Unchained - Live from SXSW: Michael Casey and Paul Vigna, Co-Authors of The Truth Machine, on Why the SEC Has Issued Subpoenas to ICOs

Episode Date: March 18, 2018

At the Founders Organization's Initial Taco Offering, an unofficial SXSW event, the co-authors of the recently released Truth Machine, talked about a wide range of regulatory issues from what the SEC subpoenas mean to whether or not the SEC is investigating the SAFT to whether or not the regulators should address crypto on a federal level. We also discuss central bank cryptocurrencies, how the dollar could be knocked off world reserve currency status, rogue governments issuing cryptocurrencies, the Telegram ICO, ways in which blockchain can be applied to problems such as climate change and how the media is covering crypto. The Truth Machine: https://us.macmillan.com/books/9781250304964 Michael Casey: http://www.michaeljcasey.com/ Paul Vigna: https://twitter.com/paulvigna Paul's article on SEC subpoenas: https://www.wsj.com/articles/sec-launches-cryptocurrency-probe-1519856266 Michael's essay on China's desire to end the dollar's global dominance: https://www.coindesk.com/political-china-hates-bitcoin-loves-blockchain/ Thank you to our sponsors: Preciate: https://preciate.org/, to recognize someone in a future episode, go to https://preciate.org/recognize/  and Quantstamp: https://quantstamp.com/ Learn more about your ad choices. Visit megaphone.fm/adchoices

Hi, everyone. Welcome to Unchained, the podcast where we hear from innovators, pioneers, and thought leaders in the world of blockchain and cryptocurrency. I'm your host, Laura Shin. This is a special South by Southwest episode recorded at the Founders Organization unofficial South by Southwest event called the initial taco offering, a full day of crypto talks and tacos. During this session, I interviewed Michael Casey and Paul Vina, co-authors of the recently published book, The TruthMamination, machine, the blockchain and the future of everything. Michael is a senior advisor at the MIT Media Lab and a former Wall Street Journal reporter. Paul is a current Wall Street Journal reporter who covers crypto full-time. We have a great and wide-ranging discussion on everything from the SEC subpoena as to how crypto could be used to solve problems like climate change. Thank you to the founder's organization for hosting the initial taco offering and thank you to everyone who came out.

This special South by Southwest episode of Unchained is brought to you by Appreciate. Founded by Ed Stevens, Appreciate is building the most valuable relationships on Earth. Today, Appreciate is recognizing a group for a big achievement in the crypto space. Who will be recognized today for their achievements? Stay tuned to find out. This episode is brought to you by Quant Stamp. Kwan Stamp is building the first smart contract security auditing protocol designed to secure all smart contracts in a cost-effective and scalable manner.

Being developed by a team of PhDs with over 500 Google Scholar Citations, they're about to finish Wycombinator's winter 18 batch. To learn more or request an audit, visit www.com. Well, thanks for coming, everyone. I'm going to be releasing this as a special episode of my podcast Unchained, special South by Southwest episode. I hope you guys are all having a great South by Southwest. Why don't we just start with Michael, just describing who you are, what you do, and then

we'll turn to Paul. Yep. Hello, everybody. And thanks for having us to A Noop and the rest of the founders. Foundation and Laura for putting this on. Yeah, so I'm Michael Casey. I am a senior advisor at the Digital Currency Initiative, which is at MIT Media Lab.

I was formerly a journalist at the Wall Street Journal, where I worked with Paul and then just decided that had to get out and get my teeth into this thing. So about three years ago, I left the journal and joined MIT. And you went over to the dark side. Went over to the dark side, yeah. I mean, I left, now I'm actually also an advisor to,

I'm the chairman of the advisory board at Coin Desk as well as one of the hats that I wear. So I've still keep my hand in journalism indirectly. I can't believe that it was three years ago. I can't believe that this microphone isn't working. I can't believe that that was three years ago. God, it doesn't seem like that long. Time. It was.

Blockchain time moves usually. It's like 10 years. Yeah. Oh, my God. And so you guys are out within, oh, sorry, Paul. Yeah, so I am Paul Vena. I am still a reporter at the Wall Street Journal. I've been writing about Bitcoin's,

since 2013, since like the spring of 2013. Mike and I have written now two books together. And I have stayed at the journal, and I am somebody who just finds this entire sector and industry fascinating from the perspective of somebody who's looking for stories to write, from the perspective of somebody who's outside of it and trying to tell interesting stories for an audience.

And I just think it's absolutely amazing the potential of the technology, which I think is great, the scams and frauds, which I'm sorry, they're good stories. So I think those are interesting, too. I mean, I just find every aspect of this really fascinating. And I am not looking to leave the journal like Mike did, because that's where I am. I like telling these stories. So you guys are out with this new book.

It's your second book you had previously written the age of cryptocurrency. The new book is called The Truth Machine, the Blockchain, and the Future of Everything. the title promises kind of a lot. Why did you choose this name for your book? Yeah, both of them are a little provocative. In fact, I think I'm wearing it as a bit of a badge of honor, but when I put out the announcement on Twitter that the book was out, one guy replied and said, worst title ever.

And I think the reason why people think that is because they think we're making this hyperbolic, you know, hand-wavy statement. We are. We are. Of course we are. Yes, yes. You can actually, the blogger, The blockchain will basically uncover the mysteries of the universe.

