughnessy and Anthony Pompliano discuss what equity research is, how information is gathered in crypto, and how institutions are thinking about the space. ----- Join the Off the Chain newsletter. Pomp's daily email analyzes the crypto market for institutional investors. Simply, it’s the best crypto newsletter delivered to your inbox every morning. No frills. No bullsh*t. Just everything you need to know in a 3-minute read. https://offthechain.substack.com/ ----- BlockFi BlockFi allows you to keep your crypto, put it up as collateral, and receive a USD loan funded directly to your bank account. They do loans ranging from $2,000 to $10,000,000, and they're perfect for helping you reach your financial goals of all sizes. Visit BlockFi.com/Pomp to learn more about putting your crypto to work without having to sell it. ----- 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. Tom Shaughnessy is the founder of the institutional crypto research platform 51%. In this conversation, we cover what equity research is, how information is gathered in crypto, and how institutions are thinking about the space. Tom is one of those rare people who enjoys putting in the work and it shows in his research. I hope you enjoy this conversation as much as I did. Before we get started, I want to talk about one of our sponsors, BlockFi. These guys are doing really interesting work in crypto lending. What they allow you to do is keep your crypto,

put it up as collateral, and receive a US dollar loan funded directly to your bank account. They do loans ranging from $2,000 to $10 million, and they're perfect for helping you reach your financial goals of all sizes. You should visit blockfi.com slash pomp. Again, that's blockfi.com slash Pomp. Again, one more time, type it in, BlockFi.com slash Pomp, if you'd like to learn more about putting your crypto to work without having to sell it. Definitely do it. 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, we're here with Tom. I'm super excited about this episode because Tom spends all day researching, learning, and trying to share facts. We know that there's plenty of just nonsense out there in the crypto space. So hopefully we can have a pretty sober conversation about research and kind of how you see the world. Yeah. Thanks for having me on, Tom. Absolutely. All right. So you were doing research before you ever got into crypto.

So maybe start with your background and what you're doing before. Yeah, sure. So I went to Rutgers Business School, graduated there and started working at Oppenheimer on their cloud and communications equity research team. I was under a great boss, you know, a lot of modeling, a lot of white papers. And eventually we wanted to figure out whether or not blockchain and Ethereum in particular would be disruptive to the cloud companies we covered, AWS, Microsoft Azure, et cetera. So I wrote a hundred page blockchain white paper there. Not easy to publish on the sell side, but you know, I'm glad I did because it made them look like thought leaders and they are. And I fell down the rabbit hole completely

and left about two weeks after that was published and opened up a institutional crypto research shop and I research all day. Yeah. What's the name? 51%. And where'd that name come from? 51% attack. and it was uh so developers get it and then the 0.72 ish people also get it it's kind of like a name and a number got it that makes a lot of sense um all right so let's talk about what equity research is in the non-crypto world right a lot of people probably don't actually know what that is so maybe just explain you know who are the types of people who do this research why are they doing it and who are they selling it to and what do those people use it for yeah sure so i mean equity research traditionally is meant for sell side institutions to sell to hedge funds

pension funds, institutions, stuff like that, to be a legitimate source for great information, great calls, and actionable content. Doing that in crypto is a little differently because in equity research, there's only three ways you make money. The first one is management access. The second one is models. And the third one could be events, NDAs, stuff like that, or non-deal roadshows. In crypto, it's a little bit different because management access is free. Everyone has access to these developers. You could tweet them. You can get access to them. But what we don't have is we don't have sources in crypto where a crypto fund or an institution can go and say, hey, I found this great source for models and content, and we can actually use this to make decisions on. Because my take is no institution or crypto fund is going to their investment community with a medium post and saying, hey, you know, I have this great info because they can't call that person up and ask them about their model.

So my goal is to basically put out great content, great reports, actionable research that people can actually use to invest on, make calls, and get involved. And on the equity side, so non-crypto, who are the people who are normally taking the information, the research that's being created? Traditionally. So that would be generally hedge funds, pension funds, some VCs, not really, but mostly hedge funds and banks. So capital allocators are investors. Yes. Right. And what are they doing with it? Is this research sometimes they're using it to learn? They're using it to actually make investments in trade? What's kind of the distribution there? That's a great question. So, and they'll use it to learn. They'll use it to get ramped up on ideas.

They don't want to spend 10 hours, you know, on Twitter and Medium and Reddit trying to figure out what this new platform or dApp is. They want to read a 10-page report. They want to know everything there is to know, and they want an opinion. And then after the fact, you know, intracorder or whatever, then you can publish updates. This is what's going on. Here's an actionable call. This token got crushed. You know, maybe now's a good time to enter, stuff like that. And normally in the non-crypto world, right? So forget about crypto for a second, but in the non-crypto world, what are the types of things that research gets published on?

