We Study Billionaires - The Investor’s Podcast Network - BTC194: Tether's Backing and Pear w/ Paolo Ardoino and Mathias Buus (Bitcoin Podcast)

Episode Date: August 7, 2024

In this episode, we start by delving into Tether's Q2 2024 attestation, highlighting their remarkable financial achievements and commitment to creating a stable and resilient stablecoin. Following this, we dive into the Pear initiative's zero-cost, peer-to-peer infrastructure, discuss Keet's open-source capabilities, and examine the impact of eliminating server dependency with insights from Paolo Ardoino and Mathias Buus. IN THIS EPISODE YOU’LL LEARN: 00:00 - Intro 03:07 - Tether's Q2 2024 financial highlights, including $1.3 billion in net operating profit and $5.33 billion in excess reserves. 04:46 - The strategic positioning of Tether in the U.S. Treasuries market and its impact on financial stability. 08:47 - Tether's commitment to supporting users in emerging markets and developing countries with their stablecoin reserves. 23:17 - What the Pear initiative aims to achieve with zero-cost, peer-to-peer infrastructure. 26:43 - The potential and functionality of Keet, an open-source platform. 29:15 - How tunneling technology, similar to SSH, enhances secure peer-to-peer access. 31:06 - Details about the peer viewer app offering remote desktop services without servers. 34:25 - Paolo's mission to eliminate server dependency and the launch of a VC fund for companies building on the Pear protocol. 37:30 - The open-source aspects of Keet and how it handles code auditability. Disclaimer: Slight discrepancies in the timestamps may occur due to podcast platform differences. BOOKS AND RESOURCES Check out the Keet video conferencing Holepunch technology. Check out the decentralized Pears initiative. Paolo Ardoino's X Account. Check out all the books mentioned and discussed in our podcast episodes here. Enjoy ad-free episodes when you subscribe to our Premium Feed. NEW TO THE SHOW? Join the exclusive TIP Mastermind Community to engage in meaningful stock investing discussions with Stig, Clay, Kyle, and the other community members. Follow our official social media accounts: X (Twitter) | LinkedIn | | Instagram | Facebook | TikTok. Check out our Bitcoin Fundamentals Starter Packs. Browse through all our episodes (complete with transcripts) here. Try our tool for picking stock winners and managing our portfolios: TIP Finance Tool. Enjoy exclusive perks from our favorite Apps and Services. Stay up-to-date on financial markets and investing strategies through our daily newsletter, We Study Markets. Learn how to better start, manage, and grow your business with the best business podcasts. Support our free podcast by supporting our sponsors: River Toyota Range Rover Fidelity Fundrise Sound Advisory AT&T The Bitcoin Way SimpleMining BAM Capital American Express Onramp Public USPS Shopify HELP US OUT! Help us reach new listeners by leaving us a rating and review on Apple Podcasts! It takes less than 30 seconds, and really helps our show grow, which allows us to bring on even better guests for you all! Thank you – we really appreciate it! Learn more about your ad choices. Visit megaphone.fm/adchoices Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm

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 guests from one of the most interesting and controversial companies on the planet, and that is Tether. The guests are Paulo, Arduino and Matthews Boos. Okay, so listen to these numbers. As of the 30th of June, 2024, they have 1.3 billion net operating profit, 5.3 billion in excess reserves, with more than 90,000.

87.5 billion in U.S. Treasuries, which is a 7 billion increase just from the previous quarter. So listen to this. This is a higher exposure to treasuries than the country of Germany, the United Arab Emirates, and Australia. And then, on top of all that, they hold 80,000 Bitcoin with their retained earnings. So whether you like this company or not, one thing's for sure. You absolutely have to be paying attention to this company. Because based on the earnings and based on the idea that all these short duration treasuries that they own have substantial yield 5% or, you know, somewhere in that range. And this is especially important to understand, and you hear this interview with Paulo, how they're hell-bent on retaining most of these profits in Bitcoin itself. Not only that, but the company's leadership is now taking many of these profits and they're investing heavily into this technology called Whole Punch Technology. And this is a way to communicate in a decentralized way without servers in the middle. And we get into that whole conversation as well. Interestingly, it seems like Tether might be looking at using this technology as a way to get off of these other blockchains for the issuance of their stable coins. So we talk about that in the second half of the conversation. There's a lot going on in this conversation. I tried my best to cover this as objectively as possible. But without further delay, here's my conversation with Paulo and Matthews.

10 years. You are listening to Bitcoin Fundamentals by the Investors Podcast Network. Now for your host, Preston Pish. Hey, everyone. Welcome to the show. I'm here with Paulo and Matthews from Tether. And boy, boy, boy, we have a lot to talk about, not just on the Tether front, but some other initiatives that you guys are working on with Pair and Key and decentralized applications. The list goes on. So welcome to the show. I am very excited. to have you guys. Thank you, Preston. Excited as well. So for a listener that's not intimately familiar with what you guys are doing, I just want to throw out some numbers here so that people can start to wrap their head around the magnitude of what this is. Tether, market cap,

$114 billion as I checked it this morning. The number that I think is even crazier to me is 60 billion in volume in the last 24 hours. And I don't even know that this was a busy, you'd have to tell me, Paul, is that a pretty normal number these days? 60 billion in volume for just the last 24 hours? It varies between 40 and 60. Keep in mind that after Trump spoke at the Bitcoin 2024, the volatility on the market has been, to say, the least interesting.

