We Study Billionaires - The Investor’s Podcast Network - BTC114: Bitcoin is Banking and Electrifying the Developing World w/ Lyn Alden and Alyse Killeen (Bitcoin Podcast)

Starting point is 00:00:00 You're listening to TIP. Hey everyone, welcome to this Wednesday's release of the Bitcoin Fundamentals podcast. On today's show, I have two very special guests with Lynn Alden and Elise Killein. Throughout our conversation, we talk about all the emerging businesses and ideas currently happening in the Bitcoin Lightning Network and where they see the space moving in the coming 12 to 24 months. As any follower of the space knows, Lynn and Elise are two of the most prominent capital allocators and thought leaders there are, and when you put them together, you get some of the most

Starting point is 00:00:29 exciting and brilliant insights around. So without further delay, here's my chat with Lynn and Elise. You're listening to Bitcoin Fundamentals by the Investors Podcast Network. Now for your host, Preston Pish. Hey everyone, welcome to the show. Very excited to have Lynn and Elise here. I put out a thing on Twitter for questions and I think we got 150 questions for you too. It was very well received and everyone is pumped to hear your thoughts. So, guys, welcome to the show. Thank you for having us. Of course.

Starting point is 00:01:16 It's an honor to have you guys. I just want to start off here. So we're going into 2023. 2022 with some of the most interesting market dynamics I think we've seen in the U.S. in any of our lifetimes just as far as how poorly everything has performed. As you guys look at 2023 and where we're going, what's your one over the world, Like, if you were going to summarize for somebody who's maybe not really financially inclined, they're just kind of curious, your broader opinions, where do you guys see things moving this year?

Starting point is 00:01:49 Lee? I just want up on that. Yeah, go ahead. No, go ahead. No, go ahead. I think basically, like, this current period is like a cyclical disinflation, right? So basically, we had two years of massive stimulus, large might supply growth. And then a lag, we had all the consumer prices growing up very quickly.

Starting point is 00:02:07 And then now we have, you know, the Federal Reserve, another step of banks coming in trying to tighten that, partial withdrawal of fiscal stimulus as well. And so now we're seeing kind of the hangover of that whole time. We saw that last year, but now we're, I think, continuing it so far, which is basically that we have various, you know, recession signals melting, or at the very least economic deceleration and inflation coming off its highs with the caveat that some of the constraints for the supply side that trigger the inflation are still kind of lurking out there. And so if we have another round of growth, maybe, you know, 2024, it's 125, I think some of those inflation pressures would be ready to return. Elise? So that affects startups.

Starting point is 00:02:47 So the way that startups will be impacted by the macroeconomic environment and trends is that 2023 will be a harder fundraising year than we had seen in the prior few. For Bitcoin companies, though, they'll also benefit from the flight to safety and the which always benefits Bitcoin, but also the companies. An example of this is that although we're in crypto and Bitcoin bear market and challenging macro environment, lightning companies have continued to grow. They've sort of been impervious to any of those external trends. And that will be recognized, I hope, by venture capitalists.

Starting point is 00:03:29 And so the funding environment should better receive Bitcoin companies relative to their peers. But nonetheless, people have pulled back in terms of deployment of capital to risk assets, including venture capital. And so there'll be an impact of that. And what we're seeing as companies get ready to sort of bear down and focus on what's core to their long-term growth versus taking, you know, some of the more extravagant shots that were possible in an earlier years with the looser fundraising environment. I like your comment about lightning, and this is where I wanted to go next, which is your opinion on the state of the Lightning Network, because everything that I'm looking at just seems like it's really building out, despite the environment that you just described. It seems like there's a whole lot of entrepreneurs plowing into this space, a lot of things

Starting point is 00:04:22 being built. But how do you guys view it right now at the start of 2023? I think that's right. So in 2022, in 2022, still Mark made eight investments. the majority of those were in lightning infrastructure companies and that was in preparation to, it was backing companies that were

Starting point is 00:04:43 positioned to reap the rewards of both the scaling lightning network and a maturing lightning network. So for example, something that Lynn has talked about a lot is fiat on lightning network. What sorts of communities, demographics, geographies are going to be

Starting point is 00:04:59 keen to have a stable coin on lightning network? And we're almost there. We're very close. That'll happen this year. And so companies have had that as a tailwind. So those sorts of opportunities that enterprise is preparing to reap the rewards of, they need the tools developed by lightning network infrastructure and enterprise-oriented

Starting point is 00:05:24 companies. And so that activity of 2022 and then 2021, proceeding that, we will reap some of those rewards, this year. And the founders that have been most conservative in spend and focus are going to benefit the most, I think. And so one of the things that we will see this year, I believe, is enterprise, non-Bitpoint enterprise, get ready to seriously test the market. I think we'll see that in Q1, probably. And that will be enabled by companies like lightning labs, voltage, Amos technologies, et cetera, because the tools have matured to the point that you won't have to understand the workings of Lightning Network in order to use it. And the technology is beneficial

Starting point is 00:06:14 regardless of where the crypto and Bitcoin markets are. So Bitcoin's volatility doesn't do anything to dampen the advantage of instant, nearly free transactions across the globe and across borders. Yeah, and I think the fact that the Lightning Network is such a high ratio of utility of speculation. And so when you kind of look at other parts of the crypto ecosystem, they're very speculation-heavy, even when you bring it back to the Bitcoin ecosystem, when you have things like see it on, brands, and exchanges, you know, there's still going to be somewhat speculation-based, less so, you know, some of it's saving, some of its investing and speculating.

Starting point is 00:06:48 But when you bring it all back to the lighting network, that's very, very utility focus. It's about payments. It's about infrastructure and things like that. And so I think that so far that the fact that it's been rather resilient is not that surprising. If you look back at, say, the 2008 crisis, for example, a lot of the companies that were growing that were later to become very big in the 2010s decade, a lot of them just kept growing from a small base through that difficult macro environment because it's just the right product market fit. It's, you know, people are buying things that are obviously better than what came

Starting point is 00:07:18 before them. And I think we're seeing kind of similar things, some of the more utility-focused aspects to the Bitcoin ecosystem, which certainly would like it. I was going to build off of what Lynn said. something that happened in 2008 was the emergence of the new platform mobile for app development. And then also sort of the tailwind of a cheaper entrepreneurial environment enabled by cloud. Lightningne does both of those things. So Lightning allows for new business models and new types of products to be built the same way that mobile did. So Uber is not possible without mobile smartphones, right? There's going to be companies or are companies being built today that aren't possible.

Starting point is 00:07:59 without Lightning Network. They're introducing something new and novel. In addition to that, though, Lightning Network allows companies to operate more efficiently from a cost perspective. And that tailwind was also present in the really productive years of 2008 and 2009 in terms of years that defined culturally relevant companies. And so, of course, that was when Uber emerged, Airbnb, and companies like that, I think that that same energy exists here.

Starting point is 00:08:28 and because of the Lightning Network. You know, it's interesting. I've been spending a lot of time on the new Noster Protocol and this Damos app, which isn't even out of test flight yet. And I'm seeing exactly what you're talking about, where Will, who is the guy behind the Damus app, he's there programming in SAT tips that are right there. Like, if you go on the Twitter and you hit reply or to retweet the message. He's got another icon right there where you literally just click it and you can template maybe there's five SATs or 25 SATs that goes to that person's tweet that you literally like it's all set up in your wallet.

Starting point is 00:09:12 You got the LNURLs there that are automatically like making so you're not creating invoices and things like that. And so people can just literally click on the button and it's sending them SATs off the tweet and it's like zero friction to the user. top of that, they have like sats, like an encrypted wall of energy around your DMs, like just built into this DAMIS app. And this is just one client of many clients that are going to compete on this Noster protocol. And so like I'm seeing the competition and I'm seeing how they're already incorporating this frictionless,

Starting point is 00:09:49 borderless payment. The servers are decentralized. And so like for people to pay to have these servers, but you know. need some type of frictionless fee that isn't KYC that you can send over the lightning. You can just kind of see it all fitting together in that exact description that you just said, Elise. And this is just one application, right? Like how many other things out there are getting built?

Starting point is 00:10:14 And I know you guys are seeing it. And it's just kind of amazing to see you made the comment first quarter, 23. What do you think the fourth quarter is going to look like? Is it just going to be leaps and bounds? you see it kind of progressing a little bit slower. You said so much there. There's so much your respondent. So, you know, the fourth quarter or, you know, the midterm, let's say, I'm really excited about a couple things.