It is the path to absolute truth. That is exactly what we're trying to say. Well, I'll reach Ravana on the blockchain. We will reach Ravana on the blockchain. No, look, I mean, and people are concerned that, like, you know, that we might be misrepresenting the fact that data that is entered into a transaction that will be reported immutably is always going to be true. And that's also not what we're talking about.

What the title refers to is this concept of consensus truth. And it's actually as important a form of truth of absolute truth, because when we reach an agreement around what the numbers are, and I keep using this line, is like, who knows exactly what absolutely truthfully the US GDP is, right? It's always an estimate. It's an estimate based on the consensus of what we agree upon. And the process by which we've arrived at that consensus,

this shared truth, has traditionally been done by a centralized institution, a ledger keeper. Now we have a machine, a decentralized machine, that is enabling this consensus to a right. at hopefully a more reliable fashion where there was a broader agreement and whereas there is also this sense that it can't be tampered with afterwards.

So in that sense it's a truth machine. But I don't know if I know where you're going with that. If you're talking about GDP, there are certain authorities around that, right? Like you wouldn't calculate that in a decentralized fashion, would you? No, no, no, no. I was just using GDP. I was just saying that so many numbers

that we use in finance, whether it's economic data, whether it is corporate results, the process of determining what a, fact is in finance when we say, okay, what is Apple's earnings per share, right? It's an

estimate that was gathered together by a bunch of accountants, and we all kind of come to an agreement once the audit is objected out that that's what it is. But it's a process of consensus. So it's nothing to do with GDP per se. I'm just trying to say numbers that we use for the purposes of entering

into economic contracts and agreements come from this process of consensus. That's what they do. And what we think is, what we feel is the reason we called it the truth machine is because we feel that this technology will provide people with a way to get closer to objective truth than we have had before. Not that you would necessarily get to complete objective truth, but it's just it's a better way to get at the truth to get closer to the truth than we have had before. And that's why we called it the, you know, in some ways this operates as a truth machine. It helps you to discern the truth. and the whole point about the future of everything,

which is, yeah, that's a very broad title, and it's very hyperbolic, but there are very, very broad potentials, and there's a very broad potential. You could make the argument right now that there is nothing you could absolutely cross off and say blockchain could not help this area, this industry, so in some ways it is the future of everything.

Yeah, the other thing I would just say is like, this is dealing with record keeping. Record keeping is fundamental to human existence. In fact, the code of Hamarabi in the early moments of Mesopotamia in Babylon is the first recorded

form of writing. And that became the foundation of that civilization. So record keeping as the process by which we enter into exchange, it's very, very important for how we form money but how we form all sorts of agreements.

In that sense, it covers everything, right? In that sense, it's, in that kind of what we're saying. I mean, you can't get away. Once you start operating with one person, with another person, one company with another company, there has to be this process of figuring, okay, what do we agree on what the transactions are? So, yeah, it covers everything. And now that we've got the title over the way, can we go to the inside flap? Is that how we're doing this? We're going to do everything. Well, actually, that was the title. Tim and out of the inside flap, right, right. Instead of the inside flap, let's go to what

everybody's wondering about these days, which is regulation. I was really kidding. You broke the news on the SEC subpoenas. I broke one piece of news. I mean, yeah, look, I think it would have been obvious that the SEC was looking at this for a long time and querying a lot of companies, whether they're sending out actual subpoenas or requests for information. I mean, look, we wrote the first story just saying that the SEC is doing this on a very wide level. But, I mean, I think it's obvious that they've been doing this. I don't know, yeah, we broke it, but, you know.

And what do you think is the significance of the subpoenas? I think, well, okay, so now we're talking about the ICO market, and I think you have a market where this is a really fascinating new thing, this idea of, and you guys all heard Rob, I don't know if you all heard Rob, I'm talking in the last session about this, but the idea of this ICO or token offering or whatever you want to call it. I think it's fascinating, the idea that companies can raise money, they can have access to capital that they never had before, that can allow them to do things that

they couldn't do before. I think it is also highly speculative. A lot of it is doomed to failure, because these are bad projects that are kind of slapdash put together. And I think, like anything, investing has inherent risks, and the job of the SEC is to create the most level and the most transparent investing arena that they can. I think that's what they're trying to do. And I think they're trying to do that with the ICO market. So they're trying to figure out what is this token? What is this thing? Is this a security? Is it a utility token? Can there be such a thing as a utility token? So I think they are trying to just kind of wrap their arms around what looks new and try to figure out, and this is where it can become kind of complicated, is do the traditional laws and

rules and regulations that we have, do they fit this new world? Can we figure out what they are? And if they don't, are we going to come up with new rules and regulations so that we can ensure that this is a level transparent playing field, and you don't have a lot of fraud? Because, you know, I think fraud is fraud and fraud is bad, and I think fraud is really bad for people who are in this field who are trying to do this honestly and trying to do this well. So that's where I think the SEC is going with all this. And so the way that you just described that sounds very measured and like there's no reason. I'm a journalist, Laura.

Of course it was measured. Well, so in I kind of like amongst the everyday people, there's a lot of fear, uncertainty and doubt, as they call it. A lot of people heard, oh, maybe 80 subpoenas and they freaked out. But it seems like you're just saying they're gathering information. Of course, they want to take some action. If you have been subpoenaed by the SEC, they are investigating you. Does that necessarily mean you did something wrong and they're going to come down on you and charge you with something?

