Unchained - Unchained Year in Review: The Best of 2019 - Ep.152

Episode Date: December 31, 2019

In this Best of 2019 episode, I selected the clips that seemed most representative of what crypto was about this year, which I call, The Year Things Got Geopolitical. My only regret is that none of the clips about DAOs lent themselves well to this episode. However, years from now, after we’ve got global stablecoins pinging around the world at a high transactions-per-second rate, the crypto community has made peace with U.S. regulators, and more of our lives seems to take place in the borderless digital world, perhaps we'll find it ironic that DAOs were burbling up right around the same time. Thank you to our sponsors!  Kraken: https://www.kraken.com Crypto.com: http://crypto.com/ CipherTrace: http://ciphertrace.com/unchained Episode links:  Unchained Interview with Vitalik Buterin: https://unchainedpodcast.com/vitalik-buterin-on-whether-or-not-ethereum-is-blowing-it/ Unchained Interview with Hester Peirce: https://unchainedpodcast.com/sec-commissioner-hester-peirce-come-talk-to-the-sec/ Unchained Interview with Ted Livingston: https://unchainedpodcast.com/kin-sets-up-5-million-defendcrypto-org-to-take-on-the-sec/ Unchained Interview with Glen Weyl and Santiago Siri: https://unchainedpodcast.com/how-blockchains-can-help-create-little-democracies-everywhere/ Unchained Interview with Christian Catalini: https://unchainedpodcast.com/a-libra-co-creator-on-how-facebook-will-make-money-from-calibra/ Unchained Interview with Martin Chorzempa and Dovey Wan: https://unchainedpodcast.com/why-china-aims-to-replace-cash-with-the-digital-yuan/ Unchained Interview with Emily Parker: https://unchainedpodcast.com/crypto-in-china-what-it-really-looks-like/ Unchained Interview with Sandra Ro: https://unchainedpodcast.com/sandra-ro-why-crypto-friendly-laws-are-coming-in-the-us/  Unchained Interview with Patrick McHenry: https://unchainedpodcast.com/congressman-patrick-mchenry-bitcoin-will-be-of-enormous-value/ Unchained Interview with David Andolfatto: https://unchainedpodcast.com/fed-economist-on-the-prospect-of-the-usd-losing-global-reserve-status-who-cares/ Unchained Interview with Yeonmi Park: https://unchainedpodcast.com/yeonmi-park-on-why-doing-business-with-north-korea-is-like-buying-a-ticket-to-a-concentration-camp/ Unchained Interview with Alex Gladstein: https://unchainedpodcast.com/alex-gladstein-of-the-human-rights-foundation-on-the-3-reasons-bitcoin-matters/   Learn more about your ad choices. Visit megaphone.fm/adchoices

Hi all, happy holidays. I hope this year was a wonderful one for you, full of growth, adventure, learning, fun, magic, and magic internet money. For the end of year, actually, end of decade, festivities, we at Unchained will be doing a giveaway. Woohoo! Of all kinds of nice items that we accumulated this year. If you want to win one of these nine lovely items, here's what you have to do. One, tweet about Unchained with a link to your favorite episode or the show itself. Two, give us a favorable review on a podcast platform such as Apple Podcasts. Three, send us links to your tweet and your review, plus name your top three swag items in order of preference, as well as how you'd like to be called when we announce the winners on the show.

Also include your mailing address, but don't worry, we will not be naming that on the show. Email all this to hello at unchainedpodcast.com with the subject line giveaway by midnight on Sunday, January 5th, 2020. These are the items we're sending to nine lucky winners. I will put the link, the text of this in the show notes as well so you can name your top choice items easily. A ballet crypto wallet. A ballet crypto wallet sample.

The main difference between these two is that the sample has less fancy packaging. A copy of the little Bitcoin book that I bought before I got a signed copy from none other than Jimmy Song. A copy of Bitcoin billionaires, which I got from. from the publisher to do the Ben Messrich interview on Unconfirmed, before Tyler and Cameron Winklevoss sent me a signed copy. A 3 and 3 quarter inch unchained rabbit sticker. A black 3 inch unchained logo sticker. A five inch unchained rabbit hole sticker. A mug of the Crypto Rabbit Listing to Unchained, an old school unchained logo baseball cap, a white unchained Crypto rabbit hole t-shirt in extra

small, a gray unchained crypto rabbit hole t-shirt in extra small, a black unchained crypto rabbit hole t-shirt in extra small. And that's everything. Since I don't imagine I have a ton of listeners who wear extra small, this is the time for the ladies to step up. Or if you're a parent and want to give this to your child, because yes, if you squint hard enough, I could potentially be considered the size of a child, then these t-shirts are for you. If you are one of the winners, we obviously can't guarantee you'll receive your top choice swag. However, we will do our best. Again, to enter to win, tweet about the show with a link, review us on a podcast app, and then send the links to both of those to us at hello at unchainedpodcast.com with a subject line giveaway, along with your preferred

picks for swag by midnight on Sunday, January 5th. Good luck, and we will announce the winners and send the swag out in 2020. Happy New Year, everyone. Hi everyone, welcome to Unchained, your no hype resource for all things crypto. I'm your host, Laura Shin. I know a bunch of you listen to Unchained at the gym. January is coming up, and I suspect some segment of you will be hitting the gym more than usual then. So why not get really met it and listen to Unchained while also wearing an Unchained t-shirt? You can buy shirts and other Unchained items at shop.unchainedpodcast.com. Again, that's shop.unchainedpodcast.com. Cracken is the best exchange in the world for buying and selling digital assets. It has the tightest security, deep liquidity, and a great fee structure with no minimum or hidden fees.

Whether you're looking for a simple fiat on-ramp or futures trading, Cracken is the place for you. Cipher trace cutting-edge cryptocurrency intelligence powers anti-money laundering, blockchain analytics, and threat intel. leading exchanges, virtual currency businesses, banks, and regulators themselves use cipher trace to comply with regulation and to monitor compliance. Crypto.com, the crypto super app that lets you buy, earn, and spend crypto in one place. Get a metal MCO visa card with up to 5% back on all your spending. Download the crypto.com app today. Welcome to Unchained's Best of 2019 episode, which is actually more a collection of. of the clips that are most representative of what crypto was about this year.

