The Wolf Of All Streets - Stablecoins For Dummies | Paolo Ardoino, Tether and Bitfinex CTO

Episode Date: September 23, 2021

As the CTO of both Bitfinex and Tether, Paolo Ardoino is solving the greatest challenges of the crypto space. This episode takes a deep look at some of the most important topics regarding stablecoins - how they will scale, whether they are securities, if banks will use them, and the risks associated with their use. This is a master class on everything stablecoin related, valuiable for both newcomers and experienced users of this revolutionary financial product. Paolo Ardoino: https://twitter.com/paoloardoino -- Harmony: Build on Harmony, run on all chains https://thewolfofallstreets.link/harmony Harmony is your open platform for assets, collectibles, identity, governance. Be the ONE to bridge to all blockchains. Harmony is an open and fast blockchain. Their mainnet runs Ethereum applications with 2-second transaction finality and 100 times lower fees. Harmony’s secure bridges offer cross-chain asset transfers with Ethereum, Binance and other chains. -- If you enjoyed this conversation, share it with your colleagues & friends, rate, review, and subscribe. This podcast is presented by Blockworks. For exclusive content and events that provide insights into the crypto and blockchain space, visit them at: https://www.blockworks.co ーーー Join the Wolf Den newsletter: ►►https://www.getrevue.co/profile/TheWo...

This episode is brought to you by Harmony. Please stay tuned for more information about them later in the episode. What's up, everybody? I'm Scott Melker, and this is the Wolf of All Streets podcast, where twice a week I talk to your favorite personalities from the worlds of Bitcoin, finance, music, art, sports, politics, basically anyone with a good story to tell. Now, today's guest is fluent in roughly 15 coding languages, is a master of cryptography and a pioneer in the crypto space. He serves as the chief technology officer of both Bitfinex and Tether, two giants that offer unique challenges.

My guess is that Paolo Arduino never sleeps. I'm looking forward to digging into the technical side of cryptocurrency, better understanding the ins and outs of both exchanges and stablecoins, and hearing Paolo's thoughts on the future of cryptocurrency. Paolo Arduino, it's a pleasure to have you on the show. Thank you so much. Thank you for the really nice introduction, Scott, and thank you very much for your time and having me to do your show. Well, thank you. So listen, as I said, you have two jobs that sound like enough work for 10 people. Can you talk about how you balance your role as CTO for both the top 10 exchange and the world's largest stablecoin? Well, I would say that my main tasks during the day are coding, of course, because when I decided to become or when I

agreed to become CTO of both companies, the way I do things in both companies is that I need to set up my daily schedule, my weekly schedule, so that it leaves enough time for me to keep coding, right? So, of course, I oversight the business side of Bitfinex especially, and as well as other areas and aside coding and on the better side,

aside coding security and cryptography and so on I oversight basically the, still the business development on more of the retail and new, let's say micro payments side, right? Less institutional side, more the retail side. So yeah, I try to code as much as I can during the day and especially in the evening and during the weekends. So I really feel bad if I cannot, you know, work on my preferred projects in both companies. On the Bitfinex side, I like to, well, I'm still the lead developer of the matching engine.

I like it doing myself because it's the core of the, if the core is part of the core, is like that thing that cannot ever go down, is that thing that needs to resist to the wrath of God. So it makes me excited to work on it.

So I will never, well, of course I have people that work with me on that side, but it's a beauty. So I want to keep working on that. I mean, that's incredible because every time you generally talk to a CTO or someone who moves up the ladder and is in charge, they generally don't do the work anymore. They oversee and manage. Right. So it's interesting to me that you spend so much time still coding.

Well, but how you can, and I know that, right? So when I talk to people that are in my role, that's something that they hear a lot. But I feel like that I will not be able to manage a really extremely competent team without being hands-on, right? So if I don't learn new languages,

if I don't do the dirty work myself, my biggest fear is that I will lose control and I will lose oversight on the quality of the project, the code and the infrastructure of the companies. So that's why also I'm doing that. So I think there's probably a lot of confusion or misperception as to the relationship between those two companies, right? How Bitfinex and Tether interact, how intertwined they actually are or whether they're completely separate.

Can you talk about not your role specifically, but how the two companies work together or are related? Sure. So the two companies are separate companies, but they have some, let's say, share some key personnel. For example, I'm an example, right? I'm CTO on both companies. So they have distinct teams that work on the marketing side.

On the tender side, for example, we have the blockchain integration team that is focusing just on launching our stablecoin on different blockchains. We started from Omnid and Ethereum, Tron, EOS, Algorand, Liquid and so on. And on the Tether side instead, it's more like a traditional front-end, back-end development team with, yes, blockchain integration, but it's mainly integrating blockchains into the Bitfinex workflow. So, actually, we have many different teams, although some key people, as I said, are shared across the two companies. So, yes, there is some confusion that, you know, they are the same company. They are not. But as I said, there is some overlapping.