So it's expected to see bigger volumes in USAT because UST is becoming, well, has become over the years the base pair for every single other digital asset. So all the different cryptocurrency training activities are settled in USAT for most part across the entire ecosystem. Yeah. And this is something else that I found interesting. So I'm looking at in comparison to Bitcoin, you're looking at a market cap on Bitcoin that's about 10x the size of the Tether market. cap, it's a little bit more than that. It's $1.3 trillion is the current Bitcoin market cap. But the daily volume on Bitcoin is only $38 billion. So if we were going to compare these numbers from, what's the word I'm looking for, the frequency or the turnover on a daily basis,

the velocity of money, if you will, tether just in the last 24 hours is 50% of all the tether that exists has turned over volume-wise just in the last 24 hours. On Bitcoin's side, it's only 2%. And so I guess I'm just looking, because I find these numbers just staggering, because that's 25 times the difference of how much faster the money's moving on tether than Bitcoin. Why do you think that that's the case? Well, first of all, there are part of the market type of Bitcoin. There are bitcoins that are not moving since a long time. So you have to come for that. And also, when I think about USDT and Bitcoin, there is a fundamental difference, right? So Bitcoin is in part used as, you know, it's traded for sure, but also is considered the best

store wealth in the world. Right. So people tend to hold Bitcoin more than they tend to hold US dollars or USDT. Also, USDT on the other side have multiple utilities. While I'm a Bitcoin myself, myself, I think that I believe that. that the world needs to go towards more and more adoption of Bitcoin for both store Welsh, so your savings account to make it simple and your checking account. I believe that we need to see it's still very early for that. The success of USDT comes from the fact that not everyone in the world is ready for Bitcoin yet, especially for whom lives in the emerging markets developing countries.

They would exchange their national currencies for USDT because USDT represents the USDT represents the US dollar. And although the US dollar is not perfect, we are seeing how much dollars have been printed in last year. That was a pretty calm year, right? And nothing major happened. Still more than one trillion in every 100 days was printed. Still is much better. The US dollar is much, much better than the national currencies that five billion people on the face of this church hold on their day-to-day lives. Think about Argentina, Lebanon, Turkey, Venezuela, discussing in the last 24 hours of Vietnam and you know you can name Turkey you can mean so so many right so five billion people living in countries that have very high inflation rate and

very fast evaluation of their national currencies and so the common denominator of all these communities is trying to find a better solution think about the Argentinian people they have been let down from their governments for across through the two different default and they were on the brink of the third. So people are sick and tired to have to rely on their local government. And although, again, the US dollar is not perfect. It's much better than what they have. So what you see on the on the USDT side is in part, cryptocurrency settlement, a trading settlement, cryptocurrency like trade finance, we have seen a huge increase of usage of USDT in trade finance like commodity trading by Copton in Turkey with USDTs and things like that.

but also is becoming a savings account in many, many countries. And people are on ramping from their national currency onto USDT just to protect their families, protect their savings. Eventually, we hope, and through education, to bring these people to learn more about Bitcoin. But it's a process. In this moment, they know about the dollar, and so they are more attracted to the dollar. That's why you see these incredible percentages. Yeah, I mean, people could just look at how you.

you guys are sweeping cash flows within the business and what you're doing with your cash flows as to what your thoughts are on like where you need to be preserving your wealth. Because my understanding is that a majority of the cash flows are being swept into Bitcoin. Is this accurate? Well, Tether has announced in the end of the first quarter of 2024, we had our attestation release and we are a couple of days far from releasing the new attestation for this quarter. So up to in general, up to 15% of our profits have been put into purchasing Bitcoin. Tether has been very, very much discussed, right? We all know about that.

We were since 2014, everyone has been obsessed by Tatter and, you know, all the fad, all the different discussion about how we keep our reserves. So we are Bitcoiners. Paulo, there's a difference between your reserves that are backing the issuance of coins. and excess profits that the company has made and what you're choosing to do with those reserves. And I think that it's really important. I think this gets lost in all the noise that when a coin is issued or a stable coin is issued, it's backed by something.

Absolutely. Yeah. It's backed by U.S. treasuries, most likely short duration because you don't want the inflation risk is what I'm assuming. You'd have to speak to this. But then if the company makes a profit, it's stored in something. That's something, I would imagine. is Bitcoin, or at least that's what I would want it to be in if I was you guys.

So can you talk to that difference in like how you think through some of that? So definitely in part in part is Bitcoin for sure, right? But we started to be profitable. Tatter started to be profitable two years ago with the increase of an interest rate. Before the interest rates on our reserves was 20 basis on. So we didn't have so much money to invest in. In the last two years, Tatter profited around 11. $8 billion.