Out of about 50 interviews, only 12 made it in, and I was pained to leave so many good conversations on the cutting room floor. However, the moments chosen do tell a story about the year 2019, which I call the year things got geopolitical. Probably my only regret is that none of the clips about Dow's lent themselves well to this episode. However, years from now, after we've got global staple, coins pinging around the world at a high transactions per second rate, the crypto community has made peace with U.S. regulators, and more of our lives seems to take place in the borderless digital world.

I do wonder if then we will find it ironic or coincidental that Daos were burbling up right around this time. Anyway, on to the first clip. 2019 started off with a fair bit of anxiety in the Ethereum community. The leading smart contract platform, which had fueled the 2017 crypto, Mania was facing the launch of numerous potential competitors. An insecurity over whether it would retain its number one status led to the emergence of Ethereum maximalism. That was the context for my live podcast interview with Vitalik Boutteran in New York City

at Columbia Journalism School, my alma mater, which I began like this. I'm going to jump right into questions. Normally in journalism, if you're an editor, they say you should give your comments to writers in what's called a nice sandwich. And you could apply that concept to interviews, but unfortunately I'd have to dispense with the nice parts in the beginning because I really want to get to the meet of the conversation. We have a very limited time. So my first question is kind of like a question that's actually for you and for the audience. And actually what we're going to do to tee up the questions, we're going to play a video. And it's a video, I think you've probably seen it.

And some may have seen it. But for those who haven't, it's a video of Fred Wilson at Union Square Ventures in conversation with two-star gene of multi-coin capital. the Multi-Coin Capital Summit. And I think Fred's view here is representative of a lot of people's, that it's not just his opinion. But you can see he has kind of a lot of emotion about where Ethereum is right now. And we do that a lot for our companies. Ethereum needs that, right?

We know that Vitalik is not CEO. Vitalik is an evangelist. He's a brilliant computer scientist. But, like, Ethereum should be more like a company, right? Like they, like, you look at what Eos is doing, and you look what ETHium's doing, and it's like, you know, if Ethereum was doing what Eos was doing, they'd be crushing it, but they're not. And they don't have enough money, they don't have enough developers, they don't, you know, they're not, they're not, their go-to-market strategy is non-existent. Like, they're not behaving like a company. And if, if all of us who own Ethereum could go to Vitalik and say, you know, look, this thing you got going in Switzerland, it's not working, fire these fuckers who, who don't know what.

what the hell they're doing and put somebody great in there who could help you build this thing into a monster, like that's what we would do. I don't know how to do that. Like, you can't, like, there's no mechanism to do that. That's painful. Just sitting there holding the asset, just watching them, whittled the value away. And you're like, God damn it. You know, I know what to do here. You know, just look at it. Every great company has done this. Just do that. And they don't do it. And it's hard to get them to listen, right? Because like, first of all, who do you have to convince, right? In this case, like, maybe it's Vitalik, but there's a whole decentralized group of developers, et cetera, that need to be convinced. And, like, this is exactly kind of the question

that we're trying to think of is... Well, if they think, that whole group thinks that they're killing it, then they got their head up their ass, okay? They're not killing it. They're blowing it. What I want is I want Vitalik to give us your response to what he's saying in this video. Yeah, I mean, I guess, first of all,

like, if Bitcoin was run like a business, would it have succeeded? And I feel like we're kind of intuitive we know the answer. So, like, it's definitely a structure that works for some things, but like, blockchains and cryptocurrency

and all those, all of those things, that come with that package are just fundamentally kind of so much more and kind of so different from a traditional company or a software product. So I'm really not at all sure that like that kind of of model is anywhere close to the right model. So in terms of like what our model is, right, right, Like, we've definitely had these discussions inside of the foundation, and there's definitely been people from time to time that just said, yeah, we need to go in with guns blazing and fire those bastards,

and then, you know, get the 40 people in and, like, stick them in the middle of some Nimbutopia in Silicon Valley and get them to pay $10,000 a month to rent, get them to work for 16 hours every day, rah, rah, rah, six months. And, like, we got Ethereum 3.0, man. And, like, no. I mean, I would say rather that, I mean, Bitcoin succeeded in large part because it adopted a model that's very, very different from that. And we've been adopting a model that's very different from that. Though, I mean, at the same time, look, one of the things that we did is for our 2.0 strategy, right?

We have this approach where the foundation is not the thing in the middle that's building everything. foundation is, it is being a hub for things that need a hub. Like, for example, writing out a hub and writing out the spec and specifying it, bringing it to completion. But then the work on making 2.0 implementations is, you know, distributed among, you know, prismatic labs and lighthouse and consensus and these other companies. And, you know, these other companies internally can be kind of structured in very different ways. And they, you know, some of them could be based in one place, some in another place,

they might have different kinds of people in them. And really, if even a couple of them succeed, then, you know, at least the softer implementations of Ethereum 2.0 exist and it's developed. And from a scaling point of view, you know, like as some of our community members in public have said, even if Ethereum 2.0 is never developed, there's Ethereum 1.X, there's Z, K-roll-up, there's channels, there's plasma. And... But, yeah, but so you were kind of taking issue with his framing of, you know... Yeah, like, I guess the point I'm trying to make is that there, like, there is a kind of

focused and deep approach to doing things, and there is a broad approach to doing things, and we definitely are explicitly taking the broad approach to doing things, and I'd argue it's like a very good one for things like Bitcoin and Ethereum. Regulatory difficulties were also a big theme throughout this year. SEC Commissioner Hester Perce had a pragmatic view on the benefits and downsides of regulation, plus even talked about how the U.S. could do better. Last summer I interviewed Cheng Peng Zhao, who's the CEO of Finance. Amazing episode of you guys who have not listened to this.

I asked him a ton of questions about regulation. He really pushed back at me. And his company, frankly, is famous. as for regulatory arbitrage. And something that was kind of funny that he said to me. I mean, honestly, so much of the episode, frankly, was funny, but we were talking of regulation. But I...