No, of course it doesn't. I think from our reporting, what we're seeing is that they are sending out some subpoenas. They are also sending out requests for information. And again, I'll tell you, the SEC is not really commented to us directly. So we don't have on the record comments from the SEC. You're asking me for my opinion. My opinion is that they are looking at two things broadly. They are looking at frauds, outright frauds, and we've seen them crack down on a number of them,

and I think they will continue to do that. And they are trying to figure out what this new market is, what it looks like, and how it should be regulated. So I think they're kind of moving on two tracks there. So can you actually define a subpoena because I thought that was a request for information? Well, you know, it's funny, because I'm not our SEC reporter. I'm a Bitcoin reporter. I've learned this recently too. They can do this in two ways. They can, one, send you a letter, which is a request for information. You can choose whether or not to reply to it.

If you reply to it, you are still under obligation to tell the truth. If you lie, you can be held liable for that. But you don't necessarily have to answer it. If you don't answer it, of course, the next thing they're going to do is they're going to subpoena you, and then you absolutely have to answer that. So it's kind of a shade of a difference, but it's an important distinction, I think. When you're subpoenaed, you are being investigated without a doubt. Oh, interesting.

Because I spoke with somebody who used to work at DOJ and said at least at DOJ if you're being subpoenaed. It actually means you are not the target. So it sounds like at SEC, it's different? Again, I'm not the SEC reporter, so I don't want to speak about it and say I'm the final authority. But, I mean, my understanding is that if they subpoena you, they're investigating you. Okay. Which is what our SEC reporter told me. We'll put a pin in that, and maybe I can come back later and find out exactly what that means.

But I just want to also hear generally, like, what's your take on how the regulators have been proceeding so far? Like, you know, judging on what they've been doing. Okay. I'll be quick, because Mike isn't getting a lot of air time here. I mean, I think they are approaching this as constructively as they can. I think, is he shaking his head already? The one thing we really... We really disagree on this.

But I think they are addressing, they are approaching this as objectively as they can. I don't think their intent is to just shut down the entire market. I think they're trying to figure out how they can best address it. That's how I think their approaches. Michael? Well, I think it's, you know, this is the classic Damocles-Sort approach, right? I mean, where you just sort of leave this sort of doubt hanging over. their heads and by fear nobody does anything and that's the way the SEC always works by the way

I mean they've never been an institution to sort of give very clear statements they like to leave this ambiguity I think the problem with that is that now that we're dealing with a brand new technology in a completely different way of conceiving of how we actually you know build systems of exchange network effects and the like where tokens become not only you know this fundraising vehicle but this important component of a utility function, then that level of uncertainty is problematic, right? Because you can see how it might work. If you all agree, this is obvious of security.

There's a whole world. They're a very normal world of equity deals. And the SEC says, I'm not going to be a little bit vague on this, and they just keep everybody on their toes. But there's already an established regulatory market. There's all this sort of structure around it. But doing it now, as we are still trying to work out what the thing is,

I think it's problematic. And it's problematic because the signaling has become more draconian. They started out making stronger statements about their willingness to promote innovation that they thought this was a very interesting technology. They wanted to be constructive around that. They've come to a much, I think, harder position on it. And you've got companies that are saying, I'm just not going to deal with Americans. I can't sell to Americans. And the thing that worries me most is that they seem to be signaling that they don't believe literally that a token, there's such a thing as utility, that there couldn't be a utility token.

Wait, what makes you think that? The way that the SAF, the way that they've approached the SAFT concern, they shouldn't have concerns necessarily about the SAFT. I mean, there's not to say there's a huge discussion about whether the SAFT is a viable instrument, but the notion that the SAFT is a problem isn't really an SEC issue because it's being sold as a security to accredited investors. It could be a really crappy idea for those investors, but that's not the concern right now, right?

And so what they're signaling by saying, we don't think this whole framework makes any sense is that most is my interpretation, again, they don't tell us very clearly what it is. So this is just interpretation, that they are signaling that the whole concept of a utility token that can come out of that is difficult. And I've heard this from others as well.

And therefore, now you've got this up against what Wyoming is doing by deliberately trying to carve out of space and say, this is a utility token, and this is the legislation that will back that. At least if we have that, right, we can start to say, let's recognize the reality. There's a whole chapter in the book called the token economy, which talks about the power of being able to embed into our mediums of exchange,

this mechanism by which we can align incentives with the public good. I think that's a really powerful idea that we have a lot of work to do before we can make it work, but I would hate to kill the prospect of something so promising. by sending these really draconian signals in this vague way. So I think we need clarity. I think that this might be an opportunity for the SEC to step out of their usual MO and give some clarity of that very point itself. Yeah, I've said this before, but I don't envy the regulators.

I can understand why they would want to go through this sort of like information gathering phase. because as we saw with the bit license in New York in 2013, 2014, clearly that regulation was done well before the space was fully even developed, and that's had a really bad effect. And so I do understand maybe why the SEC it's taking its time. I do understand on the other side why that's also kind of to the detriment of these teams that want to pursue these innovations and realize their dreams. And yet at the same time, it's like, oh, shit, what if we do that?

and end up in jail. So I totally get all that. I just feel like what they're trying to do is just walk this tight rope that it just feels like almost impossible. So I can see it on either side. But my personal take, and this is actually something that happened at a conference I did with some members of the SEC, which was very fascinating. This was right after the chairman first said something like, oh, every token I've seen is a security. And it was such a contrast in tone from the Dow report, which I felt was very measured and kind of like seemed to delineate, oh, like, these are virtual currencies, as they call them, air quotes, by the way, for podcast listeners. And then what they were saying were securities like the Dow token.