So that's why I was talking about being conservative because we were very, very much discussed and on the mouth of everyone. Because what we took as a decision is to keep part of our profits instead of distributing them and becoming fatter, we decided to keep $5 billion in the company in excess reserves on top of the 100% reserves that we have to keep on. to back all the issued tokens. Just to give you a data point that will be released in the next few days, we are between our direct and indirect ownership of US Treasury bills. We have around 97 billion of US Treasury bills as of today, well, as of the, sorry, the 30 June, 2004, was around 90 billion

at the 31st of March, 2024. So basically, when we get new efficiencies, we made this commitment to put most of them in the US treasury bills because we believe that is very, very important. We have a little bit of other assets as part of the resource, including gold, is all available in our attestation. We believe that gold is also a very important asset. We started accruing gold a few years ago before, you know, pretty much at the beginning of the pandemic, and that approach to risk management paid off fairly well, because if, although, as you mentioned, we have the vast majority of our T-bills, or basically all of the T-bills are in short-term maturity, so less than 90 days.

You want, as the market money market funds and other, like, very well-recognized financial instruments, we want to make sure that we keep a small percentage of our reserves in something that could hedge certain volatility events. Like, the three-month T-bills are very, very solid, right? So they are very, very liquid. On top of that, we have several billions in over and a hit-over-year-res-stripos. So if we have a huge redemption in the tens of millions of billions of dollars, we can fulfill that with a nap of the finger. And we can keep on and going on and pay up to the last dime very, very quickly.

Right. I think our lapney a few days ago spoke about it at the Bitcoin 2020-4 in a very, very proud way. because we engineered a very strong machine where we have all the reserves to back USET, plus we have $11.89 billion more that we kept in the company to protect our ecosystem. Look, the reason why I said we were on the mouth of everyone and people were obsessed by our reserves made us be very aggressive on how much we want to show to the world. that all the heroes of finance and all the heroes of crypto that were heroes until 2022, they almost died or they died through 2022 because they did all the things that accused

of. They lent to each other through scintiesware deals. They created the inflated values of propens and all that. And then we decided that, and in 2022, I'm not sure if you remember, Theta was publicly attacked by short sellers that altogether borrowed tens of billions of USDT from lenders paying 12% per year because they thought these guys at Tatter will never have more than 10% of liquid reserves. So we are going to short USDT, we are going to close a bankrun,

and they will go belly up and we will make an ultimate line. Instead, we did an enormous work to move from the commercial papers that we had in the past. By the way, we never had a default where short maturity, they were very, very safe, but then we put basically the majority in US CBOs. So we could sustain $7 billion of revenues that were 10% of our search in 48 hours, and we could sustain $20 billion, $25 billion or redactions in pretty much more than 20 days. That was 25% of our reserves, like at peak. So there's no bank that survived today.

That's why I like to talk about it, because it was a very stressful moment for us because you know that you have the money. You know that you are liquid, but you have to keep going, keep paying out because you want to show to the work that you are made different. And that's why we are keeping this additional reserves on top of our 100% reserves, like this excess reserves. And then we have Tether investments. So what has been accrued and profited from the company, from the TBL sender S that we have throughout the last few years, in part is excess reserves and in parties in Tether investments, that is a separate subsidiary of our holding group,

that is doing investments in AI, that is doing investing in biotech, that is supporting, great projects like 4 Punch and key development and so on, right? So we try to be as diligent as possible, right? Last year, three banks in the US went belly up, Silicon Valley Bank, Syllular Gate Center, one of our major competitors, all died for that. We don't want to be anymore in any situation nearby that, and that's why we are putting part of our research in Bitcoin.

I wish we could put more, of course, but being conservative in this moment is the name of the game. Let's take a quick break and hear from today's sponsors. All right. I want you guys to imagine spending three days in Oslo at the height of the summer. You've got long days of daylight, incredible food, floating saunas on the Oslo Fjillo Fjord, and every conversation you have is with people who are actually shaping the future. That's what the Oslo Freedom Forum is. From June 1st through the 3rd, 2026, the Oslo Freedom Forum is entering its 18th year bringing together activists, technologists, journalists, journalists, investors, and builders from all over the world, many of them operating on the front

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Well, what I find so interesting about that moment that you're talking about in 2022 and why I think you were probably being attacked the way that you were, all these banks and the people that were probably the attackers in this and I don't know who they were. But for 40 years, you've had interest rates just go down. And so the play was to be long with as much duration, treasury duration as possible, because you made a ton of money if you were in long duration issuance. At that moment in 2022, it was kind of like, I think global finance kind of figured out like, oh, no, maybe this bull market we experienced for 40 years is over. And if you have long exposure,

you're about to have your face ripped off. And so they might have assumed that you had a lot more long duration on your balance sheet than what you had, or else you wouldn't have been able to do what you did. And I guess this is where the question that I want to go, when I look at how much issuance the U.S. has had to make, or any government at this point, they've had to move from 30-year bonds to really like overnight money. The amazing thing is that you're getting paid the most to take the short end of the curve, which is incredible for you. You have no inflation risk with that. And, well, not none, but like basically none. And you're getting paid. the most to be there. But for them, for the government's point of view, they really need to be

having long-term issuance and there really needs to be a real market there. And it almost seems like they're going to have to start incorporating Bitcoin or gold or something real or tangible with these long-duration issuance for it to be a free and open market and for there actually to be a buyer. Would you agree with that? And what do you think that would have to look like for Tether here? What are you guys? Like the 16th biggest buyer in the world for treasuries at this point, U.S. treasuries at this point and only growing, what would have to entice you to go further out on the curb? What would they have to do? So the problem is going out in the curve is that the civil coin job is very simple, right?