Which is hard to do. I know, exactly. You know, but he definitely, he has strong opinions, and they really came through. But one of the things he said was that he... Like, I mean, I don't remember what phrasing he used, but he essentially said, like, oh, things like FCC disclosures are sort of like theater. And basically said, you know, I would rather, look at the information coming through

telegram groups and what are people saying and he was kind of implying that like the information that you can get online about these crypto assets is like even better and so it's just curious to know because I know that you I think tend to have the view that information is like kind of the main reason that regulation is important

well I mean I think that that point is an interesting one and one that we often forget at the SEC so at the SEC we often think well if we don't have a rule in place people are just going to have buy stuff and they're not going to even ask for any information. And that's pretty ridiculous because, I mean, yes, there's a group of people who are willing to give their money on a hope and a dream

and a little title called crypto and nothing more. But I think, especially as this space is maturing, people are saying, wait a minute, I gave, you know, I invested money in this project and now I have nothing. So if I'm going to invest in another project, I'm going to ask a bunch of questions. And I think that's a very healthy attitude to cultivate in people, which is, no, don't give your money to anyone without asking a ton of questions and being quite sure that you know who that person is, what they're planning to spend the money on, and what you're entitled to and return for your investment. And so, you know, I think we've got to remember that there is really sort of a natural inclination on the part of people to seek out information when they need it. And I think

that's kind of what that point was going to. And so especially in a space like this where you've got people who are, I mean, it's a brutal space where people are willing to rip each other to shreds, say that each other's projects are terrible, say that, you know, someone will say this project's complete fraud. You know, there's a lot of good conversation. It's sometimes a little bit, you know,

I can't even listen to some of it because I can't, I can't, my SEC phone doesn't allow me to listen some of those podcasts because the language is too bad. But the bottom line is, you know, people are out there and they're talking about this stuff, and I think that's a really healthy way to get information out there. So, you know, I don't totally discount that point.

Yes, the reason the SEC, sort of the reason for the SEC's existence is to get disclosure, good disclosure out there to investors, and I think that's a really important role. But I also don't kid myself that absent our involvement, it won't happen at all. I sometimes talk to some of the different developers, and maybe you're not surprised, but it surprises me sometimes to hear kind of the different workarounds they're doing,

really, to try to avoid any kind of enforcement action from the U.S., specifically just this one regulator. And when I listen to them, I really think, oh, this does not sound good. It sounds like they're doing a lot of work to avoid this situation. And, you know, I know you guys walk this fine line of wanting to protect investors

but not stifle innovation. So I'm curious to know kind of like, how would you grade how well the U.S. is doing so far and how do you think the U.S. regulators can do better? Well, that is, I think that's a great point that you make. And it's sort of a more subtle point, which is that a, lot of resources are expended and just trying to figure out how you can be compliant with our rules.

And so I think, I hear that and I think, wow, it's sad to me that those resources can't be spent in a more productive way. I under, you know, we, again, we have this rulebook in place, so that's a consequence of it. But it also makes me want to say, come talk to us, tell us where the pain points are. and tell us what we could change so that you wouldn't have to engage in effort that ultimately you don't think is serving investors. And so how would I grade how we've done? I don't think we've done a tremendously great job. And it's not because there are a lot of people at the SEC who are working extremely hard and trying to get this right.

And they are thinking about our mission, which is protecting investors, facilitating capital formation and maintaining fair, orderly, and efficient markets. And so that's what's driving people. But because, you know, to go back to a point I made earlier, we're just not great at accommodating innovation. So I think we do need to think about ways that we can make it easier for people to get relief so they can move forward with projects in a way that they're comfortable. They're not going to run into an enforcement action. Speaking of enforcement actions, KIC sacrificed itself to challenge the way the SEC has been applying the Howey Test to Digital Tokens.

While Kik's defiance of the SEC did not work out for it in the end, as announcement of DefendCrypto.org on my show certainly captured a historical moment in the tense tango between the crypto community and the SEC. I think this is a first for the podcast, but we are announcing news today on the show. Ted, why don't you tell everyone Kicks' plans? Yeah, so first off, thanks Laura for having us. So just a bit of background. We've been in the crypto industry for quite some time now. We launched our own cryptocurrency KIN back in 2017. The KIN ecosystem continues to grow.

There's over 40 apps where you can earn and spend KIN live today. And in the last month, over a million people have earned KIN, and over 300,000 people have spent Kint, making KIN one of the most used cryptocurrencies in the world. So that's been great. That's been really exciting. But the continued challenge for us has been the lack of clarity on the regulatory side. And so over the last year and a half, we've also been working with the SEC.

You know, they first reached out to us three days after our token sale. Then they started to ask us for some comments and some meetings and then, you know, some subpoenas and then formal testimony and just trying to work with them to understand crypto to create that clear guidance we all need. And after spending 18 months and over $5 million, trying to work with them, just continue to be super frustrated about the lack of clarity. And so, you know, it's recently felt important to us, and not just for us, but for the whole industry,

like we need clarity here because this is really starting to hurt our business. And so we've put together defendcrypto.org. And what that is is it's saying the only way we're going to get clarity is if somebody goes to court. And so we are prepared to do that. You know, we need a new how we test. And that new how we test is going to come from a ruling in a court case. We have great facts. We have great circumstances.

We have a great team, great lawyers. And so we're in a unique position to create this clarity, not just for us, but for everybody else. And so we've created an account with CoinBus custody to make sure the funds are available to, because these things are expensive. And we put $5 million of Bitcoin, Ether, and Kin into that Coin-based custody account. But we've also opened up contributions for any other project or an individual who's frustrated with the current status of clarity and of regulation to contribute alongside to make sure there's the funding there to create the clarity we all need.