That makes sense. So what are the unique challenges day to day of keeping an exchange online and running on the Bitfinex side? Because, well, first of all, it used to seem like it was unique to crypto that we would see outages all the time. Everybody knows that every time there's volatility, Coinbase is down. It's become kind of a meme, something we see across the industry. But now even in legacy markets, you know, when there's volatility, we've seen Robinhood go down for long periods of time. So it's nice that it's not unique to crypto. But is keeping the exchange online and active during volatility the largest challenge?

What are the other challenges that come with being, CTO of an exchange? So I think that the main challenge is probably making sure that you can do the least number of downtimes per year possible. In Bitfinex, we tend to do from one to two maximum. We have a difference set up from the infrastructure point of view than other exchanges. So for my, let's say, own preference, I decided to move from using AWS and the cloud services to get our own cabinets, physical data center, picking the servers that we wanted with the CPUs that we wanted, hard drives and RAM and everything, right? Because first of all, virtualization is one of those things that could lead to possible hacks,

especially if you are not, if you are renting a virtual machine on an infrastructure that you don't know about. So we have, I think that was the Spectre bug into Intel that was causing some leaks. And that is specifically an issue when you are running on a cloud environment. So since we are running nodes that cost our customers money, for me, the security and ensuring that I'm doing the best I can in order to remove all the possible points of attack that at least I know, that's critical, right? So we decided in 2018 to move the entire infrastructure from AWS to physical data center. And so that creates additional challenges compared to the competition, because then we have to,

you know, if you want to have an upgrade for our own firewalls, switches and so on, we have to properly coordinate that to avoid downtime or to have the least amount of downtime as possible. So, but yeah, I think that what we are trying to, when you have to build an exchange, you have to always think, okay, how I can create things that will just, will allow me to do upgrades, like new features, new pairs, new like, new derivatives pairs and so on. All these things should happen without the necessity of any downtime. So actually, the designing and the architecture is the most complex thing.

And of course, when there is volatility, I mean, Bitcinextor resisted extremely well during the 2020 March peak. That is the moment when I saw that there are two actual moments in the crypto industry, well, recent crypto industry, when the volatility was really crazy. You know, the night, well, it was night for me. It was in London at that time. It was a crypto compare conference. And when Donald Trump announced that basically the stop of incoming flights from the rest of the world during the start of the COVID pandemic.

Then you have seen the market basically melting down from 50% to 60%. Then Bitfinex was able to keep up. Almost every exchange was down. And then when Elon Musk announced that Tesla was investing in Bitcoin, it was mid-Fe mid February 2021. That was also on the other side was a spike, but was another crazy moment. I believe that we maxed out our number of concurrent users as well, orders per second. It was the day we were handling up to, I think it's around 500 million orders in a single day. That was our peak, like was extremely crazy. And those moments are the ones that you, because during the rest of the year, you know, the market is quiet. Yes, there are some peaks, there is a little bit of volatility,

but when those particular days in the year happen, you know if you are doing a good job or not, right? Because you know you are stress testing the entire structure. The Super Bowl. You show up, you got to be ready for the big game. So that obviously begs the question then, there's always going to be black swan events, volatility, those you were able to react to. do you assuming that you believe that there's going to be mass

adoption of cryptocurrency and this is only going to get bigger how do you scale for the potential of the industry rather than just keep up with you know what's happening right now that's a good question so um if you are starting to serve you you know, now we are serving millions, tens of millions of users, right? But if you want to scale and serving billions of users on a single platform, you have to become of the size of Google, basically, right? Because then you have to have a part redundancy. You have to be able to probably have multiple matching engines servicing different parts of the world. Because one problem that sometimes is neglected in our industry is that, you know, we are, for example, our data center is in Switzerland.

So if you are connecting from, I don't know, Asia, the latency will be really high, right? So most of the market makers and most professional traders are bringing the infrastructure close to us. But if you're, let's say that you want to scale to billions of users, you want to be the highest efficiency, probably you can start thinking to a setup where you have multiple machine engines in key locations in the world and they really have that cross-connect between each other and they talk to each other in an extremely tight way. So that is probably how I would do it. If I need to basically serve professional

and high level high frequency trading firms across the world in different locations than if they want to stay in their own locations. Otherwise one, the beauty of our matching engine, the way I design it is that you can scale. So I can run it on the raspberry and also I can run it on our mainframe, and also I can run multiple mainframes. So now you can scale to hundreds or thousands of cores and terabytes of RAM.