Are we talking specifically companies? Are we talking like industry trends? Are we talking just a complete deep dive on an actual industry, a whole host of things? Awesome question. So it really depends on the analyst you work for. Okay. So in the past, I worked for a very progressive tech analyst. So we would publish white papers on the 5G, new cloud technologies, anything from NG Pond 2 to data center technology.

We would cover everything. And then within those white papers, we would establish companies and calls that we thought would be applicable and would benefit from these industry trends. So to me, crypto and blockchain is a huge industry trend. We have to figure out the specific companies and plays and platforms that we can actually be involved with to drive value. So that's what I try and do all day long is to find those companies. and most of my time is spent finding the companies that are not not legit and that's not that easy to do sometimes got it and so let's flip to the crypto world right because i think that there's some parallels right so i'm asking about the non-crypto world but but in the crypto world

um there's a whole host of nuances and kind of uh things that don't exist in public markets for example right so you described one of them with access to management um but but maybe walk me through, you know, one of the reports that you've already created and just kind of do a high level overview. And then we can walk through how that actually got created and kind of step by step, you know, what goes into these reports. Yeah, sure. So, I mean, one of my favorite report I've done is on MakerDAO. It's a stable coin project that's totally decentralized. Andreessen Horowitz bought, I think, 6% of their token supply. So we're seeing institutions get involved already. But one of the things I looked for is I looked for, you know, what's going to

drive the next trend in 2019. Before you do that, what is MakerDAO? Okay. So MakerDAO is a stablecoin project. There's two different coins. DAI, DAI is a stablecoin pegged to a dollar, hopefully. It's stayed at its peg so far due to numerous stability mechanisms that are built into the platform. And then Maker, MKR, is the governance token. So that's the token that allows people to vote on upgrades to the platform, whether that be new collateralization ratios for new assets. We're just changing the protocol overall. So MakerDAO is an interesting project. The reason I targeted it was because I think stable coins are going to be a huge use case in 2019. And people say, oh, why would I want to invest in a stable coin? It's going to

be pegged to $1. There's no upside there. There's two upsides. The one upside is potentially in Maker and MakerDAO because that's a platform that's growing. And the other growth area is if you have a viable stable coin, you can drive immense use cases that don't have the problem of Bitcoin's volatility or Ether's volatility because, you know, pumpkin pays employees in $1,000 today and $1,000 tomorrow. People know what they're getting paid. And the use case for that is in salaries, games, smart contracts, assets, everything can be used with a stable coin. And so you're one of my favorite people in crypto to talk to just because you go into these projects and you do these super deep dives and most people in the industry probably have

some understanding or could describe to you, hey, X project does A, B, and C, right? But you've really spent the time to understand the pros, the cons, talk to people who are working on it, talk to the naysayers, et cetera. Maybe with MakerDAO, let's talk through what did you do to become educated on that space? Yeah, it's a great question. So, I mean, it does take a lot of work. I mean, I'm not on Twitter and I'm not looking at one tweet to make a decision here on what I should potentially research. It's a lot of work. You have to start with the white paper. You have to make sure that this project makes sense. Does the utility token here or the token actually have a use case? I mean, that's one of the major questions you have

to hit on because if not, why are you even researching it? Second thing is you have to go through everything. Reddit, you have to go through token supply with the ICO. Do the developers or founders own too much? Is the inflation too high? Then you have to go through everything from the governance. Does this token actually allow me to make changes or have a say in the platform? Because 99% of the tokens out there, 99.9% don't have real governance. The only ones I can point to that do are like Tezos, and they still haven't even voted on anything yet. And then after that, you have to go through all of the different aspects of whether the platform itself can actually drive value in the future. So with MakerDAO, I obviously thought that a stable

coin could, but my problem is I don't want to invest in Tether because it's going to be at a dollar forever, hopefully, and there's transparency issues. I want to invest in something that's going to drive real value in the future and enable new use cases. And so who did you talk to, right? So once you read the white paper, do you immediately start talking to the individuals who are building the project? Do you talk to maybe other analysts or people that you find on Twitter talking about it? How do you kind of work through that web of people that are in and around the project? Awesome question. I reached out directly to Rune Christensen, the founder. I said, Rune, I have 35 questions I need answers to them. You could

either help me out with this or I can make my own assumptions here. And, you know, I reached out to Rich at the MakerDAO Foundation as well. He helped me out. And then I'll talk to other people. You You could talk to Joe Schmoe on Reddit because there's so many people out there with such great info. There's a zillion different ways you can learn in this space, but there's real value in compiling all of those disparate sources into one source that people can go to that has real analysis and boils it all down. And so as you talk to these folks, if you were a reporter, for example, and somebody

gave you a statement, you would have to go and validate that statement, right? It's either true or it's not true. So they say to you, you know, hey, we have 37 employees, a reporter would go and make sure that they have 37 employees, right? How far does a researcher normally go in terms of validating the different statements that they hear? Obviously, from the company, I'm assuming there's much more kind of emphasis on the validity and accuracy versus like that random person on Twitter who says something and maybe

you go check it out or maybe you don't. It's a great question. And the weird part about it is a lot of these, you know, quote unquote random people on the internet, Twitter, they have a lot of great info. Of course. You know, they have a lot of great info. I mean, because they're people that are also doing the work, but it has to be presented in a way that's institutional grade.