I chose this clip from my podcast with Glenn Weil and Santiago Siri, which was recorded before Libra was announced, because this theme of the nation state being mismatched to our lives ended up being a big theme for the year, as we saw with the beginning of the space race over the first global staple coin. Yeah, I mean, I think there's a general problem of sort of the formalism that governs our lives, like nation state and the corporation and whatever, like not really matching the society that we actually live in. And I think many of our problems and not just the like fake news or whatever, but all sorts of things come from the fact that like we don't have institutional formal institutions that are sufficiently responsive to the social reality that we're actually living. The nation state is already in a big crisis, especially since the last election in America, where a lot of questioning and has been put on the role that Facebook played because of the suspicion there was a foreign power interfere. with the election, the most powerful election in the world. The principle of the nation-state is based on non-domestic intervention. Since the peace of Westphalia in the 17th century, it's this basic rule that keeps an equilibrium of power

that achieves a certain peace that you don't mess with my domestic affairs and I won't mess with your domestic affairs. When you have a foreign influence being suspicious of exploiting this technology called Facewell, that has actually everyone voting every day. But the problem of Facebook is that it's a fake kind of voting because it's surveys based on the idea of satisfying Facebook's profit needs because it's at the end of the day an advertising company.

Facebook surveying people. But we're voting with every like. We're actually giving a preference. Now, these likes only satisfy this advertising-based business model. And it turns out that whether we want it or not, now it's breaking the very principle of non-domestic intervention. And Mark Zuckerberg is being called to testify in Congress and explain what's going on. Now, you know, Facebook has been an influence factor in elections anywhere in the world,

in the Arab Spring, in many, many environments. The fascinating thing in political terms of what's happening right now is that now not even the U.S. is protected from what it has created. So the nation state is no longer in place. When Facebook's Libra launched, the mission was to bank the unbanked. By the time I interviewed Libra co-creator and chief economist Christian Catalini, regulators were breathing down Facebook's neck, calling into question how effectively Libra would be able to do that. Actually, from Mark Zuckerberg's testimony, it wasn't totally clear to me if it was possible.

Just from the way he answered his questions, it seemed like it might be possible to create anonymous wallets, but you're saying that every single wallet will be KYC'd? So there will be non-custodial wallets on the public chain. And what's important to consider, though, is that many of the, essentially all of the on and off ramps, the authorized resellers and exchanges that are authorized will essentially apply KYC, AML. And there's a new framework that the association is working on to really kind of describe all of this different aspects. Okay. So then I'm sure you.

you've heard this question before. But so if if that's the case, then how how will that affect your goal of banking the unbanked who maybe in many cases don't have really strong identity verification? Yeah. And you know, this is where it's really great that there are founding members that are really active from an NGO perspective in regions where that's exactly the problem you describe. I think over time, the OPE is really two, lift up KYC and identity standards, maybe even in collaboration with international organizations that can help you, let's say you're working in a refugee camp or in a condition where you do need a trusted intermediary, that could be a global NGO, to certify that this person actually should

be allowed on the network. You know, going back to the broader problem of last mile issues, this is not something that we can solve in one single swoop. It will take time. And especially on the I think the promises in regions where you already have a wide smartphone penetration and people may be using, you know, the classic $30 Android device. It may have access to data. That's where you can start. You do need often that in combination with strong identity. You know, some regions have made good progress on this.

If you think about India, others are lagging behind. But it will be, you know, it will be a long-term effort. And I think there's among the founding members. members, many of them feel this problem of identity because they're operating in many different countries. Often they have to deal with cash. And so I think you will see the financial inclusion piece advance, especially together with broader infrastructure around identity and KYC. Again, it won't happen overnight, but I think the NGOs can play a major role in really identifying solutions that feel both devoid from people that come without strong

identification, but also without excluding them completely from the network. And this is where, you know, the public chain allowing for small cash-like transactions could be quite, quite meaningful. So then I just want to talk about this tension of like how much it is that Libra really will help the unbanked. Like let's say that I'm in India and I'm having to convert from rupees to buy Libra. I pay a little fees. I pay some fees. I lose a little in the exchange rate. But then later when I want to use that money, then again, I'm going to pay some fees and lose something exchange rate to convert back to rupees. So in what scenarios would it make sense for somebody to buy Libra? Would it literally be just if they're sending money somewhere abroad?

So of course it starts with the receiving and sending of money. So think about the remittance use case. But then over time, I think this is where the founding members and the broader set of initial participants in the association is really important, you could imagine all sort of new use cases. So maybe you receive the remittance through your telco operator, and that teleco operator is part of the Libra Association. And so now you can use it to buy airtime, to spend it as mobile money, or maybe, you know, the partner of the association that you're relying on is a merchant, a merchant that is active in that region, and now you can take your remittance and spend it and exchange it for goods and services. Removing those last mile friction,

I think it's something that, again, will take a long period of time, but it's really important for ensuring that not only you're cutting and reducing fees on sending the value from A to B, but also what can you do once you've received it, how much friction are you now incurring in a specific region? An important feature here of the design is that there's an incentive for different private entities and exchanges and other intermediaries to come in and fill that gap.

So when you look at the reserve, the reserve will interface with a group of authorized resellers that will make a market for Libra. And essentially, these will be the entities that will capture and transmit market demand. Do you need more coins? You need less coins. So essentially, do we need to mint and burn at the reserve level? They will be able to charge a small spread. And similarly, they will be interfacing with exchanges, including some of the crypto ones,

for example. And these exchanges will also be able to charge a small fee. Now, the good thing about the spread is that if I see someone in my region charging to I have a spread, maybe that's a big opportunity for me to come in and compete with them. And so over time, the competitive forces on on and off ramps, hopefully will drive people to be very creative and entrepreneurial and allow all sort of on and off ramps to develop. I think there's an opportunity here. And other startups in the crypto space, I've tried this before, but there's massive friction

of building different types of on and off ramps where if you do have KYC, you can really allow, for example, convenience store or some other endpoint to become a way where consumers can come in and out of the network. After Facebook's Libra announcement, China got in gear with both an overall blockchain initiative and with planning the rollout of its new digital currency and payment system. But because these efforts will be private blockchains similar to intranets as opposed to the internet for China, it raises the question of whether the Chinese will be satisfied with these private blockchains or if they will be.

come curious about Bitcoin. Martin Jorazempa and Devi Wan discussed this and other topics related to China's blockchain efforts. Alex Gladstein of the Human Rights Foundation came on my other podcast, Unconfirmed, and he said that he thought that all of this will end up being a blunder for Xi Jinping because he basically said that, you know, to learn about blockchain, you end up learning about Bitcoin, and the Chinese will be more attracted to Bitcoin than they will to the digital yuan. And, you know, I kind of brought up, oh, well, you know, in the past, people had said that they thought that the internet would open up China. And obviously, that hasn't really happened. And you read these articles where Chinese people are just like, I'm happy with

the internet I have. They're like, who cares about Google and Facebook and, you know, whatever. So, you know, do you think, but Alex was saying that money is a different thing. So do you agree with Alex that this could end up being kind of like a gateway to Bitcoin? And if, So do you think that that will have some kind of effect on the power that the Chinese Communist Party has on China? So I think this blockchain blessing from C definitely help like just this generic, just a Bitcoin awareness. Because blockchain and Bitcoin, these are two concepts. They're like interrelated and it's very hard to isolate one from each other. And like we can see from all this recent educational material released by CCP.