So let's say that if you want to stay in a single location, you can still have this huge mainframe really tightly connected. cross-connected network on your own cabinet, but still you can process these across multiple servers. That's the beauty of our machine engine. That's why I also like it. I like calling on. I love it. So basically you have systems in place where if one fails, you have plenty of backup systems

and it would be, I mean, it would be interesting to see crypto at a billion people, right? You know, a billion people using crypto, which is still only one seventh of the world. But, you know, if we had a billion people interacting with these exchanges and trying to buy and sell on a regular basis, I have to imagine that would be quite a stress test. Yes, definitely. Yes, because then you will have hundreds of,-frequency traders or thousands of high-frequency traders plus all the retail. So the noise that right now, for example, we handle probably one to five billion events per day, where events are orders, balance changes and things like that. And we publish several, several, several billions of packets per day in terms of

information, right? Book updates and so on. And imagine how much that could be if you can have actually 1 billion people. It's like you have to become really of the size of Cloudflare that is servicing like 30% of the internet. And we see what happens when Cloudflare goes down. Absolutely. Because it's not really uncommon. We've all seen those Cloudflare warnings come up. So even at the largest level, there's obviously challenges. So I think at a very basic level, probably a lot of people would like to know or don't understand what a stablecoin is, right? I think superficially people understand that it's a dollar-backed coin or another currency, one for one. But what does that look like from a programming side?

And what are the unique challenges of keeping a stablecoin stable and utilizing it? Sure. So, well, the easiest definition of a stablecoin is dollar and blockchain. So that's actually the, you know, the entirety of the Tether hand in 2014. Okay, we have Bitcoin, it's great. Now, can you use the same technology to put the dollar in a blockchain? And yeah, and that's how it started. The beauty of stablecoins is that now you can get, compared to dollars on traditional banking rails, is that you can program them. It means that you can have a smart contract that can interact with other smart contracts. And then it can do things like handle payments, handle settlements, and many, many other things, right?

So when we say, so there are two things that are quite exciting about the DeFi industry is one is programmability and the other one is composability. So you can compose different actions so that you can trigger action from multiple smart contracts, from multiple DeFi projects,

and they happen atomically on a blockchain. I believe that is a really interesting and really beautiful way of ensuring, let's say, atomicity and ensuring safety of operations on a blockchain or in a financial environment. So, stablecoins are probably one of the best ways to attract, I believe, the next wave of people.

We were talking about bringing the billions of people into crypto. And actually, you know, if I talk to my father or, you know, someone that does not know much about crypto, it's easier for him to think, okay, I have $10 in the pocket. Now, instead of having a pocket, I'm used to Apple Pay or Google Pay. Now, instead of having those, I have just my other mobile application where I have my $10, right?

And most of the people in the future will not care of the transport layer, but will care of the benefits of the transport layer, right? So when it comes to stable coins, why they are so important. Right now, in the past months, we talked with many people across the world that are, yes, in our industry, but they are from Africa, they are from Latin America, Venezuela, for example, Argentina, Asia. And the beautiful story that I hear is that everyone, almost everyone in the streets knows about Tether. And not because Tether did a good job, in the sense everything happened organically. We never spent a cent, or Tether and Bitfinex are pretty known to be quite cheap on marketing, in a sense.

So we never do, you know, we never rented stadiums and things like that. We never do crazy things. But everything that we got especially on the Tether side, has been organic. So why people in Africa or in Latin America know Tether? It's because they have two choices. Maybe they work in Europe, they work in more, let's say, financial advanced countries, and they need to send money home. They can decide to use Monogram that costs like 8% to 10%, or they might want to use standard credit cards and still cost maybe 3%, 4%. While Tether costs zero, just the blockchain fees. And if you pick your own block, if you pick like Tron, Solana,

you basically don't pay almost any fees. So it's a way to let normal people keep the most value of the wealth that they work really hard for. That's what we got, right? So that's the common thing that all these people told us. And I think that's beautiful because, I mean, we thought that could be the case.

But as I said, we didn't invest much in making that happen. It happened organically. So I'm really proud of that because it means that when the best ideas, they work without the need of pushing them, right? Remittances are a huge problem. Obviously, El Salvador is adopting Bitcoin as legal tender. I think 35% of their GDP is remittances or something. That said, why do people need to send Bitcoin if they can send stable coins? There's no volatility. It's faster. Have stable coins replaced Bitcoin in the peer-to-peer cash arena? I don't think anyone has an argument about which one stores value better long term because a dollar, it's still a dollar. But do you think that stable coins are a superior peer-to-peer

cash and have basically eliminated that use case for other cryptocurrencies? So, you know, I'm a big Bitcoin, right? So I love Bitcoin and I would never place Tether on top of Bitcoin. I think that Tether is complementary to, so it's like, or terminal to Bitcoin in a way, right? So it's basically an easier entry level for most of the people because you could try to explain them Bitcoin and you have to invest quite some resources because not everyone has the financial knowledge required to understand how the economics around Bitcoin work and they also are afraid of volatility also because sometimes mainstream media help to spread news about the extreme volatility of Bitcoin.