And so I said something about it to one of the SEC people, and she was like, oh, but the way he phrased it was every token I've seen. And then she goes, how many has he seen? Maybe one, maybe two, maybe three. And so she kind of seemed to be sort of like walking back what he had said. and I was like, oh, that's kind of interesting. Maybe, like, you know, they felt like he had spoken out of line, but then, you know, later at the hearing, we heard him say that again. And so then I was kind of like, okay, like maybe he's signaling that he wants to take a more draconian approach, but perhaps within the agency there's agreement.

I'm sure there is, you know, just even as there is amongst us. But, yeah, so I think that's like the biggest question that remains is like, I mean, to me personally, maybe you guys disagree, but what do you think are the biggest regulatory questions that need to be resolved? Well, that one, I mean... Well, yeah, that one's a pretty big one. I would find a utility token and can it exist. I'm really surprised that they have come down against the SAF because the SAF could be a way for them to think about resolving this problem. Wait, and are you certain about that?

I mean, because it's... Look, I don't know. You did the reporting on it. There is some concern about the SAF that's in that in that story. I've, yeah, certainly heard that that's being questioned. And so, you know, if that's the case... And then it's a legitimate question. Well, it's a legitimate question from a perspective. of whether or not the token at the end of it is going to be delivered.

I think a big part of the problem in this is that last year, and it's continued this year, this has become a out-of-control speculative investing mania. And if you had a situation where, you know, you had companies raising reasonable amounts of money and you didn't have this kind of mania to create these projects overnight that it's basically just a plagiarized white paper and two dudes putting up a website and raising $30 million, if you had a situation where this was all moving at a much slower pace, maybe you would have a situation where regulators were looking at it differently.

But when you have a situation where companies that didn't exist a year ago, six months ago, two months ago, are raising tens of millions of dollars for products that don't exist. that stinks of speculative investing mania, and the SEC is going to look at that very hard, and they have to. So I think part of it is if this had developed differently, you might have a more measured response from regulators. What I think actually is the most interesting thing,

given the way our Congress works these days, is not going to happen. But I would love to see the federal lawmakers, U.S. Congress, address this entire industry on a federal level, kind of like what you had in Japan. I mean, Japan addressed this on a federal level and put in rules around the entire industry. And I think it's absolutely fascinating. I think the way this develops in Japan is going to be really important.

I wish we had lawmakers here who were interested in doing that. I know we have a couple lawmakers in Congress. We have a blockchain caucus. But, I mean, I don't see U.S. Congress acting on this anytime soon, which puts the regulators at the various agencies kind of in a bind. They have to address it from their perspective. They have to, you know, whatever their remit is, their little part of the world, they have to address it. So you have different regulators looking at this from different angles and calling it different things.

And I think it's kind of a mess. I would totally agree with that. And that's why. Wow. We're back on Paul. It's only that one issue. The rest of the book is very harmonious. Every once in a while, Mike and I have one or two contend.

They say that a good panel is one where there's some, you know, a little friction. So it's rare that the co-authors are the source of that. but okay, yeah, that's absolutely right. I mean, we'd love to have that addressed at that level. But the other thing to say about this, though, of course, is, you know, it doesn't happen in a vacuum, no? There is Japan. There are Swiss solutions.

There is Swiss Singapore, right? And this is a very mobile technology. We all know how many people are in Zoug for this reason, right? So does the US care? Maybe they don't. Maybe they don't. Maybe it's just a tiny industry. Why do I care about being part of this sort of new innovative movement?

Well, we obviously think that they should care about it Because this is a big part of what the future is going to look like, and the US doesn't want to be apart from that. And so, you know, and I think that there will come moments when fairly big developments that have an impact on the US are going to happen. I think when China has a digital fiat currency, which it will have at some point, suddenly there's going to have to be this scramble around what the US is doing

within this technology, and it might not be so happy to have seen all these developments. developers disappear to Zoug. Oh, interesting, but I mean, I don't see fiat currencies as being on blockchains. I don't see them as being a big threat to decentralized. No, but I'm not talking. I'm just talking about like, so you can't make a decision

around anything, distributed ledgers, you know, cryptocurrencies like Bitcoin in isolation from anything. One of the reasons why Venezuela is done as well, all these things are manifestations of Bitcoin in some form. They're completely centralized. They have by no means in any way, like Bitcoin, but they are a product of all of the sort of global competitive pressures that have been emerging around this thing. The most important thing Bitcoin has done in that

sense is put, sort of raise the idea to central banks about how things might be different. Every central bank around the world is exploring digital fiat currency now, precisely because of Bitcoin. And they are also talking about distributed ledger functions behind this. A lot of them are trying to build some of the modeling, obviously permission around that. The bigger issue, though, is that, you know, that, you know, that that digital fee at currency will have smart contract properties within it to effectively bypass the dollar. And that's going to be a major threat to the US.