And so they actually have to refer, so like, so they actually have to refer to the history of like blockchain and then actually mention Bitcoin. Because traditionally, like in the past few years, like the narrative around Bitcoin amount just like average Chinese is like Bitcoin is a scam and like crypto is a scam. And I think at least like this kind of a narrative like can be eliminated. But we have to keep in mind that the average Chinese citizen, and then also buy Chinese culture, is very prompt to authoritarian statement. So I think if the message from like the Chinese Communist Party is, okay, blockchain is good, digital Remindy is good. I think most of the average citizen will just prompt into this Chinese version digital currency. like probably not Bitcoin. And it might be in the very long term when like the Chinese economy like probably meltdown

and then people are not happy with their current living just a situation, things like that. I think whenever there's a potential sovereign Fiat crisis, I think that can be a just a cognitive, like a wake moment like for the local Chinese. And so they might be considered, okay, So probably Bitcoin is actually the plan B. Like the other thing to keep in mind is Bitcoin is already very expensive, like in the eyes of like any newcomer of this site. So just like any Chinese citizen, so like who's new to digital currency or like cryptocurrency,

like the average annual household income back in China is about, so it's about $10,000 US dollar every year. So whoever is new to Bitcoin in China. and I think 99.9% of the chance that, like, he or she will not think, so like, he or she will basically think Bitcoin is already too expensive and then it is too volatile. And so what I should buy into Bitcoin and then just instead of like, so instead of like probably buy into stock and just I probably stick with my current, just a daily Reming Bee activity, right? And so I think there's a huge gap and just like there's a huge leeway before the Chinese citizen eventually consider Bitcoin as like a store of value.

Yeah, I think that's right. And there's also the fact that China's government has cracked down so much on cryptocurrency exchanges, made it difficult to buy Bitcoin in China. You can still do it through some peer-to-peer methods, but it's not terribly easy. and many of the ways to buy it might appear quite shady for an average Chinese person. But I think it could actually, you know, this push to blockchain might actually backfire in another way, which is that this is a very new technology that is mostly unproven for most of the applications. And if there's too much investment in it and too much of an idea that, you know, the top leader has said we need to apply it, so we're going to apply it,

whether it makes sense or not, it could actually lower Chinese growth. and make things less efficient by trying to jam blockchain into areas where it doesn't make sense, especially if they're not willing to decentralize and use it as the technology was originally intended. So it's very hard now to be in China and be a blockchain skeptic, which I think is an important viewpoint that needs to be there in these discussions. But that kind of article would now get censored because you're disagreeing with the top leader. And I think that's a big problem. I would definitely agree with that. Oh my gosh. That's a hugely important point. In a moment, I'll have more on China, regulation, and my favorite geopolitical topic, North Korea.

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Cracken's focus on security is utterly amazing. Their liquidity is deep and their fee structure is great, with no minimum or hidden fees. They even reward you for trading so you can make more trades for less. If you're a beginner, you'll find an easy on-ramp from five-fiat currencies, and if you're an advanced trader, you'll love their 5x margin and futures trading. To learn more, please go to crackin.com. That's k-r-a-k-k-en.com.com. back to Unchained's Best of 2019. Although I recorded this interview with Emily Parker of Longhash before Xi Jinping's blockchain announcement, this part of our interview is still relevant to that question of whether or not the blockchain push in China could get the Chinese interested in Bitcoin. You mentioned right before the commercial break that you see some parallels to the book that

you wrote, which I'll just read out the title for people, now I know who my comrades are, voices from the internet underground. And as you mentioned, it talks about how the internet is changing life in China, Cuba, and Russia. So what parallels are you seeing to the development of crypto and the internet in China? Yeah. So that's, I mean, that very question is exactly what got me interested in cryptocurrency. It was kind of like, are there parallels here? And I think there are a lot of parallels in the way that the internet and cryptocurrency are developing in China. I mean, I think, you know, the biggest parallel on the most macro level is that, you know, these are two examples of a decentralized technology that is very difficult for governments to control. This is true of the Internet and this is true of Bitcoin, you know. And I think with the Internet, you know, there are a lot of opinions about the Internet in China.

I think right now a lot of people in the West or, you know, see it in a very negative light. Oh, it's so censored. It's so restricted. Nothing is happening there. I don't really agree with that. I mean, I think, yes, there is a lot of. of censorship, but I also think that there is also a lot of innovation and there's a lot happening on the Chinese internet and there's a lot more happening there than ever would have happened in the period before the internet. And I think the internet in China has had a huge impact on just like a lot of people's individual lives. So the other thing about the internet, and I've sort of been saying this for years and I continue to say this, despite censorship, despite restrictions, it is just not possible for any government really to completely control the flow of information on the internet. It's just

a decentralized phenomenon. And it's just not possible to completely shut it down. And I think that's very true of cryptocurrency as well. And I think I don't think the Chinese government attempted to completely shut down cryptocurrency. But even if they had, I think it would be incredibly difficult. So

I think what in some ways, you can also compare kind of the way that authorities look at the internet and look at crypto. I think in both cases, you know, for example, Facebook, Twitter, these are all these are all blocked in China, but you know, with a little bit of effort, you can get to them. It's not like so hard. I mean, you have a, you get a virtual private network or whatever,

but I think what the goal was was to kind of like raise the barrier to entry, right? It wasn't to like completely snuff all these things out. It was to say like, okay, it's, we're just going to make it a little bit harder for you to do this. And the same holds true for cryptocurrency. It's not like China was saying, we don't, you know, we want to get rid of Bitcoin entirely. they were just, they were raising the threshold. You know, they were saying like, okay, if you want to like, you need to kind of know a little more, you need to make a little bit more of an effort because it was kind of at the point where like just anybody was kind of getting involved in this market.