Yes, of course, if you bought Bitcoin 10 years ago, you would be extremely happy of such volatility, right? So that really doesn't help. And stablecoins are kind of a solution to that problem, to that 10 to a level problem, because then from a stablecoin, you can pass easily to Bitcoin. Also on almost an atomic way, there are things like atomic swaps on blockchain. The more you know about the crypto world, then you can start from stablecoin and you can grow in the crypto world and then you will arrive to Bitcoin.

That's great. So it's just a smooth transition. And for most people, for the normal people, I see that how stablecoins are extremely appealing for, you know, super simple, no volatility. They don't have to worry about it. So don't you think that we'll see banks start to use stablecoins? I mean, we've seen in the United States already, it sort of was passing last year that the OCC said banks could start testing stable coins rather than SWIFT and ACH and all of

these dinosaur protocols and programs that they've been using in the past. I mean, anyone who's used it knows it's faster and easier. Do you think that that will be adopted by legacy systems? So this is a good question, right? I don't want to annoy you too much, but before entering Bitcoin, my career was trying to, I was building software for hedge funds and mainly hedge funds in London, right? And I had to deal every single day

with reconciling numbers between banks, trading venues, custodians. And it was such a waste of time, right? That's why I loved Bitcoin at first sight, because just before understanding the potential as a currency, really honestly, I thought, okay, this is great, because the beauty of Bitcoin is that it's atomic, it's safe in the sense that you don't have to, you don't need reconciliation, right?

So let's say you don't, all the data is correct at all times, right? Apart, you know, let's leave aside the 51% attacks and things like that. But that data is consistent. That's the right word. The data is always consistent now imagine so that's why i think that the central banks will look at blockchains as a technology to update the script and eca uh really old uh old way of sending money because dollar is already digital euro is already already digital the majority of dollars in euro is already digital but they

move on a really outdated system that is a set of databases that they have failures, they need to reconcile them, lots of people on the phone and sending data back and forth to ensure that everything squares out and that's not how it should be

a blockchain based system even a private blockchain system adopted by central banks would solve most of the problems that they have today. Will make it cheaper to maintain, faster to transact and so on, right? Much more stable. So I believe that we'll see central banks issuing CVDCs, so central bank digital currencies, that sometimes I hear the question, okay, will they outpace or will they replace Tether or other simple coins?

And my answer is, I don't think so, because I don't see the Fed or the Central European Bank issuing on Ethereum or issuing on Solana, right? So they will just replace the outdated infrastructure. What they're planning to do from what I hear is that they are launching a parallel infrastructure, right? Based on a private ledger and private blockchains so that over time they will start moving. The more banks will integrate the new system, they will start dragging the liquidity from the old system. That's how you usually do this 10-year, 15-year long transition on the software side. So I see that happening, but I don't see the Central European bank

issuing on the tier. That's why basically for Tether, instead of receiving wires like via script, or we will receive just cash via just a wire, will be still called wire, will just change to the transport layer. And we, as a private company, issue stable coins,

we will take care of issuing stablecoins on public blockchain. So what are the risks associated with stablecoins? It all works obviously exceptionally well in a perfect environment. But I mean, you guys have definitely been no strangers to controversy, of course. Whether that's been justified or not, which I don't believe it is. I know you guys released your backing, you know, you made that all very transparent. I never had any issue with Tether. I use it and always have. But what are the risks associated? Because it's obviously, you know, it's code. Can it become volatile at certain moments? Is there a risk of a bank run and it becoming insolvent? Are there risks associated with stablecoins? So that's a good question, right? And basically,

that this is one of the most discussed topics in our industry, because I think that, first of all, stablecoins have need clear guidance, right? We started with Tether in 2014, and there were no rules for stable coins because there were no stable coins. There was no concept of a stable coin. So we created that, and we had to start discussing with regulators around the world

to make sure that we could do something that was aligned with a legislation that you didn't have, but usually what happens is that you take the most similar thing to what you are trying to do and you try to apply that, right? So from 2014, of course, 2017 arrived and Tether reached, that was the first time at the end of 2017 when Tether reached 1 billion. And then in 2019, Tether reached 4 billion.

And then now we are 69 billion, right? And while you do that, you have to keep discussing regulators because they start understanding that before when you are small, they don't even lose much time to regulate you because they don't start this heavy machine of regulation until there is a really, really good compelling case. And we're seeing this year in 2021 that the compelling case is there, right? We are, because at the beginning, so in 2000, so beginning of 2020, we are still, yeah, we're still pretty small. We got basically a 30,000% increase in one

year for that, right? So we couldn't believe it ourselves. So I cannot imagine the rest of the world. So we are now averaging 120 billion of total issued stable coins around the globe. So that's why regulators are taking us more seriously. And also, by the way, I love having competitors because you cannot call something an industry if you are alone, right? So you have to have competitors and you have...