And the most single most important thing ever is that we need to be able to liquidate our servers immediately and pay out our users. That's simple, right? So you need liquidity. enough you mentioned is liquidity and we cannot take the risk on who knows what will happen in the next three, well, six, nine, even 12 months, right? So it's very, very risky. Even from a geopolitical perspective, what you described is you said that simple banks could have Bitcoin and gold. That is basically what we are doing also at TEDder.

So we have Bitcoin and gold as well because it's important. And no one can predict the future, but maybe color me pessimistic here, but I don't think we are going towards a nicer period for humanity. Right. So there is so much tension. There is so much tension, starting from euro, very, very high tension to the US, to everywhere else in the world. Things are not nice. And so I think having an exposure to scarce assets like Bitcoin and gold is. the way to go. Definitely, at least in, will help to protect possible spikes when it comes to

interest rates or basically downturns when it comes to interest rates and the market of those assets. So we thought it through very well. And look at China. I mean, I was reading today that China announced made it where they were stopping to buy gold, but actually they found that they were continuing buying gold, right? So, and many other countries in Asia are buying enormous quantities of gold because everyone is fearful that something is going to happen. So definitely Bitcoin as such of our group is very important. We believe that, of course, it's a way to sustain and support Bitcoin. We are Bitcoiners at heart.

We spend a lot of time in advocating and educating on Bitcoin. But it's also the most intelligent thing you can do with your profits. So with your profits, you should start investing a portion of them into something that can resist to the breath of God. And maybe I'm wrong, we are going to experience that sometimes in the future. Yeah, absolutely fascinating. But my takeaway was, yeah, I don't really want to touch anything in long duration. Was kind of your response there.

And to be honest with you, like, why would you ever want to go out on the curve when you're being paid more to be at three-month money? Just doesn't make any sense. And the liquidity and the liquidity point that you made. Yeah. And also, sometimes people ask me, oh, what you're going to do when interest rates will go back to 2%. Well, first of all, I don't think inflation will go away anytime soon. But even if you assume that case, right, 2% on $114 billion, you know, we can live with that, right? Even 1% is good money.

So we basically distribute almost nothing to the shareholders of those profits that we made, those $11.8 billion profits that we need. Because we believe that the majority of the profits has to stay in the company and support great projects. So that's for us. I mean, it's the, of course, it's great. It's a great period. And even if we start earning a bit less, it doesn't matter. We still have enough cash to build crazy stuff, right?

I remember when you could build a very good project with $1 million. It seems today that you cannot do that anymore, since that unless you are worth $100 million, you can, you are nobody. But, you know, back in the time and Matthias remembers that, you know, $1 million to develop something, we're already good money. But, you know, jokes aside, we have a lot of. enough fuel in the tank to build all the crazy things that we want for the longest time we want. And that's why we are very, very, very conservative. To your point, one of the things

that I think is shifting in business is just the focus on the income statement versus the focus on the balance sheet. For years, it's all been about, I mean, it's still super important. You've got to have a bottom line, right? But I think for some of these companies, micro-stratologies, a glaring example of this, a company that has focused. about the balance sheet and having something that is primed for what I think is a very long macro trend of interest rates going higher and inflation going higher, like you said. Even if interest rates would be manipulated down to 1%, or they actually go back down the 1% and you're only banging out a billion a year, I say only, I think your Bitcoin position on your balance sheet,

the next question will be, well, where's Bitcoin at if we're talking three or four years from now in interest rates are at 1%. Because if you've got, I think you said, a 15%, is that correct, 15% position in Bitcoin, if Bitcoin's at 200,000, well, your financial position has gone kind of gangbusters for how much you own. It's gone up a lot. Just to say, so, give or take, I mean, I don't have the last numbers with me, but fewer take, we own around 80,000 Bitcoin.

It's not bad. So, I mean, we can definitely hedge any sort of change in profitability. of the company. I think that if interest rates will go down, it's likely that we're going to see Bitcoin going up very, very quickly. Yes. Amazing. All right. So I could, Paulo, I could talk to you literally for like the rest of the day on this particular topic. But we also want to cover some other stuff. And from an engineering standpoint, I know Matthew, so you're very excited to get into this and I'm excited to get into this. I love hearing about Tither. I can talk about Tilly all things.

Okay. So this is where this is the stat I want to throw out for people to wrap their head around the magnitude of what you guys are working on here. And if you didn't catch it earlier, Paula was saying that with the profits that Tether has created, they have, I think it's a fully owned operational subsidiary that is focusing on R&D development on emerging technologies that they think are important. One of them being this pair initiative. So this, listen to this stat. Telegram. Everybody's familiar. with Telegram or Signal or whatever, but for Telegram, they have $700 million annualized in expenses for their servers that they run, okay? Almost a billion dollars to just pay for all the servers and the processing and the whole bit of it. What these guys are building is a zero-cost infrastructure peer-to-peer application system that you could basically create an app on their app store, a telegram-like app. And they have this already. You guys have built Keat, correct? Where, and I've used this with friends and tested it out. And it's the same exact thing happening. Maybe the U.X isn't as good as Telegram yet. But they're doing this with no servers

in the background. So help us wrap our head around. How in the world something like that is even possible. So first of all, I've been working with computers for the last 20 years of my almost 40-year-old experience. And from the very get-go, I've been interested in huge-to-pe technology and how we can utilize all this technology we have already out there instead of actually having tons more to the stacks. So like we all have very, very powerful computers.