Starting point is 00:10:42 So I'll just mention two of them. And one, we've talked about already, which is stable points on Lightning Network. And what that will mean for people in geographies that really need the payment rails. So a non-domestic, non-socio-economically privileged demographic, what it means to actually be banked by Lightning Network. I think we will understand that better in Q4. The other thing that will be possible is possible now, but I'm hopeful that there'll be more entrepreneur activity

Starting point is 00:11:13 taking advantage of this is the pay per API call model. It might be less ex-be to talk about. but something possible through LFAT, a Lightning LAMS protocol. And another company is working on another implementation called C-13. It's c13n.io on the web. And what this says is that you can attach a piece of data

Starting point is 00:11:38 to a Lightning Network transaction, which will allow you to build economic activity, for instance, around using chat GPT. So we know that there's a cost for running, and providing the service of chat GPT, which is not being paid in any way now. I guess it's probably, well, I'm not sure how it subsidized.

Starting point is 00:11:59 I'm imagining it's venture subsidized. And that could be monetized for API calls and in a way that the user base didn't even need to really think about it much. So we wouldn't think about spending a penny, two, three, four, or five on, you know, pulling up an image or response to a question. And that's possible without that. and with other technologies like I referenced with C-13. And so I'm hopeful that we'll see new business models emerge and new product types,

Starting point is 00:12:28 leveraging that technology, which is possible through Lightning Network. Lynn, any other comments on that one? So I think a narrative that we're seeing is that, you know, during the whole kind of quote-unquote Web 3 thing that was happening, basically everything had a token associated with it. And basically that was just kind of like a lot of projects trying to get paid up front, whether or not the underlying project ends up delivering anything durable, basically fast. That's a pretty ability to try to just everybody do seniorage.

Starting point is 00:13:00 And what we're kind of seeing lately is the idea that a decentralized web is a good thing. It's just that you don't need your own token attached to it. So we've seen, I mean, you mentioned Noster. There's also the whole key slash tags, you know, that vector. there's all, there's Web 5, right? There's multiple different kind of angles here. And we'll see how some fit together, we'll compete with each other over time.

Starting point is 00:13:25 But the point is, you know, it's just basically showing that when there's actually a good product market shit, the product sells itself. You don't need to like add on necessary gambling to it, try to get out of the position quicker. You're actually building something of value. And then the fact that there's this, there's this common money associated with it also allows for monetization.

Starting point is 00:13:46 in the normal way. Kind of like if you invent like Uber app, you don't have to invent like another one, but it's own money. All right, dollars are, dollars are fine or obviously, you know,

Starting point is 00:13:54 lighting would be great. But like basically, you don't need to like reinvent money every time you reinvent like a new service. And I think we're seeing that play out in the kind of the Bitcoin-focused, you know, kind of decentralized web applications that have been getting some, getting some momentum lately.

Starting point is 00:14:09 Yeah, the whole, and go ahead, Elise. The other benefit is that founders will have real information and their metrics. So when they look at adoption, they won't need to try to disentangle the gambling incentive created by a token or the speculative incentive created by a token.

Starting point is 00:14:27 They'll just know how their choices are received by users and where the value is. Sorry to have interrupted you for us. No, no, no. You didn't interrupt me at all. I was just going to comment on Lynn's, her comment on the Keith. So I tried that out and it was just, it was mind-blowing how well this works. and to think that there's no server that was like hosting, like centralized server that was hosting that was hosting that video chat. For people that are listening that aren't familiar with Keith,

Starting point is 00:14:55 Apollo is the guy that put it together. And I mean, this is peer-to-peer video teleconferencing. We're not using it right now because I don't know how they record with it. And I just haven't really played around with it. And I like to sometimes share my screen to pull up charts and stuff. But for anybody who's tried it out, it's kind of mind-blowing how high quality the video is. it's better than this video we're using right now, which doesn't seem like that would be possible. And just as I'm sorry to talk so much here, there's just so many neat things happening. So I shot a message to Paulo on Twitter and asked him about, is there a way to basically do Twitter spaces over the Nostra protocol using this whole punch technology that he's working on? He replies back to me.

Starting point is 00:15:34 He's like, actually, we're working on exactly that right now. And so when you're looking at like how are all these things like they're being paid for by the creators right now, Now, like if you're running a relay on Auster, you're basically paying out of pocket to do it because we're at the infancy stage. But where it's going next is you pretty much have to be using Lightning to be funding some of these things for the zero fee near frictionless streaming of money. This is fascinating. I want to push back a little bit on the taro piece.

Starting point is 00:16:05 So like you guys, I think that the stable coins are very important moving forward, especially in the developed world where maybe bills are denominated in dollars or euros or whatever, I think that it's a really important piece. I had a conversation with Pierre Rochard. He was a little bit more skeptical. He saw it as a distraction on lightning. I'm curious if you guys would agree with that. And let me tell you his rationale.

Starting point is 00:16:33 His rationale was it's centralized. Anything, any token you do is going to be a centralized. You know, you have some type of ledger entry that. that is being centralized and controlled by some entity. So why waste our time focusing with it on lightning, when we can just focus on Bitcoin on Lightning and let all the other people, entities, worry about the centralized tokens and what all that brings?

Starting point is 00:17:00 I'm kind of curious if you guys would agree with that or if you see it a little bit differently. I guess I'll jump in. So I see that view, but I think it's a somewhat privileged position, right? So, for example, all of us on this call, while we have access to dollars, it's not really a problem for us. We can just do our normal day-to-day activities with dollars, and then we can save and use Bitcoin and whatever way we want and find the volatility.

Starting point is 00:17:23 But a common thing that comes up, when you look at these small communities that are building out around the world, these little Bitcoin communities, a common thing that comes up is, hey, we need dollars to. And the ones that are doing it correctly, they acknowledge that their dollars are centralized. And the whole point is that the central hub is outside. of their country. So, for example, let's say you're in Argentina, you know, I've seen described as someone says, okay, I hold local currency for one month's worth of expenses. I will, you know, stable coins for several months worth of kind of intermediate term savings. And if I want to put

Starting point is 00:17:55 savings away for years, I put it into something like Bitcoin. And from the perspective of, say, in Argentinian, you know, they've had a history of put dollars in the bank. They confiscated. It's hard to get dollars. And so instead of what they do is say, okay, I'll hold dollars. They're centralized, but the central hub is outside. of Argentina, right? So unless the United States goes accurate, or unless there's, you know, there's fraud, there's counterparty risk, those are real risks to be concerned about, but the central hub is outside of that particular country. And so there is, so far, been a pretty strong demand for dollars by a number of people in emerging markets in these spaces. And basically,

Starting point is 00:18:31 the technology allows them to move around faster and in a more peer-to-peer way. And so far, they've kind of shifted around to different blockchain. So obviously, they started on on top of Bitcoin, A lot of them migrated over to Ethereum. That's most used for trading, right? Because it's higher fees, bigger amounts. Whereas a lot of the spending dollars moved over to Tron. And basically a lot of these spaces say, okay, I want to have stable coins,

Starting point is 00:18:55 but I don't really want like another token associated with it. You know, if I'm using a centralized stable coin, I don't need a whole other centralized layer to deal with. And there are different alternatives to how to do that. There's a Taro proposal, which is basically the idea of running them over using the liquidity, the edge liquidity of the lighting network to run them over. There's also proposals like peer credit,

Starting point is 00:19:16 which is basically using like a lightning light ledger. That's not actually all lighting to move around those dollars. And we'll see what kind of market things end up winning. But I think it's clear that there is a demand out there for dollars, at least as an intermediate term thing, because not everybody can deal with, you know, 70, 80% drawdowns on 100% of the money that they're using. Let's take a quick break and hear from today's sponsors.

