Yet Another Value Podcast - Brian Mosoff from Ether Capital on the bull case for Ether

Episode Date: June 29, 2021

Brian Mosoff, CEO of Ether Capital Corp, does a deep dive into the investment case for Ethereum. Key topics include how Ethereum is different than Bitcoin, how proof of stake and EIP-1559 will improve the Ethereum ecosystem, and why Ethereum today looks like investing in computer operating systems in the early 80s.Disclosure: nothing in here is investing advice. Listeners/viewers should remember crypto is extremely risky and do their own work!Brian's Twitter: https://twitter.com/brianmosoffEther Capital's Twitter: https://twitter.com/ethcapChapters0:00 Intro1:35 Brian's background2:40 How is Ethereum different than Bitcoin?10:55 Ether as the operating system / highway for Web 3.016:20 Who are the "operating system" competitors for Ether23:05 How ether's transaction fee lead creates a big network effect27:50 How do you value Ethereum?30:50 Comparing crypto today to the dotcom bubble37:00 Can you value Ether of their fee run rate?47:00 Discussing staking and proof of stake58:50 What is EIP-1559?1:11:45 What is the risk to staking?1:13:50 Brian's closing thoughtsSHOW LESS

All right. Hello, welcome to the Yet Another Value podcast. I'm your host, Andrew Walker. And with me today, I'm happy to have Brian Mossoff. Brian is the CEO of Ether Capital. Brian, how's going? It's going great. Nice hot day outside. Summer weather's good and always happy to, you know, chat crypto with anyone who's willing to listen. Hey, well, I told you before this. I'm a crypto normie trying to learn some more. So I really appreciate you coming on to help us learn a little. Normally I'm going to start the podcast giving a pitch of the guest and I'm going to do that in a second. But let's just get a disclaimer out the way. We're going to talk crypto. Brian is the CEO of Ether Capital Corp. I don't think we're going to talk too much about Ether Capital Corp, but I'm sure I'll come up. Ether Capital Corp is a microcap company. Crypto is super risky. Everyone should just remember nothing on here is investing advice. Everyone should go due to their own due diligence. Again, all of this is risky. Nothing's investing advice. So that disclaimer out the way. Let me turn to the way I start every podcast. And that's by pitching you, my guest. I think as soon as you get into your background, guests are going to realize why you're such a great guest to walk us through Ether Capital Corp. But again, I'm a normie trying to learn more about this world. And I will say I went through Ether Capital

Corp's financial statements. And I would learn more from reading, you know, the half page blurb on what is happening with Ether 2.0 or Proof Stakes. I learn more from that than 10 or 15K word substacks that I was reading. So, you know, I think the height of knowing something is being able to break it down simply. And you guys definitely do that. So I'm really excited for this conversation. That out the way, I'm just going to turn it over to you. Maybe you can give a brief background of yourself and maybe a little bit of what Ether Capital Corp is as well. Sure. So I am, as you were saying, the CEO of Ether Capital. I also sit on, you know, the board of directors.

I've also acted as an advisor to various regulators up in Canada. There's the Ontario Securities Commission. There's a governing body called IROC that oversees trading on various exchanges. I'm a mentor at Creative Destruction Lab in the blockchain stream. And I've been around the space for almost a decade. I think I'm eight or nine years at this point. So I'm considered a crypto-o-o-G. And I definitely sympathize with, as you're saying, you're a normie.

You're trying to figure out how do you break down this huge lexicon of words and ideas and concepts, how do you get really good information? And it's really tough. And so I'm happy to be here today and hopefully can help you and your audience figure out what's going on in this insane world that everyone's looking in from the outside just going, you know, wow, it's so volatile. I've never heard these words. And I don't know what's happening, but I'd like to because it seems like this is a trend that's here to stay. And the asset class is obviously not going away. So this is going to be fun. Yeah. So I guess my background, I'm a value, I think most of the people who listen to this podcast are probably value investors looking for

undervalued stocks. So ether definitely, ether and crypto definitely are different in that mold. But obviously you started Ether Capital Corp, you know, that almost all the asset value is in Ether. You've been involved with Ethereum for a long time. So maybe you could just break down. Why is Ether kind of different than most people when they think of crypto, they think Bitcoin or they think, what's so special about Ether? Sure. And just two things here, because just so the audience fully is following us here. There's ether capital, which is what I run, which is different than, of course, Ethereum, the blockchain and the protocol.

So for everyone, just for total clarification, I run Ether capital. Obviously, Ethereum is not a corporation. It's a public blockchain. Ether capital is an Ethereum-focused ecosystem investor and building out technology. As you were saying, a large part of our balance sheet is being held in the native token to Ethereum, ether. And then we also have investments in something called Maker. We have money in a private company called Wire.