So the sum of the voices and the sum of the voices that ask for regulation and clear guidances will help the stable coins industry to grow and become better. And, you know, and so I really like that. So I believe that in 2020 and 2021, beginning 2022, we will see more rules required for stablecoins to operate. And we're welcoming that because in the end, we believe that our portfolio is extremely stable. We never refuse a redemption.

Our portfolio is extremely liquid. Our cash balance is much higher than the biggest redemption that we had in a single day. Even if there is a mass redemption, we can fulfill it. And we resisted, we had our own, it's not like hypothetical anymore. We had our own stress test, right? In 2020, March, the market crashed and we never had a problem with that. And the most important thing is the pack is always one dollar, right? So you are seeing from 2019 when the Niagy investigation started till today, Tether did nothing aside drawing and keeping the peg stable.

So you have you are in a situation where everything is public because our dealings with the regulators is being public. So people could have shorted Tether, people could have, with all the misinformation that was around, still Tether maintained the peg. We arrived at the point where in 2021 we were able to settle with the NARRAG and publish the attestation. Now it's quarterly. We went one step further and we published the breakdown of reserves. In the first breakdown of reserves, that was when the commercial paper stuff came public, right? And then we listened to the community and we said, OK, let's do one step more and then let's publish the ratings of the commercial papers that are,

that are the vast majority is H2 or, or vector. And is also the rating is not made by, you know, the, the shop nearby your home is, is like from Sutherport, Woodies and Pitch, right? So that's how you professionalize and you create a healthy framework to have a growing stable coin that can guarantee safety, that can guarantee faster redemption,

that can guarantee to be extremely liquid and strong. So we are seeing other stable coins falling on our steps in diversifying their portfolio. In the end,, people can say, yeah, other stablecoins have less commercial papers, have different ratios. But the beauty of it is now everything is public. So people can do their own choices, right? We are not pointing a gun to anyone and say you have to buy Tether. No, everyone can. All

our competitors are doing much more marketing than us. So we are not pushing anyone to use Tether. It happens organically. People can choose. There is a free world, right? So the beauty of crypto is it's a free world, lots of transparency, lots of information out there. Do your informed choice. Guys, I'm really excited to be sponsored by Harmony. I know all of us have traded their coin one in the past, but what they're fundamentally doing is a game changer. Harmony is your open platform for assets, collectibles, identity, and governance. Think of it as the one to bridge all blockchains. Harmony is open and insanely fast with two second transaction finality and a hundred

times lower fees than Ethereum. Their secure bridges offer cross-chain asset transfers with So allstreets.link slash harmony. That's the wolf of allstreets.link slash harmony. Build on harmony, run on all chains. So speaking of regulation, as you said, they're clearly taking notice, especially in the United States. Gary Gensler just had a Senate hearing and he, for some reason, started calling stable coins, stable value coins. There's a lot of, I guess, conjecture as to why he did that based on other existing regulations for things with similar names. Do you think that stablecoins should be considered securities? Well, I don't think so. First of all, when you call something a security, you have also to talk about the jurisdiction.

For example, Tether is not servicing U.S. customers, is not onboarding U.S. customers and so on. So it's important to understand in which regulatory framework you are evaluating the concept of being a security. But, for example, it does not provide an interest. So we are seeing maybe other stablecoins offering products that have an interest on top of it. So I don't know about the others, but the way it is set up is definitely not a security. Yeah, I think the second question or third question of the Howey test is if there's an expectation of gain when you purchase something.

Inherently, the idea that it's stable would mean that you are using it to transact and have no expectation that it's an investment and it's going to grow in value. It's really interesting. So you obviously talked about the fact that one of your big challenges is building out on every chain, right? We're seeing just chains exploding left and right. It's not a world anymore where you just build on Ethereum and you send. So one of the use cases for stable coins is always to be able to send a small amount of money from one person to someone else anywhere in the world. Well, Ethereum has made that prohibitive, right? Because you can have a $100 fee to send $10. So what are the challenges?

You're stable and there's no fees associated, but what are the challenges with building with blockchains that have their own inherent issues scaling? So, well, definitely, when BitM's header started from OmniLayer, then in 2018, early early 2018 moved to Ethereum, not moved, but launched also Ethereum. And that was quite a start to be a success, of course, when exchanges adopted, right?

So because if there is no, the truth to be said, the majority of the stablecoin volume has to exchange still. So from centralized exchanges. Now, you know, in the end of 2017, I'm pretty sure that you remember how I wear the piece on Bitcoin, right? So that's why many traders were spending enormous amounts of money on Bitcoin piece, because Omni layer is secured by the Bitcoin network. And so in order to spend better on Omni layer, you have to spend the Bitcoin, right? So that was a little bit annoying for traders.