But as for the platform itself, like on MakerDAO, I went online, I made sure that these collateralized debt positions that MakerDAO backs are live. You know, I made sure that its peg has been somewhat maintained. And it's varied a little bit due to some problems earlier on, but those have been addressed. But you have to go through everything because if there's anything that's wrong with it, there's no, you know, overlying body that's going to take care of this for you. It's Wild West. Yeah. What's interesting to me, I think, is in a lot of these projects, right, you're basically asking somebody to say, what are you doing? Right. How is it supposed to work?

how far are you along in building what you want to build but then there is an element of like we don't know about the future right so they think that they're going to continue to still build things and and it'll kind of go in this rosy picture we obviously know that everything will change what's the balance in your mind between you know when you're writing research kind of saying hey here is what the world looks like today and what's built and what's working and how that looks versus you know here's what this could become and then here's also like the really bearish case as well. How do you balance writing those two things? That's a great question. The best way I would word this is you need enough data that you know

that the platform today is sound enough to make sure that they can get to that future. So an example is 0x. They're building decentralized liquidity protocol on Ethereum. You could run different decentralized exchanges using it. Different relayers build their own platforms. Now, what people don't realize today is the token itself has zero governance functions. You control nothing by buying the token except being able to pay fees. But the point is, we have relayers on 0x, I think over 40 of them at this point, that are actually transacting tokens in real time. You can use 0x and put it on your website to allow tokens to be exchanged in real time. So I know that the platform and the protocol is working today.

So I'm okay with not having governance features now because I know there's a roadmap. that. But the point is I know the zero X protocol works now, so I can foresee it and project it out on what I think it will become. If there was no relayers on zero X or, you know, it was all a white paper and hope, then I'd be like, all right, you know, maybe this isn't legit. So you definitely need enough at stage one, even though we're early on to validate that it can be successful in the future. Okay. And so in traditional research, you know, let's say you're covering a company, for example you're an analyst and you're going to cover amazon right you kind of do your initial research hey here's what i think about the company a lot of times you're putting buy sell hold type

you know recommendations on it and then there are periodic updates right it obviously helps that in the public markets there are these um you know earnings reports that come out you know each quarter and so you have a chance to get on calls and ask the management different questions how does this work in the crypto world right like what is the periodic kind of updating of the research where people can say, we wrote something three months ago, six months ago, 12 months ago, and we were right, we were wrong. The project has made a left turn and it's doing something else. How do you think about it? Well, I definitely don't miss earnings and equity research. That was 5 a.m. and a midnight, if you're lucky. But it's a good question. In

crypto, it's two things. The first one is vague. The first one is it can be quiet for a project for a while. So you have to make sure you're actively looking for, did they hit this milestone? are they actually executing? Are their competitors getting traction? You have to look for that. But it's also a lot of random events that pop up. Like we signed this contract, we have this partnership. Civic announced this new partnership. Is this legit? So it's a lot of reaction in some cases to what's happening in the market, which is you want to be proactive, but there's just so much news flow in crypto and so much interaction that you have to just be out there every day looking for updates and reacting to it. Got it. And let's talk about some of the projects,

right? So I haven't really talked too much about different tokens or models on the podcast. And frankly, it's because, you know, I really don't have an opinion, right? But I think that you're the perfect person to run through maybe the top 10 tokens and we can discuss kind of how you look at them, what you like, what you don't like, what you think is important for people to pay attention to, et cetera, if that works. Yeah. No, I mean, to be honest, Bob, we're so early in this space that I try not to be biased on whether or not a project is legit or not legit. For sure. But we'd be remiss by not, we have to make calls and we have to be honest with people about what

we think. Because we're not helping people by hiding facts from them or our opinions. We have to give them opinions that they could make decisions or not. Because if you look at CoinMarketCap a year ago, I don't know what number it is, but a lot of those coins didn't exist or they're gone by now so we have to be really um we got to be opinionated well yeah and so you know look this is not financial advice right this is more of you know the merits of the technology the developers and frankly it's your personal opinion and understanding right and so this stuff can change tomorrow of course a developer you know the lead developer of a project could leave and immediately the outlook's completely different i totally agree um so let's start with uh bitcoin

what um what's your take there pros cons what do you think about it i have nothing wrong with Bitcoin. I think it's great. Do I think it's going to replace the U.S. dollar in the next five years? Absolutely not. I don't think fiat's going anywhere anytime soon. Does Bitcoin have serious problems it's facing? Absolutely. You know, Jimmy Song can yell all he want on his Twitter. I'd love to talk with him. But, you know, Jimmy, give me 10 applications or companies being built on Bitcoin, you know, other than thoughts or writings about things that will be built on Bitcoin. But do I think Bitcoin solves a zillion problems? Absolutely. It has a great monetary policy, it's fixed. We don't know how much money the Federal Reserve's printing. We know exactly