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Starting point is 00:23:37 Go to Shopify.com slash WSB. That's Shopify. dot com slash WSB. All right. Back to the show. No one can deal with that. So there's also,

Starting point is 00:23:51 we need to consider the net change in risk between holding dollars in another way and dollars on Lightning Network. So Fiat is centralized and Fiat on Lightning Network or have elements of centralization too, but people don't just need dollars. They need to be banked and they need a way to make payments. And so, you know, in a world where people want to spend beyond the cash in their pocket

Starting point is 00:24:20 and be able to reach beyond that to engage, for example, in global e-commerce, if they don't have a debit card or a credit card, they have lightning. Right now they have to use BTC and tolerate BTC's volatility. in order to use lightning or at least to, you know, at least to hold their change. And this will allow them to not need to take on the friction of that volatility in order to be banked. And the feedback was really clear in the experiment in El Salvador. So Q4, 2021, there's this BTCirdrop in El Salvador to most Salvadoran adult. People used the Bitcoin and the feedback in labs got from that.

Starting point is 00:25:03 This activity was primarily happening on L&D and drew IBEX Mercado's infrastructure, supportive merchants. And the feedback from that was really clear, we need these rails. We want to be connected to the rest of the world. Half of the country is unbanked, right? But more than 3 million people use the Lightning Network, meaning that more people were banked in El Salvador during that period through Lightning Network than through the region's banks and that's meaningful.

Starting point is 00:25:34 We can't ignore that. But the sort of additional benefit is that it's a Trojan horse, a Bitcoin and a lightning wallet onto people's phones when they're simply using it for the rails. But as they start to trust the tech, perhaps then they also start to take a chance on saving in Bitcoin. So the tech piece is important, And I think it leaves us in a net place where dollars on Lightning Network are better than not.

Starting point is 00:26:07 Because we're not introducing new technical risk, or at least that's the aim in development. Development in the Bitcoin space is really rigorous. That's true also in Lightning Network. And so if we can get to a place of stable coins on Lightning Network without additional technical risk for folks using it, then I think we've only added value and Trojan Horse in a Lightning Wallet. into Nebel's lives. I was kind of expecting, and we had heard rumblings, that there was going to be more countries similar to like El Salvador make announcements like there's in 2022.

Starting point is 00:26:42 Nothing seemed to really materialize. Do you see that happening in 2023? Where are you seeing the next big lightning push coming from or emerging from in the world? I actually think bottom up is more interesting, right? So all of the El Salvador experiment so far was spearheaded by Bitcoin Beach, which was a more grassroots kind of local high density rather than trying to do top down thing. Obviously, I think legal tender is great because it takes away the transaction like taxes especially and things like that. So obviously I would I would like to see countries do that. But I think that you can't just wait for countries to acknowledge the interesting aspects of the network and then move forward with that.

Starting point is 00:27:27 That's kind of a special case because they're already dollarized. There's not that many dollarized countries out there. But instead, I think what's interesting, you're seeing like, you know, Bitcoin Lake, Bitcoin Island, you know, Bitcoin community pop up in Vietnam, for example. There's all these like small other replicants of Bitcoin Beach on somewhat smaller scales. And there's other companies coming out trying to spearend more of those as well. And so I think those, those community approaches, we basically find a smaller, denser population of interest and make sure merchants actually know how to use it,

Starting point is 00:27:59 make sure the people actually know how to use it, kind of build that critical mass of a smaller space. I think that's where things are going to come from. I'd rather see a thousand of those, each with thousands of people compared to these top-down nation implementations that then people then are like, what is this new money you're poisoning on us?

Starting point is 00:28:19 What do we have to do? And again, that's not even necessarily criticizing El Salvador saying really started from Bickland Beach. And I just think you need to see more of those, the smaller ones. And I think look there. And if you see a bunch then be really successful in some of those countries, then you might see much like El Salvador, or you might see that a top-down acknowledgement of some of the work that's been going on there.

Starting point is 00:28:40 And you might see some countries embrace that. Right. You want to see people adopting it for the right reasons because they feel that they're getting value from what they're using. And so I think that, you know, everything that Lynn said really resumes with me as well. Something that we're watching is the geographies that are adopting or allowing the healthy presence of Bitcoin mining. There's a big opportunity in Africa. And we've also seen sort of native community-oriented and motivated adoption of both Lightning Network and Bitcoin in various regions in Africa,

Starting point is 00:29:17 which is really positive, I think, a very healthy form of adoption and one that's sustainable. something that differentiates Bitcoin, of course, from crypto is the drive for sustainable adoption versus just trendy adoption that needs to be maintained by continuing to introduce new flashier object. Bitcoin doesn't do that. It looks for who needs it and long term. And so we're certainly seeing that, especially in lower socioeconomic status communities that are unbanked. And that's where you would expect to see it first. And now I'm talking about adoption

Starting point is 00:29:57 of the actual technology versus diversification of a portfolio into Bitcoin. So anyhow, I agree with Len. I never spoke about nation state adoption because it wasn't something that I had heard much about beyond the rumors, although I hope that El Salvador gets a benefit of going in early. but what we're really interested in is seeing people find value from Bitcoin technologies and Bitcoin itself, and that's not going to come from nation state adoption per se, but from the introduction of products that resonate. And I really like the work that, for example, Grigless is doing. And I mentioned that in my latest updates, my Bitcoin energy article, because, you know,

Starting point is 00:30:40 there's all that untapped energy out there, right? So all these like small rivers and things like that. And it's actually really cool to see those, again, that's another example of a bottom-up community. And, you know, before I saw that example, if you asked me, you know, what is it to come first, wallet, you know, these communities build around wallets or mining, I'll say probably the wallet ones. But I would love to see more and more of these mining communities pop up in places where it

Starting point is 00:31:03 makes sense. And it's kind of a more complete integration. And I remember reading Ross Stevens' this is 2020 shareholder letter. And he talked about Bitcoin quite heavily in it. And he talked about the idea of in the future, you know, basically Bitcoin enables kind of like how human settlements happen to ground, coasts and rivers. Bitcoin is this unique, you know, consumer of energy that can go to where the energy is in a way that most other things can't. And then by extension, you can have settlements build around those uses of energy. You can build out infrastructure from there.

Starting point is 00:31:37 And he even mentioned that he thought in the future would be very hydro-based. Talk about Africa. And it's kind of, it's actually really fascinating to go back and read where he wrote. But I think it was late 2020 to kind of go forward and see what kind of work is being done in Africa with gridless. It's essentially the vision he laid out. So I'm hopeful for it and I'm happy to see that kind of thing happening. So, Lynn, you said that you saw it more on the wallet side and not necessarily on the energy mining side. Do you have a different opinion on that now?

Starting point is 00:32:07 Do you think that that's flip-flopped and that the ground, you know, going from the ground up with how everything's going to be constructed and built is going to be. around the energy? So I hope so. Basically, the challenge with mining in general is that it's always trickier when you're going into jurisdictions where there's less stable rule of law

Starting point is 00:32:28 if you're doing something that's capital intensive. If you're doing something software oriented, it's a lower, you know, kind of just overall commitment. Whereas you're doing something hardware focused, especially on a bigger scale, that's a challenge.

Starting point is 00:32:40 And with traditional miners, you have to go where the minerals are. You don't really have a choice. And a lot of those are in more challenging jurisdictions. Whereas with Bitcoin, low-cost energy, strain, and energy is a pretty evenly distributed resource globally. There's a lot of pockets of it in very different types. But some of them, if they're capital intensive, they might say, well, we're not going to go

Starting point is 00:33:01 there. It's too much hurdles, too with frictions. And I think the main way around that, it has to be bottom up. It has to be smaller-scale, interested communities, people doing it for the right reason. So I think that's the one spear they can kind of go through. through that kind of dilemma and start building it up. So it's one of those things where when I wrote my initial Bitcoin energy piece in 2021, I mentioned that idea because I, you know, Alex,

Starting point is 00:33:25 last thing was writing about that. I had read the Ross Stevens piece. I was just like, you know, this is something I would like to see Bitcoin miners as a way to bootstrap, you know, act as initial buyers of some of this, this useful clean energy. And when I wrote that as more of a hopeful statement, I was like, I'm not sure how quickly we'll see that. We'll see it on a significant scale or not. And so certainly seeing what grid list is doing, you know, it's certainly like,

Starting point is 00:33:50 it's further advancing that vision. And so I think it's great to see and I hope you see more of it in more places. For people not familiar with Gridless, just quickly give us a one over the world on what they're doing. At least, do you want to do it or you want me to mention it? Well, I'd love to hear it from you. Maybe you can be you do Part A, I'll do Part B. So grid list is basically in Africa, they've been doing river mining where they partner and they act as an initial buyer. And basically when you look at electrical infrastructure, there's a chicken and the egg problem.