And at some point you had to, they were sending maybe hundreds of transactions per day back and forth. And if you have to pay $200 for 100 transactions, it's a lot of money, right? That you have to send in a day, in transaction fees. So we added Ethereum then of course, it didn't pick up immediately, but only when Wabi and I think that OKEx started adopting it then you have, there was an immediate, let's say, movement of liquidity from Omnit

to Ethereum. Then we had the Trump, we had the Dios and so on. We, so first of all, the reason of being multi-chain is something that came to our minds because I'm sure that you're familiar with the concept of the Linux distributions, right? So you have RedHawk, you have like Gentoo, Debian, Ubuntu, and all these distributions. And I came from a world where we're all there and we were, you know, everyone

in the computer Linux distribution. So and basically the concept is similar, right? So there are kind of religion wars across blockchains like there are across Linux distributions. But in the Linux distribution, there is one central part that is always common across

all the different distributions, the Linux kernel. The Linux kernel is that thing, is the core that is common across all distributions. So we thought, okay, why we don't make aether as the common denominator across all the different blockchains. So, of course, we pick the blockchains based on the popularity, on the little religion wars that happened, you know, that as well, right? Like, you know, Goliath, Cithaeron, Bitcoin, and then Avalanche and Solan and so on. You are, you know...

Well aware of the tribalism, certainly. Yeah, of course. Yeah. So we thought that pattern could be at least something in common. Then, of course, the benefit, the side benefit is that you can get scalability out of it, right? Because we talked at the beginning of our chat about how we can reach a billion people, right? And yes, centralized exchanges have a problem. But, you know, at least just with our current staff, our

Bitfinex matching engine can handle like 5 million transactions per second. But the fastest blockchain now can do 50,000 transactions per second, if you are lucky. And even if you scale to 1 million transactions per second or 5 million transactions per second, I mean, we are talking about billions of people that are going to send back and forth money and that's something that we didn't touch and I think that is one of the most exciting things in for our future. I digress a little bit. Please. That is machine to machine payments. So we are leaving and we are living in crypto but somehow we are forgetting that there is a one big revolution that is happening.

Part of that is Internet of Things. And there are fridges that are talking to supermarkets as well as light bulbs that have like a Wi-Fi basically built in, right? And there are cars that are moving around the world. There are several hundreds of millions of cars that are moving around the world and they know scooters and so on. All these will be connected, right? They will be connected and they will have ways to send transactions.

That's not necessarily a payment. Not all transactions are payments, but some transactions are sharing data, right? So machine to machine, if we are thinking that also robotics will evolve and so on, we have to think that the world will become more connected and machine will start sending transactions among themselves, right? Not commanded by humans,

but commanded by their own will. AI, right? Yes, exactly. So, I mean, maybe an AI would like to buy a nice NFT of a wine bottle, right? Eventually. So you have to let that AI do that. So I believe that the current type of blockchain is not great for scalability. And, well, there is only one solution in my opinion that is can can can achieve

that in the at least from from what i'm seeing today and that is like a network because the beauty of it is like um you know if i have to send you uh some money is caught i mean or some some data there is no it's not necessary as long as the channel between me and you, as long as I can send the data safely or the money safely, and I'm not going to cheat you. And so that is enforced by the system. Then why someone else should look at the data that is sending you or the payment that is sending you?

And by the way, you're needing the entire industry is built on the concept of peer-to-peer and sometimes we use peer-to-peer in a way that is a little bit agnostic or anyways lost a little bit of meaning but peer peer-to-peer means like every one of us is a peer and a machine is likely going to be a peer in the sense that everyone is the same. Everyone counts in the same way in the system, right? Has the same weight in the system. Now, the beauty of the peer-to-peer system and why you can scale,

if you recall in the past where Glutella is a five-chain system that we have. In Glutella, we have we have with nutella we have like donkey we have uh like napster of course and many others right and then came victorian victorian was the perfect peer-to-peer file sharing system because you know you could you could see information but you know other you could you have the concept of swarm. So I could host a file. You will take the file from me and that you could at the same time

share the file and share the file with others. And every single connection was not using any centralized server. Everything was happening from one to another. Well, now, blockchains, in order to be fast,

needs to use AWS. They need to use Infora. So they are not scalable. We are losing the concept of peer-to-peer in the blockchain ecosystem. And Latin Network brings that back, right? So I can send you money, I can send you data without having to bother others, without forcing others to read my data or pass my data or include my data in their own blocks, in their own server, whatever, right? So that's the beauty of Lightning Network. I believe that is the thing that can allow us actually blockchain to scale to billions of people. Now, of course, people say, well, but with Lightning Network, you have to initiate a channel that requires some main chain transactions, like Bitcoin

transactions. So Bitcoin cannot cope with the amount of WIP. If you open billions of channels, Bitcoin will not be able to cope with that. But then you can use a sidechain like Liquid, so you can build Lightning Network. That is the possibility. You can still have Lightning Network on top of Liquid that is on top that settles on Bitcoin, right? So there are many things that you can do you still have the bitcoin security on one side but you have this super

scalability of lighting networking at the other side in a world where uh artificial intelligence is buying wine with uh tether i'm afraid that arnold schwarzenegger is going to walk in the door for the future and the terminator is to come in. Right. So that's really interesting. And it seems to me that it's still very segmented. You know, you're building Tether on this chain, Tether on this chain, Tether on this chain. For your average person who doesn't understand any of the tech, let's say that they have a MetaMask wallet and somebody sends them some Tether. Right. And then they want to send a transaction for cheap, but somebody sends them a TRX, you know, Tron wallet, and they want to get that tether from their Metamask Ethereum wallet to a Tron wallet. How do they do that? Or how should they understand how to do that?