You and I talked about this once before. Right, right. That's interesting. Yeah, you wrote an essay about this too. I did, yes. Yeah, about China about how you think that this will be a play to kind of knock the US dollar off global. Yeah, and I think it's absolutely feasible,

and it's certainly something that China would want to do. China talks all the time about, you know, wanting to internationalize the Rimbibi and remove the dollar from what was once called this sort of exorbitant privilege, as people called it. And the way that I think they would do it is that there would be a digital Remi there would also be a digital ruble. And through an atomic swap and a smart contract, you would lock in the rate through the currencies themselves and effectively therefore avoid the exchange.

rate risk that is carried over time when you went to an importer and an exporter enter into an invoice. So now you've got the importer and export on either side able to just like forget about having to invoice in dollars and hold dollars as a intermediary function. The whole corresponding banking system is no longer needing to be there. And then arguably central banks themselves don't need to hold dollars as reserves because the only reason they hold them is there's a protection against their own exchange rates. So You know, exchange rate solutions through smart contracts and digital fiat currencies is something very real and feasible. And we do know the PBOC is working on a digital fiat currency.

So when this idea comes forward, I would be very surprised to think that the U.S. is not going to want to scramble to do something to address it. Atomic swap is the name of my next album, by the way. That is an awesome album name. That would be. that would be. Now, a word from one of our sponsors, Appreciate. Founded by Ed Stevens, Appreciate is building the most valuable relationships on Earth. Today, Appreciate is recognizing a whole state legislature for a big achievement in the crypto space. The Wyoming legislature passed House Bill 70, which exempts various types of crypto assets from securities laws. Cudos to the corporate

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countries. But I wanted to address something earlier when you were talking about the bubble. I just wanted to get your thoughts on the telegram ICO. What do you make of that? $850 million for a white paper from a bunch of VCs, like not even from the crowd? I mean, look, Telegram is an obviously viable product. Is it something you're going to make money off of? I don't know because they're not charging any money for it right now.

but it is obviously a viable product. Is $850 million an outrageous amount of money for them to raise? I don't know. They raised it. They've got it. I mean, they've got a couple hundred million people using the product. So I think it is an awful lot of money. I think it is an eye-opening amount of money.

Does that on its own make it a terrible thing? Not necessarily. But what is interesting is, you have a situation where I know with this company really doesn't have to worry about making money now. They've got $850 million that they can do whatever they want. It's in no strings

attached basically. You know, again, this is one of the interesting sort of wrinkles of these token offerings. Are they investments? Are they donations? Like, what are they? Did he just get $850 million dollars, you know, no strings attached to do with whatever he wants?

It kind of looks like that. And if that's the case, then he can keep that thing running for a very long time. It just, you know, it all goes into operating capital. So, and they're going to raise more, or they're planning to raise more. Look, it's an astounding amount of money on its face. Is it necessarily wrong? I don't know. But what is it? Is it a donation? Is it an investment? If it's an investment, I got to tell you, it's a terrible investment, because they have no revenue generating business. So you're going to lose your money on that investment, unless you trade the tokens. And, you know, and again, that's a speculative.

investment. I don't know. It's a lot of money, man. So I mean, I like to just, hey, it is. We all think about the money. It's always about the money. How much money is being raised, right? The bigger question, and it's not one that I necessarily feel like Telegram are answering very well, is what actually is going to be the utility of the token. How is it going to function for the purposes of this platform? And it could be really interesting, right? It could be a means by which they build on top of Telegram, this sort of app development system, right? It might be that that's it is. The question then is how are they going to seed those tokens amongst the right community to make it

work? And if it's just being sold to these big fat cat investors then and we've got concerns about how you are whether you are under regulatory structures allowed to actually move to then a public sale

so that you then spread the network effects that you want how do we actually get to that platform? How do we get to the point where this interesting functionality becomes something that's very important. I want to have the conversation focused on that, right? For every single time, I know that we can't avoid

the massive amounts of money. It's inherently going to get all the headlines. But we don't spend enough time talking about, okay, what is the actual solution in this token? What exactly are you trying to solve? It's a great question. I don't quite know what messenger is what are going to do with it. That's the thing. I also worry about it being

the seen as a centralized token. I don't know. It's not an EIC20 token. So is it they building their own decentralized blockchain, or is it going to run over their own internal platform, which is a really interesting thing. You're going to give them all this money that they then have complete control over what the actual token that you own does. Oh, interesting.

I wasn't aware of that. I don't know. I don't know that's been resolved. Okay. I've not read the white paper, so. My sense of it is not that it's necessarily going to be a permissionless blockchain. Right. I think it's pretty well.

I can be wrong, but I don't think that wasn't my perception. I mean, look, I have to... And if anyone in the room knows, you guys feel free to join in. Did anyone buy into the... Any fat cats in here, bought the Telegram ICO? No, I think it was only VCs or something. They must be in the other room. So the other question about this, I find,

what are we going to do about the terms of these pre-sales? I mean, they are unbelievably generous to these first-class. Well, I think the rule... Well, my personal opinion is no pre-sales. It should be, like, no discounts. It should be, you know, if these are true... truly decentralized networks is truly public infrastructure, truly a utility, then it should be for the people.