what's going on with Bitcoin. We know the supply schedule. We know who owns it. It's global. For people that are in horrible countries like Venezuela, it solves a zillion problems for them. There's nothing wrong with Bitcoin. I think it probably gets too much flack in the space. What is the bearish case? If I asked you, hey, five years from now, Bitcoin completely goes away and didn't work, what would be the number one reason why you could see that happening? It's a good question. One of the things I think about with Bitcoin is, and people sometimes, even myself, when I first started in crypto, I kind of argue Bitcoin has to change. It has to grow. As a currency or store of value, I don't think it has to change. I think the point is that

it doesn't change. It's hard to change. That's the point. We don't want it to be easy to change. We want this to be as stable and as rock solid as we can. So for people that argue between Bitcoin, Ethereum, or others, they have to separate in their mind what they're talking about. Bitcoin is supposed to be hard to change. Let's keep it the same. Let it be a store of value. And then build up the stack, layer two. But people really have to segregate those things. To answer your question, what do I think could kill Bitcoin? Bitcoin can kill itself. Oh, interesting. Why would you say that? What does that mean? I don't think anything is going to replace Bitcoin as a store of value. I don't think Bitcoin Cash is going to kill Bitcoin or Litecoin.

Charlie Lee sold all of his holdings. That's a terrible sign for a company or a protocol. all. But the only thing that's going to kill Bitcoin is itself. And what I mean by that is it's going to be either the developers leave, the story changes, or people go to a new version of Bitcoin. So what I mean, Bitcoin kills itself. I mean, people will go to a fork, if anything. But I don't think fiat currency is going to kill Bitcoin. All right. Before we continue with this conversation, I want to mention our sponsor again, BlockFi. Remember, they do crypto lending. So you posted your crypto as collateral. They give you a U.S. dollar loan and you can use the US dollars to do whatever you want. You should visit BlockFi.com slash Pomp and then tweet at

me that you went. If you tweet at me after you went to BlockFi.com slash Pomp, maybe I'll throw you a like, a smiley face, or the fire emoji. The fire emoji is the best. Remember, go to BlockFi.com slash Pomp and I'll see you on Twitter. You know, I think a lot about with Bitcoin specifically, everyone wants to pit fiat currency versus this decentralized digital currency, right? And I think less about like 1v1. And I think more about coexistence and allowing people to have two options. And you individually can choose which one you think is more appropriate for your specific use cases, your specific needs. And that doesn't mean that one's better than the other. It just means that it fits your solution. Yeah, no, I totally I mean, think about the world

in which Bitcoin replaces fiat money. I mean, that means that, you know, the government has no control over us. That all sounds great and everything, but who's paying your cops and firefighters? Who's paying to get the garbage off your streets and pay the public works people? Are you just going to donate to them? People don't think about that dystopian. If the world ends tomorrow and Bitcoin wins, we're all dead anyway. I love it. All right. Let's talk about Ethereum because I know that you're quite bullish on it. So walk us through pros, cons, and what your view is? Yeah. Ethereum's an awesome platform, in my opinion. I was akin to it or I was drawn to it because I used to cover AWS in part and Microsoft Azure, so platforms you can build on. And one of

the things that I loved about Ethereum was Vitalik. The guy was just such a forward thinker. He put out great research. And the other thing I really liked about him was he was very receptive to the problems. He wasn't like Dan Larimer at EOS just calling people out. He was like, submit research to me. I'll review it and I'll send you back 20 pages of comments. So not myself, but other people that have worked with them. So that's why I loved the founders focus, you know, of course, with other people. But what I love about Ethereum is I love that we're actually seeing applications being built on it and we're actually seeing use cases, you know, whether that be MakerDAO with the stable coin being built on it, whether that be 0x with three layers being built on it for

decentralized exchanges. We're just seeing, in my opinion, the most vibrant and strongest developer community that we have in the space. I published a report on Serenity, Ethereum's upgrade that's coming out. The first part of that is going to be a hard fork in mid-January. But Serenity is a new upgrade that has a multi-year timeline. People are saying 2020. To be honest, I don't think it's going to happen within two years. What does? Especially with developers. But that's going to bring new changes to the platform where we're going to have sharding, which is instead of one blockchain, you have 1,024 blockchains all under a beacon chain or above a beacon chain, however you look at it. But that's going to enable a ton of new

use cases. Because what people don't understand is layer one, I don't think layer one should be scale, like the base blockchain protocol Ethereum. That should be decentralized, have tens of thousands of nodes, be hard to change. But when you move up the stack to layer two, you should have things like plasma and real scale that people can build on. So, decentralized layer one, scale layer two. And I think that's where we get all the great use cases out of. And with Ethereum, I think we get that through Serenity. What's your biggest concern as to why Ethereum could completely disappear? I have a thousand concerns. My job is to look at all the concerns, right? But