We all have very, very powerful phones. And a lot of us have very powerful internet. Most people have internet in some way or another. Now we have mobile internet also, which is. So we have it in most of the places. And yet it's still really, really complicated to make applications that talk to each other without putting in tons of money into servers and building up big data structures. And that's like why that statute, you mentioned kind of like reflects a lot of, like,

creates a lot of notion in me because like there's more computing out there than ever, but still we're paying more and more money to have things. And I think in the last many years, that's been a very, when I started out and we talked about raising money before the first money I raised was a check for. for $200,000 to build on my first thing, and that lasted new on year, I remember. $20,000 today you can't get really far on if you have to pay infrastructure. These costs have just gone up, even though they've folded us, they were going to go down. That's because as they have gone a little bit down, the usage has run up tremendously.

So it's like rocket science. So I've always been interested in how we can just use technology, because all the technology is out there and make technology that can solve these problems, so we can just utilize the stuff we have and then make powerful apps that basically run for free, and we can focus on a lot of stuff, like making great apps. And it's something me and Powell had discussed the length in the past, also we made tons of projects in the past, and we decided to get serious years ago about turning this into an application framework. So we took a lot of technology we already built.

I guess it's up into this pair platform that allows developers to just very easily make these kind of applications that are really powerful. No servers just connects people, make like nice looking mobile apps, desktop apps, and make it really fast. And we made key on top of this also when we started out as a like a flagship product to kind of showcase how you can do this, like you're saying. It's a beta product, so we're always interulating and we're doing a really, really big push right now on performance and stability because we're moving really fast. And sometimes we move really fast. The envelope is going to unfolded at the end there. But that's been a really great journey for us to show how you can actually make this stuff without having any servers. And I think even though our current current products is like I said, the beta is a bit early. Like you said, it's sometimes a little bit rough on the UX.

It's still every time I use it, there's this moment where I'm like, you know, we're not paying for anything here. We're not having any servers. Yet it still runs, yet we can still text. I can send stuff to my wife. I mean, a couple of big rooms. Matthews, this is the part that I'm so blown away with is having used Keith, the video on Keith, I swear to you, folks, the video is better than this Zoom call we're having right now. And that's the-

Because of a Zoom call they have to pay for, right? Like, there's somebody somewhere that has to pay for that bandwidth. But I guess technologically, I'm trying to understand how that's possible that my video feed is clearer and there wasn't a single lag on the audio or the video. It was crystal clear. I just don't know how, because I think a person would look at this and just say, well, if there's not some type of centralized server that they're running this through where they're managing the bandwidth and whatnot, that if you would decentralize this and run it across, scattered across like all these different computers, that there would be issues or the performance would be degraded for

the increased decentralization. And it's not. It was literally the opposite. And so as an engineer, I'm looking at things and I'm saying the trade-off should be the worst performance for this decentralization that you're getting out of spreading the servers out. But that wasn't the case. That's what's so weird to me. Yeah. And I can understand. It's also, you know, it's still weird to me sometimes, like I say, when we use it. Because it's like a bunch of really hard problems. We spend a lot of time solving these and solving these like two degrees. But also, if you think about it, any video call, like what we're having here should just be limited by how fast you can send me data and how fast I can receive.

You already are paying your monthly bill. I'm already paying my monthly bill. The only body that has to pay extra bills is the metered internet between us when it goes to a server. As soon as you take that one away, even though that's a hard problem, and I guess that's something we've worked on for many years and we're only now getting at the point where it's like really, really, really good.

That's just, you know, take away the middleman. It's just a matter of just using that connection. And you'd be surprised how little data you actually need to send really good quality. And the only reason why centralized service, is don't do it. It's because you increase 10% of the quality and soon their revenue profit graph, you know, gets really messed up, right? Yeah.

So you're basically taking the limiter out because they're trying to make money in one of their sole costs or the servers. They're basically limiting the bandwidth that they're feeding. But with this, it's somewhat uncapped. Yeah, we don't. Yeah. We want just to have the best experience possible. Wow.

And get as high quality as possible. And I think that's like, so we talked a lot about it with the telemarked. I think a political about like being conservative and being steady. Boss is all about being pretty progressive and like trying to break the status quo and kind of like go back to the future where we're just utilizing the resources we have because we have a ton and delivering crazy good system. And I also think the one thing going back to the previous conversation that's really worth thinking about with peer-to-peer is like in a volatile world

where things move fast, having a reliance on apps that use data centers and connections throughout the world, I think it's going to be a big concern going forward. And I think it appears the only way we can solve this. Like, you know, data is like moving from our computers to various regions in the world. First of all, like the legalese of that is always tricky. But also just, you know, there are very few cables that needs to be cut to stop that transform. I want to just preface. Yeah, yeah, yeah.