Starting point is 00:34:25 Because if you have an untapped energy source, like let's say a river, you can use that to generate electricity, but there's nobody there to consume it. And you're not sure if you're going to be to monetize electricity or not. And the reason people are there is because there's no infrastructure. So you have a chicken and the egg problem. And so one way to boost trap this, and this is something that people have been talking about for years, is that the initial buyer, essentially a guaranteed buyer can be Bitcoin miners. So you can build like a river, a small river dam, general electricity, attached mining to it. You then have a small settlement, the people running the mine, essentially, their families. And then you have this surplus electricity that's happening.

Starting point is 00:35:04 And then other people can come in and move it. And eventually, if that electricity, it's more in demand and the price goes up, then Bitcoin miners. can dial down, they can go elsewhere based on market pricing and go to where there's maybe another untapped source to be an initial buyer for. And so basically, Gridless is doing that number of locations in Africa with these very small river-based mining. And I think it's fascinating. Yes, that is exactly right. Gridless was Stilmark's most recent investment. So Stilmark and Block co-led in investment in grid list. And for the reasons that Lynn just outlined,

Starting point is 00:35:46 what's happening in Africa is that half of the population doesn't have household electricity. And there's folks that don't have stable access to household electricity. And when your electricity is down or you don't have it, it's instantly noticeable. So the politicians are also paying attention because it's one of the first things that people are going to complain about or measure their local government by is access to electricity.

Starting point is 00:36:18 Now, at the same time as there's this urgency and need recognized by both people and the government to better electrify the region, there's capital on the sidelines to build out this infrastructure, but here's the problem. Lynn pointed it out. I'm going to underscore it. The initial demand for offtake of this new generation is unpredictable and unstable. And so to be able to measure how much to build and to be able to build for five years out, but also recoup your investment in the initial generation has been really difficult and has slowed the cadence of new generation development.

Starting point is 00:36:58 And so the founders at Gridless, it's a team of three, Eric, Philip and Janet, what Janet realized after years of thinking about this problem and how to make a change was that Satoshi had not just introduced sort of an open and free to access opt-in financial network that connects all of us. But he had also introduced he or she or they had also introduced a business model that could be used to electrify Africa. So we've tried everything else, right, to bring renewables online and to electrify regions that are off the grid. We've tried, you know, non-profit organization and sort of all the other tricks. And now with Bitcoin mining, we're going to be able to try capitalism and just investments. And so that's what grid lists saw and what they're going to take a shot at. So it starts in this small river power generation.

Starting point is 00:38:02 And they'll be able to scale it up. Africa, of course, has almost unlimited solar power, opportunities for wind, geothermal, in addition to this run of river generation. And this is a team that, you know, they're not novices. They've built a few different things, including hardware-intensive businesses. And so we're hopeful here that this is sort of a double bottom-line opportunity, which is an opportunity to make a lot of money through Bitcoin mining while also doing good by helping to bring households online to electricity and to incentivize investment in that.

Starting point is 00:38:40 Yeah, I guess the thing that I really like about it. So Alex Gladstein just had an amazing article about the IMF and the World Bank and how it basically goes into these locations and turns all the domestic product into this one focused thing and how it really kind of destroys the local economy. When we look at what you guys are describing, this is starting with the energy, which is the most important thing to be able to do any type of commerce or any type of economic activity.

Starting point is 00:39:12 And it's getting the wheels turning, and it's getting that in motion. And then it's like, whatever their environment in these small local communities is most productive doing, they're now going to have an opportunity to perform whatever that is because they have electricity and they have energy in order to harness. So very, very exciting stuff.

Starting point is 00:39:36 This one's a little bit different, a little bit of pivot. Lynn, you've been talking, tweeting about the inflation rates in places like Egypt and Argentina. And one of the people that commented on Twitter was interested to hear your thoughts on this going into 2023 for the rest of the year, the impact on emerging market equities, global FX in general, and then maybe kind of how that plays into Bitcoin, and we were talking about stable coins earlier. So if you're holding any of the currencies in these locations, I mean, we're talking about inflation rates of like 80 to 100%. So what are your thoughts? Well, one of the defining characteristics that are emerging markets from a financial perspective,

Starting point is 00:40:18 I mean, you know, the official terminology has a bunch of metrics that they look at. But for financial reasoning, it kind of comes down to whether or not a lot of their debt is issued in dollars or their local currency. So, for example, in the United States, Canada, Japan, basically developed countries, the debt is denomented in that country's own currency. Whereas in an emerging market, they're unable to get, you know, the vast majority of their financing in their local currency. And they have to borrow what is term hard money, basically, a money they can't. in France. So it's usually dollars. It could also be euros. And in many cases, sometimes at the yen. It's usually dollars. And there's something like, according to BIS, $13 trillion of dollar denoted debt in entities outside of the United States. And so, and it's mostly not owed to the

Starting point is 00:41:04 United States. It's owed to entities in China, entities in Europe, entities in Japan. And so there's always dollar to have a debt. And the problem is when you have a year like 2022, where the Fed tightens very aggressively, they tighten their their monetary policy very aggressively, that strengthens the dollar. And so imagine all of your liability suddenly getting harder compared to the currency that your cash flow comes in. And so any of these countries that have fairly low reserves and fairly high dollar dominant debts run into currency crises or debt crises whenever they have these rapid dollar

Starting point is 00:41:38 strengthening cycles. And so that's happened to Argentina. That's happened to Turkey. That's happened to Egypt. It's happened to a number of countries throughout Africa. and the Egypt case in particular, I had family and friends there. They had in 2016, within practically overnight, the Egyptian pound was like cut in half relative to the dollar.

Starting point is 00:41:58 So for example, I had a friend who was like saving for a house and suddenly just woke up and there's just, he has like half of his house savings are like gone in purchasing power terms. And then now they're going to the same thing again where they had a really sharp, it was a three step so far, a three step curve of heat evaluation. It was kind of a plane. You know, it's basically like, you know, they eventually had to do it, but they did it,

Starting point is 00:42:21 the central bank did it on a timing that they, you know, they kind of pulled the bandaid off. And so you had a, these stepwise devaluations. And so you go from like 15 Egyptian pounds to the dollar to, you know, 30 Egyptian pounds to the dollar in a very short period of time. I'm hopeful that some of this, the rate of this happening is behind us, at least in this cycle, because you don't have the Fed, for example, tightening as fast in 0.23 as they did in 2020. 22, but some of them are still very much lingering. Turkey still has runaway inflation. Argentina still is running away inflation.

Starting point is 00:42:53 And even if they partially get them under control, the underlying problems are unfixed. So sometimes it's, sometimes it's the local jurisdiction doing something wrong, but then a lot of it goes back to just the way the system's constructed. And Alex Glasson had a really good, he had like a 20,000 word piece on the IMF, the World Bank and kind of the whole cycle of like, you know, modern day monetary, like neo-colonials and we keep turning the wheels on. So a lot of it is that these four countries are pushing volatility to those periphery countries. And so sometimes you can blame them.

Starting point is 00:43:23 Sometimes you can blame the developed countries that either way. A lot of people in these jurisdictions are just, they just get racked with constant inflation, negative row yields, devalued savings, and all sorts of impairments on the ability to be banked and do trade. And when I was looking at this, I was also looking at, so in Egypt, for example, in a lot of these other countries, you get high interest rates, which are still usually below that inflation rate, but you get high interest rates. But if you're unbanked and you just have your physical savings, you don't even get those high interest rates. So if you're getting 20, 30, 40 percent inflation and you would be getting 10, 15, 20 percent yields at least offset some of that in a bank, you don't even get that. And so it's just, it's just dreadful.

Starting point is 00:44:04 Well, and it's not even just the IMF in the World Bank. I think the China Belt and Road Initiative is basically the same exact thing as the IMF and World Bank only maybe even worse, probably worse. So you have not only just one kind of driving it just from the west, but you also have it driving it from the east. And it's just for a lot of these nation states, it's crazy. Does that speed up Bitcoin adoption? Because I would think it's easier to start saving in Bitcoin or at least storing some of your wealth in Bitcoin Lightning than to try to find some type of stable coin provider via Binance or whatever. I'm just naming that one because I think that's the largest one.