So I think in both cases, you know, in China, if you want to go, you know, see Twitter. If you want to go trade Bitcoin, you can, but it's just a little bit harder. You know, you kind of have to try a little bit harder. So, but I think, you know, it's just a, it's a very interesting phenomenon because I think, you know, when China cracked down on cryptocurrency or on exchanges in ICOs specifically, you know, there was kind of this feeling like, okay, is this is this is this is this is this is this is this is this the end game? You know, like Bitcoin in theory, right, is supposed to be able to survive any kind of government repression. But China was so important.

I mean, China was such an important market. And I think there were questions at the time like can Bitcoin survive this, you know? And not only did Bitcoin survive. I mean, it thrived, right? I mean, that was kind of like we kind of entered a bull market, you know. So I think that was just sort of like a really strong example of like no government can kind of no government can kill Bitcoin. No one government can kill Bitcoin, you know, and I think that's true of the internet as well. Sandra Rowe surprised me with her contrarian view on regulation in the U.S.

I definitely did the podcast version of whatever a double take is when we recorded this. This is completely different from what like Fred Wilson of USV is saying. and Jeremy Lear of Circle and there are a lot of people I mean obviously you can look at the kick lawsuit with the SEC I mean there's so so so it seems like

you feel like there's enough of a recognition that the US is falling behind that things are going to like radically change that they're going to be leading because right now they are quite yeah just I would say like laggards maybe and yeah so I'm not telling you it's going to happen tomorrow. It's not. I'm not going to tell you it's going to happen even in a month, but I see a

momentum change that is different than the last five years. And I do actually feel really badly for all of those people who have been knocking on the doors of Congress, of, you know, regulators and basically hitting their heads up against a wall for quite a while. And sometimes life is about timing. And I'm being very plain speaking here, and I know there will be people who will vehemently disagree with me, and I think that's wonderful. Disagree with me. Let's have this discourse, because frankly, I think that the U.S. is waking up. We've got noise around the presidential 2020 elections, but I will tell you, based on the conversations that I am having with people on the ground who make the laws, they are looking for the tweaks in the laws that they can make

to create an environment where there is innovation and there are guidelines for crypto. And this is where I want to also emphasize to people. And I see this again and again, because I feel like the community forgets this. Legislators write the laws. Regulators do not. Regulators oversee and enforce the laws. So if you want a law change, you need to go and speak to the legislators. Otherwise, yes, you are then talking to the regulators about oversight and enforcement. And I just sometimes feel that people forget this fundamental fact. And they rail on regulators on things that they cannot do, which is change laws, right? And so I think we need to have a very sort of frank conversation about what the community needs from the legislators,

versus what the regulators are doing. And here's the other thing. And again, I'm going to give you another controversial one, which I know people will not be happy about to hear, but I actually think there's strength in the fragmentation that is the U.S. Think about the U.S. regulatory environment. I know. Surprise.

They're strength in this. Okay. Wait, I'm sorry, what? What did you say? Yes, they're strength in this. Believe it or not. Really? Okay.

Yes. Okay. But we do need to guide this in a way that works for the crypto and blockchain community. But wait, how is that, how can there be strength in that? I mean, like, you can even look at Coinbase, which has, I can't even remember the amount. It's like some astronomical amount of VC money they've raised and they still don't have licenses in all 50 states. Yes, that is true. Okay.

So there is strength in having different bodies be responsible for different assets. aspects of the financial system and not have it be concentrated in one centralized body. In my mind, that's no different than a distributed network of bodies who are responsible for different things. So, for example, the SEC being responsible for X, FINRA being responsible for Y and, you know, IRS, you know, CFTC, etc., being responsible for different things. That actually, in my mind, is not a bad thing. Hold on before people start getting really upset. But here's the issue. Here's the issue.

What is and where does crypto and digital assets sit? The problem is it doesn't have a home with one. It actually looks like it's got homes with all of them, right? And there's almost a power play and maybe turf war going on about who controls or who's going to regulate crypto. that to me is the problem. And frankly, I think there probably needs to be an overarching convening body that coordinates with all of these different, and I'm being very practical here, you're not going to get the SEC to step off or the CFTC to step off or any of the other agencies just step off. They're not. They're not going to. They've already stake their ground, right, in many ways. So how do you get this to work? Well, on my mind, you get this to work by having an overarching convening body. who will then coordinate across all of these, you know, major institutions, I'm talking at the federal level here, and coordinate this across. And have that be the convening body that ultimately works with those agencies,

allows them the power that they already have in their given jurisdictions, but then also this convening body is the coordinator to make sure that there are sensible rules around digital assets. Because let's face it, one digital asset versus another can have different profiles. And this is the constant challenge that we have. And I know there are people working on token taxonomy and standardization, or sorry, standards, and definition setting. And I think those things are very good, and we need that. But ultimately, digital assets shape shift, and that's very uncomfortable for people.

Like, all of a sudden, it can be a utility and a security, and it could actually be payments and money. What do you do with that? Maybe you embrace it. And we just have to figure out how to make that work. How long did it take you for, you know, to get the Bitcoin futures launched, like from the time that you proposed it within CME to the time of launch? I think we had the kernel of idea back in what, 2000, I want to say late 14 or 15, early 15. And the pricing products came out. We announced it at consensus that May 2016 and then we launched it in December, November, December.

2016. Wait, the futures? No, the index. The index. And then, by the way, I'll let you guys in on something, which I'm enough years out where we can talk about this. But I remember, I think it was CoinDest 2017. It was right before I left the firm because I left CME in July of 2017. And we had already, you know, written the specs.

And we were going through with a whole bunch of people around what that would look like and potential traders. and we're working on the design of it and then how the mechanics would work and how people would get connected, because there's a whole host of things that need to happen for this thing to trade. And I do remember at one point we organized a meeting with sort of the top, I think, 10 to 12 trading houses who would do this crypto. And, you know, it's a lot of the famous names you can think of now in the early days who would have traded this potentially. And I remember we convened this meeting and we, like, convened this meeting. We were like, do not tell people, because it was during consensus. And we're like, do not tell people.