Well, so it's a tricky one, right? Because there are some bridges. So there are so many main projects built on chain bridges. So you have hacker on Ethereum, on your MetaMask on Ethereum, and then you want them to appear in your wallet that you can access by a Tronscan, right? Tronscan has an embedded wallet. Tronscan is the main Tronic store.

Now what you could do, you can use bridges, on-chain bridges. What they do is usually they receive your tether from one side and they issue a wrapped tether on the other blockchain. So, you know, the user experience is not the best because then you have a wrapped tether

on the other side, right? So it's not great. Others maintain a sort of liquidity have a graph header on the other side right so it is not great others maintain a sort of liquidity pool on one side and the other so they can give you nothing better on both sides or the other way is using the centralized exchange so you send your tether from ethereum to for example bitmex and then you would you will get traded tethers and you can withdraw tethers on chrome and you will get to massive headers so can withdraw patterns on Tron and you will get the massive patterns. So I'm not sure if I'm making it too complex already. No, no, that's actually my point.

So I think if you're in the ecosystem and you've spent some time transacting and you've sent coins around, that makes sense. But I think your average person is going to go in their MetaMask wallet, which they don't understand anyway, try to plug in a Tron address, get an error or send their coins into the ether and never get it back. So I guess the question then becomes, what tools still need to

be put in place to scale this to the point where we can have mainstream adoption and our parents and grandparents can transact with it in a manner as comfortably as they do with PayPal or Venmo or bank transfers that they're familiar with. Well, I think that you are basically getting right to the point. The main issue for, definitely, so the main two issues for mass adoptions are scalability and user experience but first of all is user experience right so in metamask is already a too complex system right it's all about other keys and ledger integration and scratching your head because your transactions even went through then you have to and you paid for it and you paid for it. And you paid for it. Paid $100 for a failed transaction, right?

Exactly. So it's all about, you know, we should start forgetting probably about using old complex terms and trying to get to terms that people are more used to, right? So like account instead of address. And that you have to mask all the complexity of ensuring that the transaction will arrive on the other side. And of course, the fees are, I mean, the main problem will be the fees, right? Because we cannot afford to bring people on crypto and or, let's say, switching behind

the scenes the transport layer of money for the majority of the people on this earth if we don't get them something that will not cost them more money in fees than sending payments. Because if I want to buy in Italy, from where I come from, there is the best of capture that you can ever have, you can ever dream of. And usually you go on the store, you can pay with $1, you get a lot of cash, right? And you cannot pay like $50 in Ethereum fees and then have $1 per cash. Now you can definitely use strong,

you can definitely use liquid and others, but definitely not Ethereum. But also, what I'm apparently thinking about is that the reason why you have all these cheap transaction fees on the other block is that the adoption is not there on those blockings, right? Right. They can't scale either. I mean, if they start to get the same kind of traffic that Ethereum has, we're going to start to see problems. Solana was just down for 20 hours. Exactly. Usually transaction fees are just a way to make it more,

it's a protection, right? So transaction fees are just a protection to avoid congestions. You still have congestions because from a user perspective, they send a transaction with a cheap fee and they will not get a second. So it's anyway,'s anyway a really bad user experience. But if you are going to see other faster blockchains with real adoption, with a really high adoption, the one that Bitcoin and Ethereum have, they will have really high fees as well because anyway the fees are still based, there is a prioritization based on fees, right?

So that will happen in a way. So the fact that they claim that they're cheaper now, yes, they are cheaper because the blocks are empty. So we need to solve the problem in the right way that is go back to ADL having layer twos or being peer-to-peer, peer-to-peer, peer-to-peer like Lightning Network or having layer twos that are a little bit more centralized

like, you know, Paramax, or you can have Arbitrum or you can have Optimism. like Lightning Network or having layer 2s that are a little bit more centralized, like Paramex, or you can have Arbitrum, or you can have Optimism. They're a good way to compress the data from a transaction from many different people, like 1,000 different people that want to do a transaction. They compress it, and they generate just one main chain, one layer, one block. So you think that the solution will be layer 2os, roll-ups, things like that, that consolidate transactions and decongest the layer ones. But that's interesting because, like you said,

these layer ones sort of advertise that they're faster and cheaper, but you're saying that they will still reach problems at scale. So as of right now, we do not have layer ones that could scale to mainstream adoption. I don't think so, but I don't think it will be possible. So the problem is in the speed of light, actually, right? So if you want to have a layer one, that is basically have the entire history of all the transactions made and all the state changes of all the transactions made on the chain.