Go ahead, Paula. So just I wanted to, because before you mentioned from the technological point of view, how could be counterintuitive. that decentralized system is more efficient than a centralized system. The reality is that heat is peer-to-peer that is decentralized, but we are in today used to the concept of decentralized as if everything was a blockchain. So you would need a consensus. You don't have consensus in heat.

It is bringing the old good point-to-point connectivity. Internet was built on a point-to-point connectivity, right? Every computer, when you connect to internet, has an IP address. It's like your home address. So if I want to send you a mail, right, to a letter, a physical letter, I will go to my post office and there will be a routing of that letter that will deliver it to your house. And the internet was built in a very, very similar way, right? So you have this routing, you have these routing systems that will take the packets that I want to send and deliver them to you. But over the years, we put in the middle data centers because data centers are owned by

big tech companies that can, if they are in the middle, they get access to our data. So actually, data centers are helpful for a few things like backups and data availability and so on. But for connectivity, they're not very helpful. It could be very rarely helpful, but in most part, are not necessary. So we are used to think, oh, staff will not. work if there is no cloud or if there is no server in the middle. That is not true. That infrastructure is also an enormous burden to humanity. You think about this, right? So imagine that I live in Rome.

My mother lives in Rome. We are living one kilometer apart. Most of the people on Earth talk to people, other people, that are living in the same area for most of the time, right? So you are more used to talk to people living in the same area for a good portion of your time or in the same country maybe. But if you live in Rome, every single chat text message, data packet of a call has to travel 5,000 miles to Frankfurt to go back to Rome. That's why it is better. Because government spent enormous amount of money in building internet infrastructure that is only servicing connectivity that is useless, that is waste, because you don't need to transfer this data across the world

to go back to the just one kilometer away. There is no point for that. Imagine all the more, we keep improving the internet cables, redundancy, I mean, just yesterday someone cut internet lines in France to protest against the Olympics, and how for Europe had problems? because everyone is basically going and using this centralized service. But the internet was not built like that.

It was built to be resilient. It was actually a military project, started as a military project, was built to be resilient. And yet, we managed to centralize the internet by 70% in the hands of the economy. So that's what he done whole punch sold for. I love it. 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.

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And just FYI, people that are watching the video here, they might be wondering why we're not using it. So very early days, there's no record button associated with it on the desktop version. I'm running this on my Mac computer. Yet, my understanding is that that's in the works. But when I was trying to video capture the screen, I was going to use it and then I was going to video capture my screen, the video capturing was putting like this lag or this delay into the video after I looked at the recording and I was like, I don't want to use this because it's just not going to be representative of how it's actually performing, which is just

totally seamless. I would highly encourage people, you can just download this. You can go to the app store, download Keat. You're going to have to have a friend to also do it so you can test it out. But I think when you do it, I know I did this with Lynn Alden, James Lavish, we kind of tested it out. And all of us were just like, this is unbelievable. I can't believe how clear and seamless this is. Now, the part that I really want to get into is from a security standpoint, would you You argue that you're getting better security than call it a signal or a telegram that's optimized for it. I know they have like two different settings, an encrypted level of it.

Because what I hear is that this should be a better way from a security standpoint if you don't have a centralized server. Well, so first of all, when you make P to P. peer application, security is not optional. It's not something we add in. We don't have a secure mode and unsecure mode because that's the whole system and the P2Pier system because when you're talking to all the peers, there's a lot of things. lot of who are you talking to? How can I secure that? So security is the name of the game.

And so it's secure by default. Everything is entering crypted. There's a lot of defense in depth that way. There's now like a single space that holds all the data. Even if it's encrypted, people can just get to. It's all spread out. And I think that's one of the things you really, really need to think about when you think about P2PAPs that's like it's, it has to be, because that's the whole foundation of it's to work. And this is all built with really moderners encryption primitives, all our primitives open source. All our primitives open source. very vetted. And since it's all part of the picture peer stack, that means that software-wise, it's kind of like an engine that just handles all the security forms. That's then the part actually

on phones because, you know, it's like it's peer peers or your phone is very powerful in that way. And that handles all these security files. We made this engine to see us and makes it secure default and extremely private pretty fault because there's very little stuff leaving your phone, which other than the people you're chatting with. And also makes it extremely resilient because we always say that's one of our prime objectives is that we should be able to go out of business tomorrow and everything should still work because there shouldn't be any reliance on Earth other than obviously the updates will take a little bit longer if you're not getting paid. And that's like something that's been put into the protocol per default.

And I think any other model in P2Pier, although you can do like encrypted stuff and a lot of people are doing encrypted stuff and et cetera, et cetera, just has inherent difficulties compared to peer because you tend to, you know, first of all, you need to monetize often the data. So you need to have new polls. That's why even apps like WhatsApp are like rent-trenten encrypted, but also sometimes more encrypted than other times, which is always a little bit confusing to read, because they still want to have like avenues of making money on their data because they need to pay really, really big bills like we talked about in the past. And I think that's one of those things

where since we don't have any costs and since we have technology, they can just scale this far as we can go in from the beginning. We did this from the beginning. It's one of the first meanings we had in money when we talk about making this and saying, no one. It's just if you want to put ourselves in a way technology, we can't even do that. So it's like it's fully private and we can't see any of it. And we're going to be able to monetize up, even if we wanted to that data because we don't know what's going on. And I think that's really, really essential. Also, I think that's the only way you can make apps today, especially communication apps

today. Like, there has to be that level of privacy. And another thing, just to add on that, I think what that makes it, for me, really cool is that she appeared in the high cell and stuff and doesn't make it like a super, oh my God, this like private, private app. Still an app I can use with my parents because it's all just an signal in the technology. That's just really essential. One of the things you guys have...