the biggest concern is not in my mind competitors. It's can the developers actually execute? And I don't know if people, you know, like Ethereum Serenity Update, this isn't like a tweak to the code or like, you know, control fine, change this word to that word. They're rebuilding the entire foundation of the protocol. They have to make sure that this works because if it doesn't work, you know, your base layer, I don't, people kind of overlook this a bit. All the applications built on top of a platform are all subject to the base layer's governance. If something happens to Ethereum's base layer, everything built on top of it is affected. Not only the ether in your Coinbase wallet, but MakerDAO, 0x, all the applications can get messed up. So my biggest

concern is whether or not they can make this huge transition. I'm confident they can because they have the smartest developers in the room, in my opinion. But we're going to have to see. XRP. Oh, God, I'm going to have the XRP army on me if we go too far into this. I wrote a deep dive on Ripple and XRP. And I also had one of their, a guy I'm really fond of, Weistwind on my podcast, too. And he's developing a tip bot, which I thought was awesome. He can tip people in real time on Twitter using XRP.

But am I investing in XRP? No, no way. Why? because I have a fundamental problem with XRP. It's owned by retail customers who have no use case for the currency. XRP is supposed to be used by banks, multinationals for remittances, global transfers, and payments. There's no use case for retail investors to own XRP. So I don't understand the bull case for them. There's also numerous problems with it. Like the first 30,000 blocks of the chain are missing. Ripple makes all of their money selling the

currency. Ripple controls 60% of the nodes and they control the unverified list or the verified list that decides who is a node. There's just too many problems with it in my mind. I'm not saying Ripple or XRP is bad. They actually have a use case, people forget. Global money and payments and transfers, that's a use case. But are there better alternatives out there that are truly crypto? Yes. So your take, if I'm hearing this correctly, is that Ripple, meaning the company that has technology that is trying to sell it to banks is positive and is real technology that could go compete with Swift at some point in the future, et cetera. It sounds like the issues is really around XRP, the currency that is used within that for all the reasons you just described.

Long ripple, short XRP. Got it. Okay. I think that's fair, right? I think there's quite a few people who would agree with that. Look, you know what? There's a lot of people that will disagree with me on that and that's fine. But my job is to have an opinion and to share that because if I'd be remiss if five years go by and I didn't share my real opinion. Well, and I think that part of research, right, especially given what you're doing is to say, here's my opinion and here's the work I did and here is why I believe what I believe. Agreed. Right. And so somebody could say, hey, I disagree with your opinion, but I understand how you

arrived at that opinion. Right. And that's still a win for you. Now, that's a great point. And in the institutional world, that's how it works. You sit down from an investment company, your investment manager, and they say, hey, you know what, Tom? I love your report on Ripple or XRP or Ethereum. But hey, I disagree on these points. But I get directionally where you're going. On crypto Twitter, everybody is binary. I love this. I hate that. And in my mind, that's not how the investment world works. You hate something to a degree, you like something to a degree. If things change that stake, then you can move on it. But you have to keep that gray area down. I love Ethereum. But if I see the developers flailing, like when I saw the 1.x come out with these private meetings, that was a concern to me because it's supposed to be transparent and open. The developers came out and they addressed it, whatever, which was great. But you have to be critical on every event. But you have to have a gray area on the degree to which you like things or hate them.

Got it. Tether. Tether wouldn't touch it. Why? Because you will always have the transparency issue. You will always have a problem of, does Tether have X amount of US dollars in their bank or not? That will never be transparently solved, in my opinion, ever. We're always going to have to wait for a quarterly statement. And what if they don't share it? When you go on MakerDAO, you can see the smart contracts and you can see the amount of money or the amount of Ether locked up in real time. There's like 2%

of all Ether locked in MakerDAO right now, smart contracts, backing DAI stablecoin. It's transparent, it works, and people know exactly how much is out there. Got it. And then you recently published a report on privacy coins. Yep. What was kind of your take there? Oh God, highly technical. Because you covered four of them, if I remember correctly, right? Yeah. Privacy coins is a tough area to get your head around. And the first understanding is why do we even need privacy coins. And people, I think, forget that Bitcoin is totally transparent. You give me your wallet pump, I'm going to go on an explorer and track all your payments back to everywhere. With privacy coins, the goal is to hide that, obfuscate it, hide what you own so people can't track you.