We don't want people gate crashing this. Keep this under wraps. And I will tell you, I was so proud of all of the traders. Nobody said a word. The meeting happened. And it was great. We went over the specs. We talked about the problems of physical versus non, you know, cash settled US dollar basis risk.

Like it was a very, it was a really great conversation. It was a very constructive conversation. and we got good feedback. And I will say I was singularly shocked. I swore somebody would leak it. And no one did. Maybe what Sandra was referring to was the eminently practical views of Congressman Patrick McCannery, who seems to be a Bitcoin believer, but also understands the roles that Central Bank digital currencies and Libra could also play in the digital currency ecosystem. Let's switch to Central Bank Digital Currency and Libra. The People's Bank of China is going to be releasing its own. own digital currency. And there was a note that some RBC analysts published where they said,

quote, if U.S. regulators ultimately dismiss Libra and decide not to draft regulation to encourage crypto innovation in the U.S., China's central bank digital currency may be strategically positioned to become the de facto global digital currency in emerging economies, largely through AliPay, WeChat, Union Pay, and other messaging and payment apps. What do you think would be best position to compete with its Chinese central bank digital currency, a USD central bank digital currency, or an app-based one, such as Libra or Telegram's cryptocurrency, or a completely decentralized one such as Bitcoin or something else. Well, look, let me start by saying this. I think Libra has opened people's, a lot of new people's eyes about the value of cryptocurrency. Libra is not

cryptocurrency, however, and we need to stop lumping it together. with very real, very important projects that are out there like Bitcoin. And so, and that's not to bash Facebook or the Libre project, but the distinction between a wholly new financial invention like Bitcoin, I think that has enormous long-term value, enormous long-term value. And like many things, Bitcoin is at such a very early stage relative to the rest of human invention. And so how Bitcoin will be used, we don't know. In 20 years, what Bitcoin looks like, I don't, I'm not, I don't have the capacity to predict.

But I do think it will be of enormous value and utility. When it comes to the question of a U.S. dollar, a digitized U.S. dollar, I think that is a reasonable next step for our central bank. Your interview with the Federal Reserve's chief economist was quite instructive because it exposes the fact that to the public that the Federal Reserve is contemplating and is trying to under. understand digital currency and their appropriate role is a dollar as a store of value and international trade. So I think there's enormous value there. I think as an American, I would like to have a response to AliPay. And we should not allow the Chinese to write the rules of the road of international finance. And we therefore have to have a more competitive mindset about ensuring that there is international commerce using a system that is not Chinese-based.

After all the hand-wringing about Libra and China's new digital currency, it was pretty amusing to interview David Analfato, an economist at the Federal Reserve Bank of St. Louis, who had a pretty surprising attitude to these potential threats to the global reserve status of the U.S. dollar. Since we've been talking about the U.S. dollar, I did want to bring up this letter that was recently sent by House representatives, French Hill, and Bill Foster,

to Jerome Powell, the chair of the Federal Reserve, and they stated, quote, we are concerned that the primacy of the U.S. dollar could be in long-term jeopardy from wide adoption of digital fiat currencies. The letter notes that 40 countries are looking into developing digital currencies. It cites the soon-to-be-released digital yuan in China. And it concludes by asking Chairman Powell if the Fed is looking into a digital U.S. dollar, how it plans to respond to competing digital fiat currencies, what the Fed would need from Congress for the development of a dollar, etc.

What did you think of the letter? And do you think they're right to be concerned about the long-term primacy of the USDA? No, I don't think they should be concerned about it. I mean, the U.S. dollar is, if anything, solidified its hold as the primary currency in the world since the 2008 financial crisis. There's been a lot of regulations passed worldwide, Basel 3, for example, that have solidified the role of the U.S. dollar as a regulatory object. So I don't think I'd be too concerned about that. But even, I have to say this, even if it was true, I mean, who cares, really? I mean, most countries don't have a world reserve currency.

I mean, it's like Canada, for example, seems to be a perfectly respected. respectable country to live in and nobody wants to hold Canadian dollars except for Canadians. And whenever I visit Canada, it seems like a very nice place to visit. People are prosperous and happy. And, you know, so at the end of the day, I don't even think it's a huge deal in the sense that, you know, the wealth of a nation is determined by its people, its human capital, its productivity, the opportunities it offers. And this, whether or not the U.S. dollar is a, is the world's global currency is actually

kind of just peripheral. It's kind of like an exorbitant privilege, as they say, for the United States, because it gets to export dollars for goods and services. And that's kind of a nice benefit to have in some sense. But, I mean, it's not critical for the well-being of a nation. My interview with Yonmi Park is the episode I would recommend if you could only listen to one show this year. The funny thing is that I almost didn't do it because it seemed a little too far a field from cryptocurrency. However, a last minute cancellation and the shocking news of Virgil Griffith's arrest for allegedly helping the North Korean government evade sanctions led me to feature her on the show. And it turned out to be the clearest illustration of the benefits of decentralization and

censorship resistance that the crypto community often talks about. While the clip I've selected is more directly connected to what Virgil did, if you missed this episode, I urge you to go back and listen to the whole thing, because you need to hear the entirety of it to understand what I mean when I say that it demonstrates the importance of decentralization and censorship resistance. Earlier when you said cryptocurrency could help people in oppressed regimes, I mean, I think, obviously, that's true if they have access to the internet, but in North Korea where they don't, I think it would be quite difficult for anybody who's not part of the regime to benefit. That cryptocurrency conference that he was in, he was absolutely benefiting the regime, not the people, obviously.

He didn't go there to empower the people. He went there to empower the dictatorship. The people who can only attend that cryptocurrency conference is the extreme top elite, who trained to become hackers, who trained to do all those illegal activities, and who wants every intention to want the regime to stay. he didn't go some like you know in a commoner's conference where everyone could attend so you know he just went there to tend up with a dictator and tried to empower the regime so that's yeah that's the thing on the that that's critical conference like conference wasn't like so many conference yeah yeah i'm so glad you said this because people on

twitter seemed to think that he could have interacted with everyday north koreans and i you know I'm not an expert in North Korea, but I've read so many books on it. And I was like, what? I was like, I don't think you guys know how this place works because he would be in a prison camp right now if he did that. No, he might get shot. So, you know, all reindeer got tortured and to death, the American poor university students, right, from Virginia Tech. And there's a South Korean woman who went to Gunggang, like a mountain, the tourist. And the official said, oh, you cannot pass that line.