In this way, he's not having people's data. Amen. Amen, Paul. On the website, it says that this is all open source. When I was talking with some folks on Twitter, I saw a few people kind of thrown rocks and saying it's not completely open source. I can't audit the code base, blah, blah, blah. I'm curious your take on this idea that, which is listed on the site, that it's completely open source, but I'm hearing rumblings that some people are saying they can't audit it. Well, like, we have an app right. And the app is an artifact you deliver to the app stores. And we under also rules and how that works. Like, you never going to be able to compile something and put it yourself and put it on your IRS. So that's at least like unless you're, you only want to have five users. So there's always going to be like artifacts we build.

The entire engine, like, which is 99. I used to say 99% and not probably like 99.9% because it's we just, one more stuff is moving into the engine. It's completely permissive open source. It's all on a GitHub. We push that daily. We discussed. daily, we get POGOQA we very open about it.

We talk to people on GONKEAPABETH. And then we have the App Shell itself that's not currently open, but that's just like the UI engine and very little stuff there. And we have very committed to make sure that the engine is completely open source and very reviewable. And we encourage everybody to come in and review and get the feedback because that's where all the peer stuff runs. And we want to make an engine that can run anywhere that can be ordered by anywhere,

that is open source. And we want to make sure that you can make any kind of app you want top and even apps to work on different environments and whatever contact you want to deploy them in whether those are open source and not open source. Okay. So if I understood you correctly, it's all open source except for the user interface portion of the case. Yeah, more or less.

Okay. Yeah. I was checking the website. I don't think we on the heat website, we say it's. We don't say it. We don't say it. We don't want to sort of a platform. A whole bunch.

Whole punch. So, Mathias, how many open source projects we have under the whole punch? Let me check, but I think it's like. like hundreds, right? A couple hundred, yeah. So the whole punch team. Five on five hundred. I created 500 open source repositories, 500, right?

Open source repositories containing all the cryptography, all the networking code. Basically, they wrote Victorian protocol on steroids from scratch, made it public, added the cryptography layer, added this of all punching techniques, very, very common. complex, all data replication, everything, it's available to the public. There is, I think, almost no company that was able to open source 500 depositories. And this is just the beginning. Very, very complex stuff that companies would keep for themselves in open source. We took, for the moment, right, the decision of not open sourcing just the UI for the reason

that we believe that it is one of the most groundbreaking applications that assets, humans, we could build because it could actually survive to the worst catastrophes in the world. One thing we didn't want to... When you say that, Paul, sorry to interrupt you. When you say that, you're basically saying we get an internet service provider that's attacked by a government and they're trying to prevent speech or video from happening within, call it, you name a country, you still are able to communicate even despite that internet service provider being centralized and going down.

Is that kind of where you're... Exactly. It's not blockable. Yeah. It's not blockable by, because the thing with all the other communication services, and in part also Noster, but in general, is that Nostr is better, of course, but imagine like with WhatsApp and the other communication services, governments that don't want communications to happen can identify the IP addresses of the data

centers and just bundles and nothing will happen. With Nostr is a little bit better because you have maybe, let's say, Imagine 10 million users and you have 10,000 relays. But it still could imagine like a square root of all the users is the number of relays. Imagine this formula in general, right? But it's still limited. With keep, you have the number of you are your own relay. So the number of relays is equal to the number of users.

So there is no way to stop it, not for us, not for everyone, for anyone. So what we didn't want to do or to see is someone taking the key to I that anyone can replicate based on all the 500 repositories that we published and had a shoot going on top of it. Interesting. Okay. So that's that's a meaty comment. So let's dig into that. Go ahead. Come on, Paul.

Give us the goods. What are you doing here? I mean, we believe that it's so important and so crucial that this technology, gets their condition and gets the proper good care that he needs in order to not be dismissed as, oh, it's just yet another communication system where we put the mobile coin. Sorry, I love the signal,

but I couldn't stand to the choice of putting mobile coin on top of it. So we want to have Bitcoin integrated. We want to have liking. We want to have stable coins integrated. We want to do it everything in the right time. And if someone can just, I mean, if you hire four developers, five developers, six developers, you can build a UI that is exactly like Keith, right? Everything is out there, is open.

But just the fact that we keep the UI close, we'll slow down someone that could actually take it and add like some dog or cat with a hat in Keith and make it the official currency. That would be diminishing the importance of the project. So not everyone likes this decision, but to us is very, very important because we do care about these becoming one of the best communication systems for humanics. So stop me if I'm jumping in a direction that this just isn't true. Today, Tether is primarily issued on TORON. Is that correct?