Starting point is 00:44:43 I'm kind of curious to hear your thoughts there. But does this expedite people's run the Bitcoin because it's so easy to become banked and to get away from these currencies, these local currencies that have so much dollar denominated debt or Euro denominated debt that's a disaster for them? So chain analysis does their crypto adoption index. And they don't necessarily break it down by Bitcoin only, but they do their crypto adoption index. And they update it once a while.

Starting point is 00:45:11 And like, you know, two years ago, something like 19 out of 20 of their top 20 were emerging markets. And the latest one was 18 out of 20. That's crazy. And the United States was the one exception, one year. And I think the latest one was the United States and the United Kingdom. Basically, you know, people in developing countries generally get this idea a lot more intuitively than a lot of people that don't have a monetary problem that's as much in their face. that basically have high banking rates have less unstable currencies. And you don't always see it going to Bitcoin, though.

Starting point is 00:45:44 You see it also going to stable coins, which kind of ties back into the prior thing, that they often reach for what they know. Sometimes it's stable coins, sometimes it's Bitcoin. In Egypt, for example, you know, the overall crypto usage, including Bitcoin and stable coins, is still quite low despite their currency problems. Whereas ones where, and I think that's partially because if you have stepwise evaluations, you can kind of ignore it for a while. and then it all happens at once, and you kind of say, well, this happened.

Starting point is 00:46:11 So, and you kind of go back to normal. Whereas if you're like in Argentina or Nigeria or Turkey, and it's kind of, it's a grinding year of year, they seem to gravitate towards it quicker. And so I'm not sure fully why some countries gravitates have worked towards others, but essentially this shows straight up the utility reasons why so many people want a money that their local jurisdiction can't provide, whether it's dollars, whether it's big, Bitcoin, you know, whatever it is, depending on the person, they do want something else besides what they have offered locally. Let's take a quick break and hear from today's sponsors. No, it's not your imagination. Risk and regulation are ramping up and customers now expect proof of security just to do business. That's why VANTA is a game changer. Vanta automates

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Starting point is 00:50:06 All right. Back to the show. Elise, any follow up on that? Other than to note lens, insight and brilliance, I'm not sure. So I guess I would say, you know, the way that we can relate to that is just to note that as was alluded to with the comments on grid lists, the entrepreneurial activity that has insight on the application of Bitcoin to local problems is distributed. And so this is why we are going to see companies like gridless start in Kenya.

Starting point is 00:50:40 And I'm hopeful and we're looking for, as I'm sure you are, companies that see Bitcoin as a solution to the problems experienced in the geographies, as Lynn just described them. because having tools to exactly meet those populations needs and also to sort of feel comfortable and familiar, which is important, as Lynn pointed out, is valuable and helps companies and products gain adoption. And so, you know, I'm hopeful that we see entrepreneurial activity that speaks to exactly that, which Lynn just outlined because the queen is certainly a good way to opt out of the instability that makes it hard for people to save or provide long term for their family.

Starting point is 00:51:28 How do you guys see Fetamint playing into this? So we've covered it on the show. I know there's a lot of people in the space talking about it. Sometimes I'll get pushback from people on Twitter saying, oh, that just doesn't make any sense. But I suspect you guys have a little bit of a different vantage point and how this will play out in local communities and how close-knit a lot of these local communities are in Africa that places like where gridless is setting up shop and working. How do you guys see Fetament playing into this? Well, so Fettiment is an opportunity for a new form of onboarding

Starting point is 00:52:08 that can be more efficient and culturally suitable for certain populations. And it's also led by some, someone by OB who deeply understands the Bitcoin stays and sort of the diverse set of need that exists for folks that want to try out Bitcoin. So they're not all going to be, it's not a homogenous group. Bitcoiners aren't people that hold Bitcoin will continue to become more diverse in their need set, their expectations and what they know of the world. And sediment is response to that in a way.

Starting point is 00:52:44 where it allows a community to come together and leverage the technical adeptness of community members to sort of help them onboard and secure funds. And so it's exciting to see. It's a new, I think, sort of shot at what it'll take to onboard the world to Bitcoin and how to do that in a way that everyone truly has access and also in an affordable way, which has been a sort of long, outstanding question of the business. Bitcoin community and one where there's been great and rigorous debate, which is as Bitcoin adoption really picks up and continues to grow. And of course, it's happening in a quick clip. Does it remain affordable for everyone? I think Fedemit is in part an answer to that.

Starting point is 00:53:32 I also think Lynn might know FedExamint better than I do. So maybe this time I'll hand it to her for the part B of the explanation of the company. Well, so yeah, ego death capital is a leading investor, FETI, and so I'm an advisor and investor with them. It's obviously really early stage for FETI, but I think the technology is right, and I think the founder's right, so I'm very hopeful with what they're going to do. Essentially, what the observation there is that we see these small Bitcoin communities pop up, and we can notice that privacy could be better, right?

Starting point is 00:54:12 is if you're running a wallet for a community, the people running it can see a lot more than maybe you'd want as a user. They can see potentially what people are spending their funds on, what they're, you know, who they're receiving from. And Feddy meant the idea there, you know, there's both an open source protocol. And then there's also other companies, you know, companies like Feddy or others can build on top of that protocol. And some have made, you know, similar protocols using this technology. but essentially it's 40-year-old lion signature technology that allows you to run these small custodial ecosystems in a way that's very private.

Starting point is 00:54:47 And it kind of served two purposes. One is for these local, you know, little like communities, you can have very inexpensive, you know, tied into the light network, you know, payments and savings infrastructure. And then even the second thing is that even if you're not cough sensitive, If you have a hardware wallet, if you have, if you're fully, you know, self-custodial, you still might want something like a private spending option, right? You might want to have your savings account, which is your like, you know, your cold card or whatever it might be, your multi-signature, but you still might want like your wallet buddy in your, in your like lightning-based application that's private. And it's easy to use, you know, if to manage liquidity yourself. And so there's basically there's different points of optimization, depending. depending on what specifically someone's looking for. And I think, again, it ties back to partially for a position of privilege,

Starting point is 00:55:45 but it's also partially looking very long term and look at how Bitcoin is going to scale. It's going to have to scale in layers. And I think basically the way it's kind of developing is it's almost like a pick-your-one adventure. Based on what you're trying to do with it, what resources you have, you can choose the part of the ecosystem that makes sense for you. Right. So if you want to, you know, store $100,000 with the Bitcoin fully yourself, you can do it in like a hardware wallet. You can do it a multi-signature.

Starting point is 00:56:13 You don't really care about the fees too much. But if you're trying to save $100 or $50 or, you know, $200, if you want more privacy, things like that, I think these types of ecosystems are going to be pretty important. And I think this is kind of a really useful tool to have in this kind of global view of these small little bit. Bitcoin community just pop up. And again, it's, you know, the original concept is open source. So it's not even, it's not even a company in its own right. But of course, there are there are companies that can build on top of it, which is what we're seeing. I think the liquidity part's really important that you're talking, managing channels on lightning, but then still having ownership of the keys. You know, a lot of people are familiar with like wallet of Satoshi where they're basically managing all that for you behind the scenes and you've got to trust that that the actors there are good actors. And I think that that's where this really kind of comes in at a local level where maybe you have some close family members and you have some that are good at managing those things. And they can help take care of that liquidity as maybe a person might have a really small net worth. And they need to be able to transact. They really kind of provides, you know, that kind of service. Elise, you don't mind me going down a little bit of a macro path here with Lynn. I have some selfish questions that I'm, that I'm curious about that. I want to get answered.

Starting point is 00:57:36 And feel free to chime in if you've got some points of view on here as well. Can you, Lynn, can you help simplify the Japan situation for people so that anybody listening to this, whether they're into macro or not, why it's so important that we keep talking about this yield curve control jumping up? And the most recent decision that the Bank of Japan made by not raising the yield curve even higher. Many suspected it was going to go higher than the 50 bips on the 10 year.

Starting point is 00:58:08 How does this really play into like the global situation from an interest rate standpoint? And just kind of explain this in the easiest way so that most people can understand what's going on. So tying back in my earlier comments about developing countries having their debt to not be in their own currency. Last time we saw the developed world go through like a period that's like now where you have like over 100% that the GDP was like the 1940s. And so you had very high debt levels. And what a lot of them did was various types of financial oppression, which is yield curve control.