If you want to donate to a political party, why should anybody have to know that I donated to it? Things like that. There's a lot of use cases for privacy coins, but it's a highly complex field, and it's dominated by two coins, Monero and Zcash. Both go about it differently. Monero goes about it with three main items, shielded transactions, rig signatures, technical items that kind of, how do I describe this? There's like 11 people in the room and one of them did a transaction, but you don't know who it is. Zcash is the next generation of privacy coins, in my opinion. They use ZK Snarks, which is a highly complex field where you don't actually have to reveal any data, but you can verify what actually happened. Now, each has its problems,

of course. Monero is obviously less technically secure, I think. But the point is, their entire base of transactions is private on the network. Zcash has visible transactions and shielded transactions. And the shielded transactions only make up around 15% of transactions currently. So the base is smaller today. But the point is, we're not investing for today. We're investing for tomorrow. We want the most secure coin. And that's Zcash, my opinion over Monero. Got it. And so as part of this, right, you know, what you just described is a quick summary of a lot of work that you did in terms of the technical understanding of what people are building. How do you wrap your head around it? Right. Because the way I think of crypto and I'm fascinated by people

who are doing research and really looking at this stuff who are not technical. These are highly complex, you know, theories and software that's being written. Is your approach to read first and then go talk to people building it and ask all your questions? Or like, how should people who are sitting at home saying, you know what? I've seen Monero, right? I hear people talking about it. I want to go learn about the technology. What's like the way for them to attack that learning? That's a that's a great question. And in my mind, the majority of people, you know, whether it be public equity or stocks, or whether with Jim Cramer, say, or whether it be crypto, are always going to look for a, pun intended here, trusted source of where they're going for

that information. And I'm not a coder. I'm not a DAB developer. So, when I looked at Monero and Zcash, I said, you know what, do we have any examples of this stuff actually being messed with? And with Monero, we did. We had a report where 200,000 transactions became visible. They addressed the problem. Did that percent drop from 80% transactions to 50? I don't know. But the point is, we have to look for tangible real world data on these systems falling apart. Zcash has several items that are also wrong with it. They had a trusted setup at the start of their currency where six people were involved. And if these six people kept part of their shard, they can print Zcash at will.

So we have to be real cognizant of the real world problems that we're seeing. because I don't think ever the majority of people are ever going to look at the code of these things. You know, how many people look at the white paper and then how many people look at the GitHub? Like, it's got to be way down in each new step. Is there a piece of technology that you think is really promising or important that maybe, you know, most of the people listening to this

won't be aware of or won't actually understand the importance of? In crypto? Mm-hmm. I mean, to be honest, I still feel like a lot of retail people aren't looking at Ethereum. You know, everybody's stuck on Bitcoin and that's great. That's awesome. You know, Bitcoin is, you can't knock it, but we have to look at where's this technology taking us and where are we going? And we have to invest in the platforms that are going to be building the next

generation of that. You know, can we be wrong on Ethereum? Maybe, but will you gain a ton of insight and knowledge on decentralized platforms and crypto by understanding Ethereum? Absolutely. Without a doubt. Got it. And so I guess, you know, as you look out over the next five, 10 years right what's your take in terms of um the things people should be paying attention to what are those themes that um you know again maybe that they're not making investments based off of but just as somebody who's interested in crypto you know these are the important um kind of trends to follow yeah it's a great question um the first one is probably stable coins in 2019 i think that stable coins will enable a new generation of interaction between people because a stable

currency solves volatility issues. So, is a stable coin sexy? No. But is the applications that can be built on it sexy? Absolutely. The other thing would be security tokens are going to be a huge topic in 2019 and 2020. Can we securitize a building? Absolutely. Is that fun and exciting? Absolutely not. But can Pomp own 1% of that building across the street by buying a token on Coinbase? That's fun. That's interesting. And then you have the derivatives markets built on top of that. So I think people have to understand that the base layer that everyone's focused on building now, these base layers, they're not fun and exciting. Sometimes they're really boring, but we need them to enable the fun use cases, whether that be decentralized Facebook

or whether that be dividing up the Yankees into $5,000 token slots. All of that stuff is enabled by perfecting the infrastructure layer. And the stuff built on top of it, nobody's going to be able to predict when that comes, but it's impossible without the stuff we're doing today. I see. What about people that you end up seeing, you know, on Twitter, Reddit, et cetera, like information sources that you think are maybe not as well known as, let's say, kind of the mainstream media type stuff? Yeah, that's a great question. There's a zillion. Like I'm on Medium every day and I, you know, I rarely ever see the same author because there's so many people publishing so much data. Um, I'm surprising you with these questions. Cause I want to know what's

off the top of your head. When I ask you best sources, here's the two or three that like stick out in your mind. Cause those are the really good ones. Yeah. Well, I mean, I love your, I love your daily newsletter. Oh my God. What a non-answer. Now there's a, there's a lot of sources. Um, but to be honest, I try not to look at opinionated sources until I have my own problems with an idea or a platform. I'm not looking at anybody's medium post, anybody's thought topic or thesis or Reddit post until I understand the dynamics of the token. Because I don't know whether I'm spending an hour reading something and the guy might be wrong on his first sentence or I might not agree with it. So you have to start