It shouldn't be like, oh, insiders get a sweeter deal. I mean, it looks like they've tried to say, oh, this is the way that VCs work, right? And therefore, it's just modeling the old venture capital model. But it's not because, you know, the minute these things are on an exchange, you can get out, right? So there's also questions that should we have vesting rules and all sorts of other things that you could work into this. I think that there's an enormous amount of work

that needs to go into structuring these deals and ways that are not so. harmful to the majority holders. So does the SEC? Right. Yes, I'm sure they do. Actually, talking again about the SEC, I wanted to ask about the exchanges issue, which they sent this letter, I think, to exchanges, and we're probably going to see a lot of tokens you listed. It just got me thinking about decentralized exchanges. Like, is that where all of these tokens that might be deemed securities, is that where they're all going to go? And are they just going to be, like, freely traded? Or, you know, or will the relayers need to be? become registered exchange? How do you think that won't work?

It could end up going that way. I think it kind of shows how different this entire sector is from what we've had before. And it also raises a lot of risks. I mean, you're going to put your money on a decentralized exchange. The ones that are centralized now, if they get screwed, you're out of money. Like, I think you could see, I think Look, I think you will see people attempt that. I think you will see people try to do that. And that seems like a natural outgrowth of where this is all going.

I don't know if that will end up kind of achieving any large scale. I just don't know. But, I mean, someone's going to try it, and if they can make money off it, then somebody else will try it. And I think you will have that at least be an attempt. I think decentralized exchanges is a wonderful idea. I mean, it would be just really cool. if we get to the point where there are no more Mount Goxers

and that risk is removed and you gain the atomic swap, I'm going to use that word again. This function... My LP will be out of May 12th. Yeah, cool. I'm looking forward to it. Where are you going to... What's your first gig? No, this model,

but there's still a lot that has to be proven out to make them work, right? So I'm not sure that we're ready to do it. I do hope that we get there just simply for the ending of the centralized third party problem. But it will be very interesting from the point of the question you just raised as to what the regulators do about that.

And that may be where this whole thing goes. I mean, we're in a kind of a bit of a cat and mouse game, really, between regulators and this sort of constantly evolving technology. So, yeah, they create decentralized models that somehow no one can shut down. then all of a sudden these these tokens are just moving in amongst you know dark pools and we don't know who owns them and and that may be the way we actually you know end up seeding utility because that's how you get it out in the public hands or not maybe it becomes these big whales of deep dark secret guys we never get to talk to i don't know but um it is it is an interesting but i mean if it's like think about the tao right the tao is the decentralized autonomous organization they they wrote the software they thought, oh, this is a great idea. Let's launch it. And they launched it. And they raised $150 million, and everyone's all interested great. And immediately somebody finds a hole in the code and takes a third of it.

Like, decentralized exchanges, a lot of the ones we have now, are risky places to put your money. A decentralized exchange? You don't know who built it, who wrote it, how secure it is, how safe it is? I think there are a lot of questions around that. versus I agree with you in the sense that we are nowhere near ready and the Dow was a very strong indicator of the risk that we have. But I don't think we can say it inherently is riskier. I mean, the whole point about the risk in Mount Gox is because there is a party there that's in charge of those funds, right?

You're not... There's risk either way. There may be risk, but it's not risk about the founder or the holder with the money. You do retain control of your funds in a decentralized exchange. So the risks are different. That's absolutely true. But I don't know that we could sort of suggest that somehow it's going to be worse. What we've already got.

I think that we have to think about it as a natural evolution about where things are going to go. I think it's ingrained within the way this sector wants to go. To decentralize solutions, that is absolutely it. But we've got to get it right, obviously. So I actually want to move on to nation states that are bad actors. slap? Yes, we'll do that at the very end. So we were talking a little bit before about things like the Petro, and obviously we've seen that, you know, North Korea has been trying to mines in Bitcoin. There's been talk of, like, Turkey and Iran issuing their own cryptocurrencies, your book, and actually I think both of your books have been largely about blockchain for social good, but here we see that these bad actors are trying to get in on it, too. Do you think that this could be a way for bad regimes to consolidate power? Is that something you guys ever worry about, or have, try to investigate? I mean, I think that

along the lines what I said before to the extent to which some elements of the technology can be expropriated by them and used, then yes. I mean, that's what we're seeing with Venezuela. Venezuela is just trying to avoid all its obligations, which of course

in its failure to meet has led to the utter impoverishment and destruction of its country. But they're not they're not building a cryptocurrency in a decentralized sense, right? They've taken elements of it to build a centralised solution.

But yes, in that sense, there are all sorts of pieces of this technology that can be taken and used in interesting ways. And certainly, you know, privacy solutions will be exploited by bad actors, without a doubt. I mean, that kind of goes without saying. Is that, does that warrant, therefore,

sort of draconian responses from regulators or from anybody toward that technology. I think this is the nature of all technology, right? There's always good and bad uses for it. And I definitely, we need to recognize that it is amoral. It really doesn't have values in itself. It's just a tool, and that tool can be used by good guys and bad guys. What is the net effect of it? what is, you know, how, what will, where does it drive us entirely as a society?

It does push toward the disintegration of borders, right? At some point, I'm not saying tomorrow by any stretch, but ultimately these ideas, this concept of decentralized trust and decentralized open source transactions, does break down the power of those nations. So we might get to a point where it really doesn't matter whether North Korea is working on this, because North Korea itself will have had its power diminished by the effect of how fluid this economy has become.