Like 75% of Tether is issued on TORON, 20% on E. 65, I would say 60, 60% and 60%. The rest, the remainder is mostly ETH, a little bit on. Alana, what you just said with respect to this whole punch technology in which you guys are building, is this your attempt at firing them as the protocol level and you basically issuing Tether on your protocol that is built on sound or tech? Am I understanding that correctly or am I reading into this too much? Help me understand what is exactly what you're saying here.

Well, we, it's actually... Your smiles. Your smile's telling me I'm close. Your smile just told me I'm getting close. It's also a complex question. Yeah, it's a slightly more complex in the sense that you are on cap. So first of all, USDT is agnostic, right?

So what I say sometimes, I mean, for me, USDT is the digital dollar and someone could call it probably the most use all coin as well, right? So it's not Bitcoin. So actually for USBT, every single blockchain is a transport light. So it doesn't matter much.

way because it's a centralized table. I never wanted to make it, to make a thing people that it's similar to Bitcoin is we have to engage with banks. We keep our money in its audience. And so we have to abide to the banking rules. Now, we thought and we decide and we have already a project plan with Matthias also to build a protocol and payment protocol based on the same technology that powers heat and whole punch.

that eventually will come. But again, we want to do it in a way that is fair, right? There will be no token issued for that, right? No additional token. It's like peer-to-peer ledger technology that anyway, if you start from one assumption that everything that is not Bitcoin is anyway or inherently centralized, that I think is a fair assumption also for many points around there. Then you can forget about many of the constructs that many blockchains have. because in the end, if you assume that there is in the end a centralized issuer or a centralized controller, remember the Ethereum hard fork in 2016, right, or things like that. So it means to me that many of the complexities that we are creating around blockchings are pretty much useless.

Because if you use a blockchain that has all the mean tokens, the mean tokens are created by centralized issuer, it doesn't mean anything that is around on a distributed ledger is useless. So if you start with that assumption, you can create very, very, very efficient protocols that can scale to hundreds of thousands or millions and millions of transactions for second because they are actually peer-to-peer and they are not, they don't rely on a global share state like blockchain. So that is, of course, in the future. It's a paper that we released some time ago, I think, one almost two years ago or one year

and a half ago, Matthias, myself. But it's something that definitely is in our mind. But in this moment, we're thinking about money, about USDT, about Bitcoin and so on. In this moment, we have Bitcoin that is the most resilient currency in the world that can resist to the graph of God, can resist to Apocalypse. But we don't have the equal when it comes to communication. For us, whole punch protocol is that equal. And the cheat has the chance to become the communication platform for the Apocalypse

and we don't want to screw it up. Everyone can, like with Noster, you have open source clients and closed source clients. That's the beauty of technology. So over time, there will be more clients for Keat and Whole Punch. In this moment, we want just to measure our approach to releasing what we think is best for the community. How do you guys think about, because I know you have a Whole Punch, Pair, and if people want to check this out, you can go to pare.io, you're developing an app store for decentralized applications. that are running on this whole punch technology. How do you think through the issue that everybody basically has an Apple device or they have

a Google device and they have to go through the Google Play Store or they have to go through the Apple App Store? How do you think about that centralization with respect to what you guys are building? Are you looking at going into the hardware side so that you can start from the ground up to try to ensure this true decentralization across hardware through the whole software stack? Yeah, the website is pyrs.com, I think. I don't know if we own pair. Oh, I'm sorry.

We'll have the link in the show notes for folks so that they get directly. To answer your question. And I think we talked about this publicly all the before. We're very interested in hardware. We're very interested in, you know, thinking about phones and thinking about how where is really interesting to me. I think that's where I personally come to realize this too late, even as a normal person. That's where we really got messed up in terms of being locked in as consumers.

I think bought really powerful devices that we're not really allowed to use. They're under a ton of restrictions. It's a really, really hard market to enter for anybody because it's hardware. It's hard. I think that's where, and it's the perfect device of P to P, which is even more frustrating because it's a device you have on you all the time, but has a radio so you can communicate with the world. It has really good batteries.

It's very powerful, and it has this ability to run in the background. And all that is locked away from you as developers. And that's something. Obviously, we worked around in our stack because we run on Android and iOS at the moment, and we run well, but we could run so much better if we had those restrictions. So that's something we're very seriously looking into. That's something I'm sure you will hear about a lot in the future. So I think that's the true unlock for P2Pier going broad.

And then I think, especially for peer-to-peer, people tend to think about P-to-Pear because we talk about things like encryption and big things. But it's actually just also protocols that are really, really good for low-powered devices because it's protocols where you don't have to be online all the time. You can have pretty slow devices because they just have to, they're already in the to get as little data as possible from the network. So they're pretty, you can make engineering to be pretty friendly on your data plan if you have on another type of data plan.

So I think, and I hope like we'll see a return in the future also to cheaper and lower power devices, but these things really shine. And that's definitely something we're talking about. Guys, I'll tell you what, such a fascinating discussion. I would love to continue this in a couple months or quarters just to kind of keep the conversation going. But thank you guys so much for your time and coming on and sharing these amazing things that you're working on.

and it was just such a blast. Thank you so much, Preston. Thank you for listening to TIP. Make sure to follow Bitcoin Fundamentals on your favorite podcast app and never miss out on episodes. To access our show notes, transcripts or courses,

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