with the foundation, then go to opinion people, then get your fun stuff, exciting stuff about what you think can happen. It's funny because, um, you know, we spent a bunch of time, as many people know, listening that, uh, you're talking to these institutional investors and a lot of them always say to me, Hey, you know, look, this is interesting to me. I'd love to learn more about it. Um, you know, send me all the information that you have and then can you recommend a couple of sources of information, um, where, uh, you know, I can learn more. And the first time somebody ever asked me that I jokingly was, uh, I told one of my partners afterwards, I said, what am I supposed to do would be like go follow whale panda and like you know bully esq on uh on twitter and uh you

know i i think highly both of them but just the institutional investors like what wait who is that yeah no you're you're totally right but you know one of our goals here is we don't you know the idea is do we meet wall street in the middle or do they meet us so you know they have to meet us in a point they have to get twitter they have to get reddit they have to start looking at these sources to them it's just another data source but it's alien to them because they've never used it before this isn't edgar and sec filings and yahoo finance this is twitter reddit and medium you know you got to get on that that that's a uh really interesting idea if there was like an edgar meets twitter right and uh and you basically had the validators of the system being the all of the

pseudonymous accounts on the like the crypto ogs hopefully we got to get there that would uh that would get out of control real fast oh yeah yeah we'd have a lot of fighting like those uh crypto cruises people go on exactly um all right so uh let's do a round of rapid fire questions before we wrap up here um if you had to get if you had to say what the most important company in crypto was what would you say consensus oh why hands down hands down really smartest guys in every room You think that ConsenSys is the most important company in crypto? Most important. Hands down.

Why? 1,200 of the swole after layoffs, minus 13%. Yeah. 1,000 of the smartest people building 50 spokes that people don't even understand how valuable they are. They're building all the back-end infrastructure. They're building all the new use cases. They're building the future. Well, to be honest, people think ConsenSys is Ethereum-focused.

I don't think they're going to be Ethereum-focused forever. Okay, that's interesting. Why? Because in my mind, they're a systems integrator. They're going to build on whatever platform makes sense. Today, that's Ethereum. Tomorrow might be Ethereum X. I don't know.

But I think that- Would they ever build on Bitcoin? God. That would be a super unforeseen development in the crypto world if consensus ended up building on a Bitcoin. Well, all I would say is if you have 50 companies and they've all decided to add a thousand people, over a thousand people, and they haven't built on Bitcoin yet, why would they start tomorrow?

They obviously have a reason to not build on Bitcoin. They want to believe for whatever it is. Of course. But I mean, beliefs are fine, but these are engineers that are deciding where and where they cannot build. And they've decided not to. I mean, you have Blockstream to build on Bitcoin. Of course. If you could wave a magic wand and change any one regulation or improve it, what would it be? I'd probably have the SEC put out actual regulation and real guidance instead of being vague and having everybody question their every move. Regulation is not bad for the space. It's great. People want to know how they can build, but they don't know because it's Hinman's comments and then Hester Pierce's comments and then questions and are we regulating this or that?

We need real regulation that sets the goalpost. I love how every time one of the commissioners talks at a conference, they all caveat it with, this is my personal opinion. this does not represent the sec or any of the other commissioners right and and it's more on their part right like they've um you know if you asked me would i rather them do and and proceed the way that they have versus maybe how other jurisdictions like you know china or whatever have i would much actually rather the way that american regulators have handled this right they haven't been overly heavy-handed they've really put in time to try to learn right and they say look there's a bunch of stuff we don't know we're trying to figure it out and we want to kind of

stay true to our mission of protecting investors providing fair and safe markets etc there's all kinds of complaints people have in there of how that's being applied whatever but but i do think um you know it's interesting to see the i guess you can call it dissent between the commissioners and how they look at technology you know this technology specifically um but but they've done a pretty good job i think right most people would agree with that they've done a great job but there's two things here i mean one is there's a lot of investors and consumers over there that have been screwed over by horrible, pumpish ICOs, right? And stuff like that. But on the other hand of this, I don't think the SEC will ever cede crypto or blockchain to another country. We're

not giving up the fight on 5G to China, right? Why would we give up the fight on crypto to another country? If the SEC, in my opinion, knows that if they're heavy handed or they don't provide real regulation, it'll go to another country. They don't want that to happen. Jurisdiction shopping. Yep. What's the most important book you've ever read? I love Fooled by Randomness. Oh, what's that? Favorite book ever. Nassim Tlaib basically argues against, or Nassim Tlaib?