By the way, how great is it going to be the day the SEC busts to Venezuela for running a scammy ICO? That would be great. I'm waiting to write that headline. So let's actually move to a new topic. Let's talk about governance. This has been a big issue in Bitcoin. It's now becoming a big issue in Ethereum. Here we've got like $100 million of Ethereum that have been frozen accidentally by somebody who, like, randomly hit a key somewhere.

I love my favorite screw up. Yeah. So there is a big debate in the community now. Like, should we, you know, freeze the money? Should we keep it frozen? Should we unfreeze it? But also, like, how should we decide what to do? What do you guys think about governance issues?

Like, do you think there's a lot of promise in some of the on-chain governance solutions that are being proposed? Or do you think it should continue to be sort of more in this typical, like, off-chain world where people can discuss things in forums, and then there are certain leaders who decide. What do you think about these options? Well, later today, we're going to be sitting down with Kathleen Brightman from Tezos, who will have some strong opinions on this, no doubt. I don't know. What do you think?

I think some of the early travails in Bitcoin, or not even early, but, you know, I mean, things that have happened in Bitcoin, things that have happened in Ethereum, I think at the very least they kind of show that there's an almost naive belief that you can just kind of write some code that is going to take care of everything. I don't think that's true. I don't think the idea that you can kind of just

write code and then get humans out of the way in terms of governance for every issue. That's not going to work. That's never going to work. I think you can certainly, you can write code and come up with programs and platforms and systems that

are clear, but I think you will continue to see this evolve, and I think you will continue to see that there is going to be a need for some human conscious oversight of any system, any group community of people. Ultimately, you are going to still have to have humans, people making conscious decisions. How they come together to do that is up in the air, but I just, I don't think you can completely get rid of people from any platform

that is going to bring together a group of people. I don't know. I mean there's actually a theme in the book quite a bit actually this sort of this fact that we can't get away from the need to trust somebody or something so in some respects that's an extension of that and I think it's in a I think

you know as Paul said there's always that human layer you know and I think it's also on the reasons why we need federal we're getting back to the same topic all the time but federal regulation because then there is a sort of a legal framework that I think you know is useful precisely for this this issue about okay when things go wrong how does it get

resolved it's interesting because because it is the human layer that has led to both the intransigence on the Bitcoin side and the failure to get governance, which some people see, and we cite in the book, I think it's a reasonable argument, as a feature, not a bug, right? That the sort of acrimony is just a manifestation of the inability to reach agreement, which then keeps through a sort of a robust, immutable system. and Ethereum, which was also resolving these challenges through the human level, but had the more founder-led solution that sort of then became very contentious

for the sake of whether or not they were in breach of the immutability consistency. And it's interesting because Bitcoin's genesis was such that there was no godhead, than Satoshi, who we didn't know who he was. Whereas we do have these identifiable figures who have a significant influence of Ethereum. And it's that issue, as much of anything else, that has led to the different government solutions in those two places.

You could just equally imagine that Bitcoin, simply if there were five or six guys that we knew were the founders of Bitcoin, would have potentially done exactly the same things in some of these settings, as has been done with... They could have rolled back the Mount Gox coins or something like that, who knows, right? Could have been similar to what happened with the Ethereum.

So there's interesting questions about what that means. In terms of the on-chain solutions, whether we're talking about delegated proof of stake or the various voting mechanisms and the other forms of governors that Tesos have, I think it's early days. You know, it is an attempt to bring into a blockchain what we might call a constitution, right,

or a form of democracy. And, you know, can they be gameed? I think there's concerns, certainly, about the dash supernodes and these things being, you know, there's a sort of a black market in them and things like that. So, you know, I don't know. It's early days.

I would like to think that some of these solutions could one day be pretty valuable. Yeah. Well, look, and I think the goal is always to create a more perfect union, not a perfect union. I think we have to understand that we are probably never going to create a perfect union. We are just trying to do something that is better.

I think this technology has the potential to allow us to do a lot of things that are better. But can they be perfect? No, which is why you're always going to have to have people involved in them trying to help them become better. All right, so we're going to, we have very little time. And I had so many other interesting topics to discuss. But why don't we do, like, a panelist choice between class, change, using tokens to solve climate change and UBI, universal basic income, which would you rather talk about? I would go for climate change.

Okay, let's talk about that. How do you guys think we can use tokens to solve climate change? There was a section in your book. So this is something that sort of emerged out of conversations that I've had with people, and you've been present at them, I think, on a certain island. I think that it's not easy, but I do think that there's this idea of, natural capital and natural currency whereby once we've created the concept of a digital asset, we've now got a digital representation to which we can assign value. So right now, people are talking about tokenizing real estate, for example, right?

So we've now got a claim on a piece of property. This is an external thing of value. What we're talking about then is saying, how do you actually assign value to something that doesn't trade in the free market as it is now, in any case, like water resources, the quality of our air. And I think the interplay between verifiable data, because there's a lot of work being done on sort of reliable IOT, and sort of a decentralized structure to that

so that China can't manipulate the data, the data becomes so ubiquitously collected through little tiny sensors everywhere, and we have a decentralized blockchain-managed model for it. When we know that data, we can start to do very interesting things with tokens that participants in economies that are related to the particular environmental concern that you have will then trade and own and use, right?