And she did, and they shot her right on the spot. Oh, my God. If these people truly believe that they can go to North Korea and meet everyday life, why don't they dare to try it? It's a hurt-making, not because the information is only controlled for North Koreans. North Korean regime controls the information both ways. They control what most people can hear about the. rest of the world and they control the information that why we can't know about

Mexican people, even outsiders we can't know. So when you even go there as a tourist, you cannot just go grab or like take a bike, you know, hiking around and like go anywhere you want or like, you know, there's a backpack traveling that you do in the Southeast Asia. You have to be with your guides all the time. otherwise you become a traitor and send prison camps like what all the rain beard is yeah yeah and all he did was taking a poster or something

yeah that was a crime can you believe that that's the crime that he took his life for I mean if North Korea has got to treat a white person white American that way can you imagine what they do are doing to North Koreans who doesn't have voice but not visible in the rest of the world. If that's a brutality, they

do with a white person from America. It's like that terror that North Koreans are going through is something beyond our, you know, comprehension. Yeah. And just to

be, you know, to ask a finer point on this, because I also saw people on Twitter saying, things like, you know, sanctions hurt the citizens of these countries more than they hurt the leaders. So, you know, yeah, and he was one of the things that the Department of Justice charged him with was helping the North Korean regime evade sanctions. So if he actually had done that, what effect do you think that would have, would that help the North Korean people or hurt them? So, but I have an anecdote. So when I was young, I started. I started.

in the world 90s, right? North Korea had a greatest famine. It was a man-made famine. The regime chose to starve us. So more than, even like over 3 million people died, not in Kenya, but the people who were like in us, in the hospital class in the northern part.

That was a lot of people. You know, seeing that the bodies on the streets everyday life for me. I never thought that was something unusual that I had to be shocked. And in that situation, I was this, I was, I'm still very petty.

North Koreans are average three to four inches shorter than South Koreans, even though we were saying people, because of the malnutrition. And so this maniturian, when we were there, they were gathering with five children, and they get some of the foreigners to come and see, and they get, you know, food from some unit chef. I don't know, U.S. or other countries get so much cash and medical aid. all of this. And they use us as like a toy and show them. And then when those things come in, they all take them to Tianyang.

So those aid, those money, does the rice, those food that you send doesn't come to us. That goes to North Korean elite people. So if those AIDS helped, why did I escape and became a sexual slave and being raped in China? The first thing, when I arrived in China, and after getting my mom raped and they said you have to be sold and get raped

and then say if you don't like it you can go back to North Korea my mother asked me what did I want to do she asked me like Yung Mia do you want to go back what do you want to do one thing made me to change my mind was when I for the first time

saw a trash bin in China I didn't know what it was but the lady told me that's where you throw away things that you don't want. I was so shocked. Like, how nice do you have things to throw away in this country? I never needed a trash can in my life in North Korea. There's nothing to throw away in North Korea.

And people, like in North Korea, if they really get benefited by all this international aid, no one should be dying. In those 90s, when I was exactly, North Korea. South Korea, all these like Chen Bei, all these big groups, when the Kim Da Zheng, he won the Nobel Peace Prize. He gave millions of dollars, I mean, the billions of dollars money,

and the food, cash, and every part of research that he could be gathered in South Korea and the international could be hurt. None came to the most vulnerable people like us. And it all ran to the region. So the people right now, arguing the sanction is hurting everyday life, there's no way we can be hurt than why we are already now.

There's no way people can suffer more than what we are suffering right now. And those things that we give to the North Korean regime only benefiting the regime. And why is that so hard these people understand computer science and economics, all of these things? If you do the thing that the dictator doesn't want, that means you are winning. If you want to give the thing that the dictator wants that you are benefiting him, Northcan dictator wants the sanction to be lifted. That means it is definitely benefiting him. And we don't want to benefit this dictator, right?

I'm going to end this episode with a clip from my conversation with Alex Gladstein of the Human Rights Foundation, who is an incredible explainer of the political power of decentralized money. And I think it's a great big picture note to end on after all the big geopolitical moves we saw in crypto throughout the year. How would you describe a healthy relationship between money and state? Well, this might sound radical, but I think in 100 years, people will look back in time and think that it was kind of crazy that there was a total monopoly on money by governments, whether it was democracies or dictatorships.

I think that a healthier relationship is probably something like where there's a separation of powers. And I'll add some color to that. In the same way that political power we now think of, or at least I hope most to your listeners, think of tyranny or dictatorship as like a backwards idea, backwards concept. And that democracy ruled by the people is a more fair and just system. and it provides checks on power, checks on arbitrary power, right? Then we have information, right? So I would also hope that your listeners would maybe consider that the open Internet where anyone can permissionlessly access information is a better system of information

than what we had previously, which was sort of like ivory tower and government-controlled information, right? So decentralizing political power and decentralizing information, I think it's been really very progressive, positive forces for humanity. I want to make the same case for money. I think that money needs to be decentralized. I think that people need to be able to be more involved in the creation and distribution of money. And that technology like Bitcoin allows that. In the same way that technology like the printing press or the Internet allowed for the distribution and decentralization of information,

and that technology like democracy and voting, sort of decentralized political power away from tyranny. That's my sort of, I guess, radical idea. But I really believe that an open financial system will be just as healthy for the world as an open political system and as an open information system. That's it, 2019 in a nutshell. What do you think?

Did my pick sum up the year? Let me know which episodes. or comments you would have included. Just tweet them to me or respond to my tweet promoting this episode. Want to show your love for Unchained? Check out our t-shirts, mugs, hats, and stickers at shop. un.unchained podcast.com. Unchained is produced by me, Laura Shin, with help from fractal recording, Anthony Yun, Daniel Ness, Josh Durham, and the team at CLK transcription. Thanks for listening.