Starting point is 00:58:43 So for example, the United States, the Federal Reserve did yield curve control where they say, okay, we're not going to let, in addition to controlling the short end of the curve, we're also going to not let the long end of the treasury curve go over a certain amount. And for the United States, that was 2.5%. So inflation average something like 6% from the early 40%. to the early 50s. It spiked as high as 19%. But they held short-term rates near zero.

Starting point is 00:59:07 They held the long end at 2.5%. And the way they do that is they say, we're willing to print money and buy any bond that trades over that yield. Or putting another way because bond prices, bond prices are inverse to yield, any bond that tries to go below a certain price, we're going to buy. And essentially, what they try to do is train the private sector to do it for them because private sector comes to know. If they start to view that as credible,

Starting point is 00:59:32 Like, let's say the yield goes to 2.6%. JP Morgan could come in by that, knowing that if it stays above 2.5% for any length of the time, they'll be to sell to the Fed. And they'll be to make this basically risk of your profit, assuming the Fed actually, you know, sticks by their yield curve control target. And of course, that ends up inflating away a significant part of the debt

Starting point is 00:59:51 because you hold the yields below the inflation rate with basically a limited QE as needed to do it. And so fast forward to the modern time, it's, you know, this is the first time since day, We see a lot of developed countries with well over 100% debt the GDP, and Japan's is the highest at over 200% debt the GDP. So they have a very, very large sovereign debt load, and they can't afford significant interest rates on their debt. And they also want to maintain very easy monetary conditions, despite the fact that inflation is above their target. And so they've been doing for a while, they were holding their yields at 0.25%.

Starting point is 01:00:27 So the 10-year yield was at 0.25%, even though the rest of the world was hiking their interest rates, even though Japan's inflation was above their official target, they were still holding that really low. And they had to buy quite a lot of bonds in order to hold that at that level. A little while ago, I forget how long ago it was, that time flies so quickly, but they kind of overnight, they expanded that to 0.5%. So they busy let the yields go a little bit higher at 0.5%, which is still below, the prevailing inflation rate below the inflation rate target. And so it's kind of, first of all, it's relevant on a global scale because it's kind of like a canary in the coal mine. We're seeing

Starting point is 01:01:07 how some of these very indebted countries can handle this. You know, basically see how hard is it to do, you know, what are the pitfalls that central banks might run into and trying to implement this policy? It certainly wasn't easy in the 40s, and it's not been easy for Japan here in the 2020s. But it's also relevant at global scale for other reasons. One is that, you know, aside from being very very indebted, Japan has a very positive net international investment position, meaning that they had decades of current account surpluses, and they used those current account surpluses to go and buy foreign assets. So they own, you know, a trillion dollars with the treasuries, the biggest treasury holder, you know,

Starting point is 01:01:41 external to the United States. They go out and buy U.S. stocks. They go on and buy European stocks. They go out and buy commodity deposits and things like that around the world. They own a lot more foreign assets than foreigners own of Japanese assets. And basically when they start to run into a currency crisis, one thing they can do, in addition to manipulating yields and things like that, they can also sell off some of those foreign assets, especially ones that are owned by the central bank, you know, owned by official accounts. And so that another and then a third thing is that because their rates are so low, a lot of foreign entities that use them as a funding source to then go out and buy foreign assets. And so often what you'll see is that, you know, when U.S.

Starting point is 01:02:25 industry rates are also pretty low, you'll see that a lot of Japanese investors will go buy treasuries. And then they'll hedge them back and, you know, to take out the dollar risk compared to the yen. And they'll still get a better yield than they can get on their local currency. But lately, because the U.S. interest rate has increased so much, if a Japanese investor wants to buy U.S. treasures and they want to hedge out the currency risk, that's actually a lower FX hedge yield than what they can get in Japan. And so basically, this can kind of ripple through the rest of the global bond market.

Starting point is 01:02:56 Part of why they've been able to stay so low is because Japanese yields have been so low. And so this is kind of like a real-time experiment for the first time in many, many decades, to see a very, very large developed country try to artificially suppress, essentially its entire yield curve below the prevailing inflation rate and all the pitfalls that come with that. Yeah, I read some stuff that Luke Groman puts out there, and he does a great job talking about the FX hedge and how the markets are much more comparable, even though the yields might not look at like it whenever you look at something that's FX hedge. You were mentioning their ability that they own so much equity in treasuries in the world. Do you find that to be the reason we've seen the dollar sell off so hard here since November because they've been basically selling. out of that and it's put a downward drag on the dollar because the dollar move really has

Starting point is 01:03:53 mystified me and that's the only thing that I've heard that's plausible. I think around the margin, that's been a contributor. Generally, one thing you see historically is that when the dollar is going up very rapidly, because there's so much dollars on my debt out there, you'll see a lot of entities sell treasuries or other dollars diamond assets to get dollars to then service their debts. So one thing people forget is that, you know, a lot of people mention this $13 trillion debt figure, but they forget to mention that there's over like $50 trillion worth of U.S. assets held by the foreign sector. And so they have way more assets in aggregate than they have liabilities.

Starting point is 01:04:28 And obviously that's, that depends on the jurisdiction. So for example, Turkey has more liabilities and assets. So, so, you know, they're more stock. Whereas an entity like Japan has way more assets than liabilities when it, when it comes to, you know, the foreign, you know, dollar-diamid variety. And so if you're trying, basically the hard part about yield control is that if you're trying to manage your yields artificially, the release valve is the currency. So if you hold the yield artificially low, you're going to get your currency weaken more than otherwise would. But then the third variable they can do, only if they have a lot of reserves, they can also then sell some reserves. And so instead of weakening the currency, they can lower their reserve balance.

Starting point is 01:05:10 But then that, you can damage the asset that they're sell, which in this case might be treasuries. the US like dollar peak coincided with a bottoming in domestic liquidity. So the market started a price in slower rate hikes from the Fed, which has so far been somewhat materializing. And then also the Treasury general account has drawn down. That gets pretty jargy, but essentially that the Treasury's kind of been partially offsetting some of the QT that the Fed's been doing, possibly in partly in response to this upcoming debt ceiling issue. And so at least temporarily, there's slightly improved domestic equity. And then the weaker dollar is giving that global equity a little bit of a boost. And so I wouldn't say that all of that's due to Japan.

Starting point is 01:05:55 But certainly Japanese selling of treasuries is easily a potential variable to that. Because anytime that a large amount of foreign assets get sold from the U.S., that can cause problems. We've also seen, for example, Switzerland, you know, a lot of these, other ones will just stop buying some U.S. activities and stop buying some U.S. assets that they were just endlessly probably into, which is now some inversing. Basically, I think the move got overdone to the upside. Thank you for all that. That was amazing. Elise, I had a person online. This was just such a generic question, but I loved it because I think it's an important question to ask, and they're asking about intrinsic value. And, you know, starting off as a value investor

Starting point is 01:06:42 and basically large cap companies and trying to calculate intrinsic values like in this Warren Buffett-style way, it's so much different than in the venture capital space, which is your expertise. And so I guess the question for you is just how do you think about intrinsic value as a venture capitalist for this? I didn't write down the person's name. I wish I would have written their name for this person that asked this question on Twitter. Well, that's a great question. So when you're investing in a company's equity, you have to think about the exit valuation that is possible for the company or the enterprise value. And when you're investing in a token, you don't have to do that.

Starting point is 01:07:27 That's the draw for investing in tokens. So in the Bitcoin space, it's the same as in any technology space. enterprise value is accrued by companies that develop a product for which people have a desire to pay and in a sustainable way. We also need to see growth, growth cadence, and then the company's relative position to competitors. And so those are the sorts of things that start to determine growth stage companies in the private market, their enterprise value. If we're going earlier where EcoDev or Stillmark are investing, now then what we're really looking at at be still mark is the promise of the market so the either the current total addressable market or tam to use an industry acronym um or the expected tam

Starting point is 01:08:21 and and then look at the team's preparation to really be able to either define the market or to compete and win a dominant market position um in a market that's already been defined for them and so So in the earlier stages, enterprise value, the valuations you see companies, that is more of an art than a science. And then when you get to growth stage, it's just, it's science. And the growing pains for companies, including Bitcoin companies, is how to move properly from valuations that are based on promise team and market into a space where valuations are going to be based on metrics, including growth, market penetration rates.