So if we can build an economy around a token, let's say it's a coral reef and you've got the fisherman and you've got an NGO and you have various other, many different stakeholders who have a real interest in this. And if the data is proven to improve around that reef through this reliable data, you know, data source. There's things that can be done to improve the value of the token. So you can burn tokens that are held in reserve, reducing the supply, having this impact therefore on the value, and therefore align the incentives with all these players to that process. And the reason why I get excited about is because I think that there's this tragedy of the Commons concept that I think is actually an integral part of how blockchains work. The core idea is, the core idea

is that through this mechanism, entities who don't necessarily trust each other can be incentivized to act in the common good, even though they're acting in their self-interest, which is the interesting thing about Bitcoin, right? Because miners are mining for Bitcoin, but they're building a public ledger, which is a common good. Transferring that idea to this obviously more elaborate structure around common resources and environmental issues is an exciting. in concept. It's sort of obviously needs some sort of hardcore development.

Another aspect of it is just the whole idea of the energy industry itself. And what I think is really interesting is this is where you can start to see where blockchain technology can be combined with other technologies and you can create something that is very interesting. And so look, basically what, the entire industrial revolution, we have generated energy by burning oil, burning fuel, or you have centralized utilities creating it. You now have a situation, I know we're running out of time, so I won't go too long, but I mean, you can see a situation where you can have renewable energies, you can have renewable sources of energy, you can have, which can be broken up into, you know, you have these microgrids, these small solar arrays, right?

Like you have solar panels on your house. You can have those connected, you can have microgrids, an internet of things layer to it where your house is, you know, you've got your little nest thing from your energy. And then you have a blockchain layer where people will be able to exchange energy back and forth, trade energy back and forth. You have the trust layer so that you don't necessarily have to have everything held by the utility agent, you know, the central PSC and G or whatever it is wherever you guys live. Con Ed, who did not restore my power for a whole week. There you go. It's just a human experience. I think that's kind of an interesting way.

When you start to talk about how renewables could be connected via, say, a blockchain-based network and the entire energy infrastructure decentralized, I really think that is going to be part of our future. And I think that is going to have a massive effect on certainly climate change, but also just, you know, how we supply our daily life. You know, I would supply energy. I agree. I think that's really interesting. All right. I want to end on just one last thing, which is I want to get your opinions on how the media has been covering Crypto. and try to make it succinct. We literally have like two minutes. Great.

I think they're all doing a fantastic job. I think, to be honest, you still see some outlets that have reporters who have been doing this for a while now and kind of understand it. And some outlets that have reporters that haven't been doing this and are still trying to get up to speed on it. You have some that see it for the potential that it really does represent. and are trying to get at that. And you have others that see this as a sensationalist thing and a way to generate traffic for their websites and they're, you know, and they're doing that, which is to say that some media outlets are good

and some are bad. It's always kind of been that way. I think from my personal perspective at the Wall Street Journal, it's really interesting. We're now at the point where I used to do this as a side gig to my regular job, which was markets. And because I was interested in this, they'd let me write about it.

and Mike when he was there, to now, this is my beat. I am the Bitcoin reporter at the Wall Street Journal. But not only that, reporters on basically every other beat are starting to become not only interested in this, but they have to report on it because the companies that they deal with are looking at it. So some of them are really interested in this, and they're learning about it on their own. Some of them come to me and ask questions.

It has become something that we are addressing basically on an institution. level. I mean, the Wall Street Journal covers this now. So I don't know. Do we have time to me to just weigh in because I just think that the narrative is still too focused on the wrong things. You know, it's all about the price. It's all about how quickly rich everybody's getting and how many lambos there are out there. And that's obviously a story.

And it's obviously something. But we're creating this impression. And, you know, you're certainly to get people in the space as well who think that's what it's all about. The most exciting thing of all is how quickly their token, you know, went from 10 to 100. And that seems to be, unfortunately, still the dominant narrative in mainstream press. So getting underneath that, which is what we've been doing over and over again, you know, has been a trying and difficult process. I think Paul's right.

Sophisticated publications are now starting to write some pretty deep, dive-y-type reports and kind of getting it. But, you know, they and the broader penelope of all these other ones as well, still very much focused on stuff that is only a sort of one little element of what this is all about. Yeah, and I would say sometimes when I see those articles, I think to myself, is this outlet single-handedly trying to create the crypto bubble? And it's very frustrating. Did you see the town and country cover? I did. I did. How to spot a Bitcoin billionaire. One other thing I just wanted to say for the record is that I was the first. first mainstream reporter to cover crypto full-time and you were the second Paul. So we should do a little

high-five across the table. All right. Thank you guys so much. This was such a great conversation. Yeah, no. Thanks, Laura, for having us. And I just want to say very, very self-interestedly. We'll be doing a book signing tomorrow, Room 10C at the convention center at 1 o'clock, 1 to 1.30. So if you're interested and come on by, we'd love to see you. We'll sign them, put your name on it, do whatever else. Draw a little picture if you want it. Yes, look at this beautiful book. Call the Truth Machine. It's very good. All right, see you guys.

Thank you. Thanks so much for joining us for this special South by Southwest episode of Unchained. Thank you to the founder's organization for hosting the initial taco offering and thanks to everyone who attended in person. To learn more about Paul and Michael, check out the notes inside your podcast episode. New episodes of Unchained come out every Tuesday. If you haven't already, rate review and subscribe on Apple Podcasts. If you liked this episode, share it with your friends on Facebook, Twitter, or LinkedIn. Unchained is produced by me, Laura Shin, with help from Elaine Zelby and fractal recording.

Thanks for listening.