Now the problem is that you either you have a nice AWS infrastructure in the same location like in UK, and then it's all about everything in the same data center room, or you have to imagine that the speed of the, the speed of light from London to Tokyo is probably 150 milliseconds, something like that, right? So how much you can shorten the block time if basically you still have 100 milliseconds,

right? So minimum. Let's say you have to go back and forth, right? So 300 milliseconds. So you cannot shorten the block time more than 300 milliseconds, maybe. So probably 500 milliseconds is already the peak, because there is a computational time, and you know, there is a

you want to leave a little bit of time. There has to be some latency, right, of course. Yeah. So that's the main problem. So you have to have a system that is slow, so it's not subject to the problems of speed of light and so on, but it's simpler, but acts as a second layer for multiple, many, many different layers of

solutions with different flavors that will take care of the head and all. So I believe that's the only way to scale that. That's, that's a standard architecture. It's really, you cannot build something, even a machine engine like the one I built, I can probably go to 20 million, 50 million transactions per second, fine. But that's the same thing. And if I try to put one in New York and one in, I cannot go to New York.

I cannot put it in New York because otherwise our legal team will kill me. in New York and one in, I cannot go to New York, I cannot put it in New York because otherwise our legal team will kill me. Anywhere but the United States, right? Yes, anywhere but the United States, but still you get the point, right? So it will slow down because there is the synchronization problem. So the best way, so there is no way to get to mass adoption with billions of transactions or let's say tens of millions of transactions per second if we want to solve the global scale.

So we have to be careful how we market clean, right? So if you want to solve the current crypto transaction issue that is, okay, yes, Ethereum is slow and Ethereum is expensive, definitely there are other choices. But when we are talking about billions of people and possibly hundreds of billions of machines talking to other machines and laptops and other things and all the devices, then we need to be extremely more careful because there is no way to steam that way. And we have to carefully design to segregate things in channels, basically in silos, so that every silo don't need to talk to each other. And channels are the perfect representation of silos

because I don't care to know if a light bulb in Tokyo is on or off is uh is uh is on or off right or if it's buying wine i don't want to know what those tokyo light bulbs are doing with their alcohol um so i guess that it's very fair to say that we're extremely early yes that that's for sure that's that's the only thing that we know do you think think that that's true with adoption and price and all of those things or just with the technology itself? Well, definitely for price, when it comes to Bitcoin, we are early, I think. For the rest, I don't know, because I believe that there is a bit of a difference of the value proposition of Bitcoin. You need simplicity, quote unquote simplicity, compared to everything else.

But with the ability again to compose with the Lightning Network and Liquid and other things on top of it, right? So on the price side, I could say that. On the technological side, we're extremely early. Adoption, really extremely early, because in the end we want, 10 years 15 years we will not talk too much about crypto just you know the core people will talk about crypto just to prefer about maybe the the technology but you know five years ago was 2016 and there was not almost no crypto

there were a few people that were you were aping on few coins and a really little adoption. So in five years, we created this enormous ecosystem that is growing at a faster pace, exponentially growing. So imagine what will happen in 15 years. In my opinion, in 15 years, crypto will be an asset class and crypto as a technology will replace the majority of the sentiment layers and transport layers that we have in general on the internet. So it will become a better way and a safer way to transact and data store data and so on. So it will be part of our lives. Many of us will not maybe think anymore about crypto

as just necessarily APN on coins and so on. So for example, I think that Bitfinex will just become a mainstream exchange because we are starting to offering, we've got to just go to the license to offer security. So, you know, we started from crypto and we are getting to securities offering while we are seeing like traditional exchanges that are looking to crypto.

So eventually things will merge. Right. Everything will merge. Sure. Every legacy exchange will have to offer crypto and every single crypto exchange will have tokenized securities. And that's right. I think that's how we will proceed for sure. So where can everybody follow you after this conversation and keep up with what you're, what you're doing? So I am basically on Twitter. So twitter.com is like our, you know, I'm making,

most of the time I'm making jokes and memes. So I think you enjoy them. I think that's the only real purpose of Twitter, right? Yes, exactly. I think what I've gotten from this is that, you know, you were very early, 2012. I came in in 2016. I felt like I was late, but I was still early enough. And now people who are coming in who feel like they're late are probably still very early.

Absolutely, yes. There is so much to do, so much to learn, so much, yeah, there is so much space for everyone that it will be unbelievable looking back 15 years. Well, thank you so much for your time.

It was a great conversation. Thank you very much, Scott. It was really fun.