I don't know how to pronounce his name. He's on Twitter. He's an awesome guy. It's just all about chance and all about randomness. You know, it argues that your neighbor that's a millionaire might not be a millionaire because he's smart, but maybe because he was lucky. So his whole thesis is, you know, get an industry that's resistant to change. So we're probably in the wrong one.

i usually when i ask the regulation question uh people talk about uh all kinds of things but one that's popular is the accreditation laws yeah right and i always say you know i know i know a lot of uh dumb rich people it's a perfect example just got lucky yeah or or somebody they're related to with smart yeah everyone's got a rich uncle exactly um very cool all right so uh i usually ask one non-crypto question uh everyone knows about the aliens uh we've got to just admit that aliens are real um but i'm gonna ask you a little variation so normally i would ask you know do you think there's alien pets or animals but instead because you're a researcher and you spend a lot of time focused on how to learn about things what would be your approach to find out as much

information as you could about whether aliens are real or not it's a great question um what's the process for people to go learn about aliens well i mean there's just so much information out there i feel like it would be worthless to go online and read all conspiracy theories i would probably find should we just go to space and see what's up i mean we have to talk to musk or us or uh you know the amazon jeff bezos and go on one of their rockets but what i would do is i would try and find any astronauts on the moon and i would find them in a closed room and i would ask them face to face do aliens exist and you think that they would have an opinion just given that they spent so much more time thinking about space and galaxies and absolutely yeah my uncle my great

uncle was a nasa engineer he helped put apollo on the moon and you know he always told me his conversations with the astronauts or conversations that they would never share with the media it's crazy insane it is um uh space is something that has just fascinated me because uh it doesn't matter what we actually do there right there are going to be so many people that never believe it's true yep oh no i spend way too much time thinking about time and space and galaxies and the multiverse and you know there's a thousand different universes where me and you are sitting on different sides of the table right now like it it's wild to think about how small the earth is in the grand scheme of the world and then how small we are on the earth it's just like ah man

what what is going on here making me feel worthless right now that that's uh that's the whole point of the podcast actually um all right so i end each one with uh letting the guest ask me a question what uh what one question do you have for me what do you want to see in a year from now with bitcoin people come on now they're like ready i don't like this as much what do i want to see one year from now with bitcoin um honestly uh i think that what i call the bitcoin fundamentals just continuing to grow right and so it's less about like some big qualitative dream or utopia of like hey everyone's using it whatever i think if you take today's point in time right so recording this in in december of 2018 and we look at december of 2019 hash rate continues to grow

number of walls continues to grow number of transactions continue to grow overall transaction volume continues to grow right you know lightning continues to grow in terms of all of its data points to me i've come to peace with bitcoin specifically is a very long-term project that the beauty of it comes from the slow methodical nature right totally right there's plenty of people who have higher time preferences etc right but i i've pretty much just said to myself you know this is the one project where moving fast and breaking things right that you know it is a really bad thing right and and to the design is in such a way that if we get this right it could be it could be the most powerful computing power or the computing platform in the world now there's

a whole bunch of things that go wrong between now and then right some of the things you mentioned other you know just simple a software bug right it's a great you know great example it could just all go away um but i do think uh just time and those fundamentals continue to grow are um you know kind of the most important thing in my opinion so what's your eyes the next uh the next bull run you got to have an idea on this come on yeah i i mean so here's what i will say the next bull run is bigger than the last one right in my opinion right so just my personal opinion um the last one will look small compared to the next one right because it's just more people are aware of it there's more capital actually at stake um you know flowing in more institutions you know

more infrastructure in place all that kind of stuff um what kicks it off uh it's probably not one thing it's you know a whole host of things that kind of chip away at um you know first kind of bottoming out of this bear market and eventually slowly recovering and maybe there's a couple of kind of inflection points some of the things in there um probably at the top of the list is you know the having um i think is just a systematic um you know kind of catalyst that this built in um there's definitely things around uh regulation could help right um you know kind of retail products like an etf could help um and then i think that there's just specific infrastructure that's built that gives certain people access or you know ease of use etc um and then you know

layer two layer three technologies that kind of fall in that bucket as well um all of those things move us closer to more adoption right and if you have more adoption or more demand with a fixed supply asset price moves right it's just supply and demand economics um so i think that's where i kind of come out on it it's awesome what um so i'm a huge fan of the research obviously um where can people go sign up to uh to get it appreciate that it's 51pct.io so it's a 51pct.io yep a little abbreviation easy or uh can we say that because uh you are one of a few researchers in the space right now and in my opinion probably the best um that you have 51 control of the research market Yeah, I have to say production and editorial is centralized.

I love it, man. All right, so people go check out the research. I'm a huge fan and thank you so much for coming. Thanks for having me on, Pomp. It's awesome. Yeah, we'll do it again. All right, you reached the end of the podcast. Congratulations.

I appreciate you listening all the way to the end. You deserve a trophy. But before I hand out the virtual trophies, remember to go visit blockfi.com slash Pomp. They're the crypto lending leader in the US. They do it in 45 states, interest rates as low as 8%, and you can use the US dollars funded directly to your bank account to do whatever you want. You should definitely go visit BlockFi.com slash Pomp. You know you want to do it, so just do it. BlockFi.com slash Pomp. Hey, everyone. Pomp here. If you like this episode of Off The Chain and want to help us take crypto to the top of the Apple, Spotify,

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