Starting point is 01:09:05 and how you sit against competitors, and for Bitcoin companies in particular, how you've been able to maintain your growth across quarters, including in their markets. And so that's how we think about enterprise value. And although we're investing today in really early stage companies, we need to be able to trust and see a path for them to a place where their enterprise value is determined by metrics.

Starting point is 01:09:33 So I don't know if that answers the question of intrinsic value or not. I love that. I love that. Lynn, did you have any things that you wanted to add to that? Not particularly. It's just, I mean,

Starting point is 01:09:45 I don't have as much experience as least as in that field. The general philosophical differences that would value investing, you generally are aiming for a higher hit rate. So you want, you know, more companies to each do pretty well, whereas when you venture the startup space, you understand that this is,

Starting point is 01:10:01 you know, there's a lot of, There's a lot more uncertainty there. And so essentially, you'll see some companies way outperform their expectations, other ones just don't get the momentum that you think they do. And so it's a somewhat different risk model. And it's, you know, obviously they're not profitable in the very early run, usually. And so it's more growth-oriented.

Starting point is 01:10:22 It's a different style of investing. But either way, any sort of cash flow business that has an expectation, are generating future cash flows is ultimately one way another derived from the expected future cash flows they can produce. But because these are so early stage, you're not really focusing on that in the same degree, and you're more focusing on what is the overall size that this market can reach and can they do it in a sustainable way. Love that.

Starting point is 01:10:50 Yeah, it's interesting, the asymmetry of the hit rate early on, you're expecting it to be low, but you're looking for these asymmetric returns. And then on the value investing side, it's more like capital preservation and you're looking for these slight, where the market's just maybe slightly getting the pricing wrong, and you're looking for a very high probability of doing that correctly. Great comments there, guys. Okay, this is my last one for you. What is something that you're seeing right now in the market that is, I'm going to say the word pet pee, but I don't think that that's the right word to use, that you just think people are getting wrong or that they're just totally missing that you think is a really big deal. Oh, Lynn, I wanted to

Starting point is 01:11:32 ask you about the CP I think. Maybe I might have one more question. But anyway, maybe something that the market's just missing and that's maybe you're passionate about and maybe other people aren't seeing. It's a great question. So I am going to start with crypto here and say that something that's been really both interesting, disappointing, and maybe I never said the bar low enough. but to see people try to justify the fraud they've committed. Amen. And the search for black box yield has been. Unbound.

Starting point is 01:12:15 And I think it's hard. It's hard to predict this because I think, you know, we're to a fault. We assume that others are similar to us or will behave within, you know, parameters, moral parameters that we can understand. And crypto has gone so far beyond that in search for speculation-based returns. And so here's the opportunity that is going to emerge that people will see. So where there's been a collapse in crypto defy yield or firms oriented around stat,

Starting point is 01:12:56 yield generated on the Lightning Network will be able to fill that void. And so here's something that I think people don't understand yet. As Lightning Network has matured and as adoption has grown, that's made way for a library of the Lightning Network to emerge. And what I mean specifically by that is a reference yield rate for payment utility of the coin payments. And of course, that further financial life is BTP the asset. So the reference rate, this liable of Lightning Network will reflect the demand for network capacity.

Starting point is 01:13:33 And what that means is that as the breadth of utility, as the utility set expands for Lightning Network, either through entrepreneurial activity, through the launch of assets, including stable coins on Lightning Network, or as adoption grows through the introduction of, say, more traditional onramps, et cetera, that this rate should rise and yield opportunities, it can start to really become compelling. So the current reference rate as Stilmark measures it through Amos's Magma marketplace is around 3%. And the yield can be, you know, generated to that degree now. And I expect to see that click for people, especially as they start to understand that there was no economic activity underlying the yield generated in crypto

Starting point is 01:14:27 and start to look for alternatives to what they lost there. And that 3% that you're saying there, Elise, this is for basically providing liquidity into the market. Is that how that's being determined? And so we would do that. That's exactly right. Yeah, we would view that as risk free. Right. That's exactly right. So I should have mentioned that that tough and thank you for noting that. So in the crypto space where yield was based on custodial models and generated by speculation, in the Lightning Network, there's this opportunity for yields that is based on economic activity and can be affected through a non-custodial engagement. So it's sort of an adult version of crypto yield in terms of it, just

Starting point is 01:15:20 being mature and sensible. And just to take it down to the basics and what you all already know is that in Lightning Network funds are pre-allocated to payment pathways, which enables payment settlement without counterparty risk, right? And so that pre-allocated capital on those pathways can produce yields. And as the Lightning Network has matured, that's something that exists now that we've yet to really wrap our heads around or see people take full advantage. of. And so you asked earlier about Q4, and I talked about paper API, calling stable coins on lightning

Starting point is 01:15:56 network, I would add this to that response to. It's what can people do with this non-custodial economically productive-based yield and how will that space develop? And so that's something I'm really excited to see. And I think it's a good maturation of the silliness that we've seen in the crypto yield search. Love that. Love that. Yeah, the guys over at Amboss seem to be the ones kind of leading the charge with a lot of this stuff and they're doing a fantastic job.

Starting point is 01:16:29 I love their website too, by the way. Lynn. They're growing quite quickly. So Preston, I always say, if you don't understand Amboss, you don't understand the Lightning Network. And I really mean that. But we see incredible growth there and something, I want to mention just to Bitcoiners is that companies like Ambos succeeding in this rapid development of tools is ultimately going to really drive adoption by creating a pathway for enterprise to engage without needing to really get the Lightning Network, like I said before.

Starting point is 01:17:05 So it's almost like this abstraction layer of the Lightning Network for folks that know they need this payment efficiency. but beyond that are sort of going to need to set it and forget it for the Lightning Network and boss that's going to do that. Yeah. Yeah. Lynn? I try to another thing in terms of pet peeves because I view if the market's misunderstanding something, that's like an opportunity.

Starting point is 01:17:33 And basically something that can then, it's kind of like the optimistic spin, like a pet peeve is someone else's opportunity. I still view proof of work is very, very misunderstood, especially with the kind of, you know, the explosion of proof of stake. Cryptocurrencies and some of the, I think, the obfuscations that they make when describing their tradeoffs and focusing on, you know, I think the wrong errors. Basically, I think that it remains very underappreciated how much of an innovation proof of work was, especially combined with the details like, you know, difficult adjustments, small nodes.

Starting point is 01:18:10 Basically, what we see most in the crypto space is that every time someone looks at Bitcoin and thinks they can improve it, the thing they throw under the bus is decentralization. They basically make a more centralized thing, which has more bells and whistles. Maybe it's faster. Maybe it can do more. But then the cost under the hood for that is that it's centralized in ways that are not always obvious to a user. And so they see it's a cryptocurrency is probably just like Bitcoin, but it can do more.

Starting point is 01:18:38 but if they don't actually know the nuance, they don't run a node, or if they don't, you know, look at just in different requirements, the network, if they don't look at, you know, what are the, what are the control points on the network, like who has undue influence, who can, who can maybe change the protocol in a ways that users wouldn't predict? What happens if the network goes down? How do you determine what the canon state of the ledger was, right? So what is the unforgeable costiness, what is the official state of the prior ledger? And with these other systems, you don't really get those same kind of assurance that you get with Bitcoin. And it's not, it partly is things like first mover advantage. You have liquidity, you have the truly decentralized star,

Starting point is 01:19:22 but it's not just, you know, brand and first mover advantage. It's also just the actual way it's design with purposely small nodes, uh, proof of work of, both of state, you know, most of the metrics that Stoci selected were, were very intentional. And they were, a lot of thought was put into them. And so I think that just, it just reigns very poorly understood, both in the space and then also from, you know, just talking to other macro people, you know, they just kind of look at all of crypto is one big thing a lot of the time. And they, you know, if you say like, what are your thoughts on Segwit or Tap Root? Just basically, it's still a very niche space when you zoom out to the overall macro level. Same thing.

Starting point is 01:20:03 if you ask the lighting network, if you ask about Terra, if you ask about any of the developments that are happening, they just assume this is some static protocol. All they see is like a price line. You know, they look at a price chart. They think that's Bitcoin. And they don't look under the flood at the development that's happening and why some of the tradeoffs are the way they are. Really fast. This update to the CPI waiting that evidently took place on one January, I'm hearing 200 to 300 BIPs drop in inflation on the next print just due to this waiting update. Do you agree with those numbers, Lynn, and what's the impact of that in Treasury markets if we're just magically dropping 2 to 3% off of inflation to previous metrics? So from what I've seen, I think that was somewhat misreported by some sources.

Starting point is 01:20:58 is basically that some people were looking at it as base effects that it's going to take an account one year instead of like two year and that force going to be a big drop. Instead of what it means that the frequency of which they update the basket is now going to change more frequently. And so the challenge of measure in inflation is that every's inflation basket is unique, right? So for example, the weight that I spend things on is different than the weight that you spend things on, which is different than the weight that at least spends things on. And so all of us have like our own unique inflation basket.

Starting point is 01:21:31 Like one of us travels way more than others and travel prices are soaring. Another person, you know, spends more on eating out and that is say not soaring, let's say, then we can have different experiences of how inflation's impacting us. And so what CPI tries to do is it tries to take like a nationwide average of what is the average basket, the average consumer is buying, right? So what percentage of their expenditures go to a shelter? what percentage of their expenditures go to her transportation, what percentage to go towards food. And they try to construct this like, you know, quintessential American, like, you know, person.

Starting point is 01:22:08 And they say, what is their inflation rate like? And there are various ways to tweak that and people can debate over it. But essentially what this change is going to do is make that basket update more frequently, which sometimes can cause inflation to come out even hotter than it was before. And other times can cause inflation to, you know, be, lower than it otherwise would be with the prior calculation. Basically, if you update the basket every two years versus every one year, you'd get slightly different results, even if you're still looking at year over year CPI.

Starting point is 01:22:40 And so I don't think we're going to see a giant drop right away, but it certainly can affect the numbers around the margins. So do we speed it up as it's going down and slow it down as it's going up? Is that what I'm hearing? But one example was, so during, well, during COVID, for example, people stop buying a lot of services they stopped flying they stopped eating out yeah they started buying more electronics they started renovating their home they started you know doing things like that buying like uh you know the consumer doorables and then once the lockdowns ended and and some of the

Starting point is 01:23:13 travel restrictions eased uh you saw like uh basically people already bought all the home stuff that they want for the next couple years and instead they started flying more and going to hotels more and eating out more um and so you kind of saw that that that world inflation go from those consumer durables to then go to services. And so if you're looking at the basket, how far back you go. Oh, yeah. If we're spending more on services now, then services are going to have a higher weighting in CPI versus if we go back farther and include that period where we're all buying door goods.

Starting point is 01:23:49 And so that is kind of like there is a time component to it. But I think it's overall, it's somewhat overreported, but we'll see. Okay. I like the contrarian take there. You didn't pile on the bandwagon. I liked it. All right. This is the last one.

Starting point is 01:24:03 This is Rapid Fire. Your book recommendation for people listening in 2023, you can only pick one book. What do you recommend? I love how thoughtful you're being. Lynn? Are we going to get something from Lynn? Lynn, what is it? Oh, yeah.

Starting point is 01:24:20 Lynn's book is what we're going to recommend. Lynn's book? I would like to say that. We'll see if I can not. here. It's a writing a book is a challenging undertaking, especially if you're trying to do some of any other things. But yeah, I'm biased and I'll say my, but I'm finding is

Starting point is 01:24:34 by writing it, I've done a lot of research and I've read more books and sometimes you can find books that you agree with. Sometimes you can find ones that you partially agree with and you want that, that opposing another book that you've read and you want the alternative view. And so one that I've been reading through lately is

Starting point is 01:24:51 debt the first 5,000 years. That's been a fun read so far. I also, I've been going back through different essays that people have written. And so it's hard to pick one book. I often, my default, is often lessons of history because it's like this hundred page book written in like the 1960s. Yes. It's really good. And it just covers so many different facets. And it's interesting because what they do is they often describe something. And then they'll like in the second half of the chapter, they'll flip it around. And they're like, well, here's another way of looking at it. And then they'll kind of describe it almost

Starting point is 01:25:26 like in a contradictory way and see it's kind of like how you can take the same event and depending how you look at it it comes out two very different ways and like the one caveat that I always say is like there's one chapter pretty early on that when you start reading it it comes off like like a little bit racist and it was written in the 60s and but when you get to the later chapter they kind of slip it around and go go back on it so that's always like the chapter that I kind of kind of warn people about but basically the book as a whole it covers so many different facets and the whole and the whole whole thing it does is it kind of explores just, you know, thousands of years of human civilization.

Starting point is 01:26:01 It's like if you condense it into a handful of short observations. It's amazing how much is accomplished in such a short amount of pages in that book. I've only read it one. I need to get back and reread it. Yeah, 5,000 years of history and they try to, they do it about 100 pages. Yeah.

Starting point is 01:26:17 And it just kind of covers so many different topics. Lease? I'll add a couple notes in addition to, Lenn's book that we're waiting for. I'd say I always recommend something different than a book, but rereading the cipherpunk mailing list and understanding the context from which Bitcoin emerged. A lot of the mistakes made in crypto, I think, occur

Starting point is 01:26:41 because people in crypto believe that Bitcoin was test zero. It was a starting point for a free digital dollar. And that's not true. It's based on a couple of decades of prior experimentation and failed projects. And the Cypherpunk mailing list really outlines that or brings the value of that forward. Johnny Beard published a book on crypto yield and contrasted it to the yield generation of the Lightning Network that I talked about earlier. The name of the book is escaping me now, but it's Johnny Beard that published it. And then finally, I want to reference a tweet and tag it on to Lynn's pet peeve opportunity.

Starting point is 01:27:26 of Bitcoin mining. So, and this ties to the recommendation for Cypherpunk mailing list. Hal Finney in January 27, 2009 said, thinking about how to reduce CO2 emissions from a widespread Bitcoin implementation. So in people misunderstanding proof of work, or in switching from proof of work to proof of stake,

Starting point is 01:27:51 they're giving up the opportunity to reduce CO2 emissions. and to sort of, you know, use both of the two things that Bitcoin was introduced to do, which is financial freedom and also allowing for renewable and sustainable energy sources to thrive. So going to the cypherpunk mailing list, getting the insight to people that so deeply understood Bitcoin that they could predict that companies like Gridless would exist. all of these years later, I think is never a poor use of time to reread that stuff. Ladies, what a pleasure having you guys together in this conversation.

Starting point is 01:28:37 And I don't know about people listening, but it is so hopeful. You know, Michael has the hope.com. I'm hearing this and I'm just thinking of like what this, what things are going to look like by the end of this year. and a lot of the stuff that you're laying out, it's very exciting. It's going to bring so much hope to the world. And I just can't thank you guys enough for making time to lay a lot of this out and just kind of talk about where you see the market going and where you see hope and prosperity evolving. So Lynn and Elise, both give a hand off to folks where they can find you online and anything else you guys want to highlight.

Starting point is 01:29:19 So you can find me at Linalt.com. I can on Twitter, I lend all contact. And thanks for having us. Always a fan who's talk to both of you. Elise? Stillmark's website is just stillmark.com with links for founders to reach out. And I'm on Twitter at least as an audience to what happens there at Elise Colleen. We'll have links to all that in the show notes.

Starting point is 01:29:44 Ladies, thank you for your time. Thank you. If you guys enjoyed this conversation, be sure to follow the show on whatever podcast application you use, just search for We Study Billionaires. The Bitcoin-specific shows come out every Wednesday, and I'd love to have you as a regular listener. If you enjoyed the show or you learned something new or you found it valuable, if you can leave a review, we would really appreciate that. And it's something that helps others find the interview in the search algorithm. So anything you can do to help out with a review, we would just greatly appreciate. And with that, thanks for

Starting point is 01:30:17 listening. And I'll catch you again next week. To access our show notes, courses or forums, go to theinvestorspodcast.com. This show is for entertainment purposes only. Before making any decisions, consult a professional. This show is copyrighted by the Investors Podcast Network. Written permissions must be granted before syndication or rebroadcasting.

We Study Billionaires - The Investor’s Podcast Network - BTC114: Bitcoin is Banking and Electrifying the Developing World w/ Lyn Alden and Alyse Killeen (Bitcoin Podcast)

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