And so we invest in and around that ecosystem, which we think is very important. So going back to your question of, what is Ether different than Bitcoin? I think it's helpful for people really to understand what Bitcoin is and then why Ethereum is different than Bitcoin. Because a lot of people think that it's just the silver to Bitcoin's gold narrative. And that's, you know, it's not really correct because it seems like this little nuanced slight difference, but it really is a big difference in how these two protocols were built. So Bitcoin was the first decentralized digital currency that has ever existed. There were a number of attempts to try and create a form of cash on the internet

throughout the last 20 or 30 years. None have succeeded. Bitcoin came about as a white paper in late 2008. The software was written and went live January 3, 2009. And so Bitcoin is kind of this asset that mimics. gold basically. There's validators of the network called miners and they receive new Bitcoin every time they propose a block, which you could think of as a page in the ledger, right? Imagine we're just keeping an accounting book. And every time a new page of the ledger is created, which is roughly

every 10 minutes, they receive some new Bitcoin. So they are in quotes, you know, mining Bitcoin and they're receiving that new Bitcoin reward, which gets, you know, pushed into the system. So there's this hard cap limit of 21 million that will ever exist. And those miners are basically the ones responsible for extracting it out of the ground, except in this case, they're spending computing hardware and electricity to validate the network. And over time, it gets harder and harder to find new Bitcoin, the same way you could imagine with gold. It was easy, you know, 200 years ago to find gold sitting by a river somewhere in the Midwest. And then over time, people gobbled up all of that. Now they've got to go deeper into the crust.

the Bitcoin network follows that same kind of thing, which is over time, it gets harder and harder to compete with other people on the network to propose these pages. And so the reward goes down. It's harder to receive a big chunk of that reward. So there's a lot of competition, which leads to the energy thing. And so that's basically what Bitcoin is. So Bitcoin is the most simple form of a blockchain. And it goes live at the beginning of 2009. And because this is open source software, meaning anyone can go on the internet. they can go on GitHub, they can copy the code, and then they can redeploy it and call it something else and maybe tweak around the recipe. So some of your listeners may have heard of

light coin or they may have heard of doge coin, which is, you know, very popular lately thanks to Elon tweeting about it. It would be impossible not to have heard of doge coin. It would be impossible not to see it in the news. But those things were not really orders of magnitude different than what Bitcoin is. They may be a little bit faster. Maybe they have a higher total limit instead of 21 million, it'll be 100, but that's basically it. What Ethereum was, was this idea that looked at Bitcoin and said, well, you've got this really secure calculator. Brian can send to Andrew of Bitcoin.

He can send me back 0.1. But at the base layer, right, at its core, at this, the heart of this protocol, you can't actually program the network to do that for you at a later point in time. So a very simple function like, hey, send that one Bitcoin to Andrew, but don't do it now. do it in five hours for now. You can't do that on Bitcoin. You would have to trust some intermediary, an exchange, a business, a person. You can't ask the blockchain to do that because it just technically can't.

And so Ethereum came along and said, this idea of a blockchain is really interesting. What if you make that base layer very functional and you put a programming language into the blockchain, what happens next? And so I like to think of Bitcoin like a very secure calculator. and Ethereum is more like an operating system. And anyone can use this operating system, this clearinghouse, basically, to perform any type of activity. And it seems like just this little difference, but it was enough to rally a big group of developers around this protocol and this narrative and let them build all sorts of applications.

And so I'm personally, you know, it's not that I'm against Bitcoin. I'm just very excited about Ethereum and what you can do with that type of a blockchain. Yep. Could you give one more example of, because I, you know, obviously I've studied up on this before. I know that D5 projects and everything, Ethereum is the big thing. But could you give one more example of something programmable, like some reason why you want to use Ethereum for this programming thing? Sure. So if you just wanted to trade between assets, you can't really do that in a trustless way on Bitcoin.

So you can imagine everything that exists in the traditional financial system, whether it's trading stocks, stocks, options, derivatives, lending, you can't do that on Bitcoin natively. All of that can happen on Ethereum, and that's usually referred to as defy, which stands for decentralized finance. And so you're able to do that natively by interacting with the protocol. And that's what's really exciting. So NFTs, which isn't really defy, is something that you can do on the blockchain. And NFT is a word that really appeared on the radar for a lot of people in the last six to eight months. And this basically, basically the first form was art, that you could sell or transfer between two different accounts. You can do that natively on Ethereum. And so there's all these different use

cases that make Ethereum really exciting. You're seeing companies like Visa come about saying what if you can tokenize U.S. dollars and you can put them on Ethereum, right? Because Ethereum, you can have a token that lives inside of that world. And the token can represent a U.S. dollar deposit at a bank, some institution. And let's use the flexibility of this blockchain Imagine if you're visa and you have to settle up between various merchants or data centers in your network, wires, checks are really inefficient. I'm sure most people here have sent a wire at least once in their life, and it is painful to send a wire. It's, you know, $75, it takes a few hours to clear. Maybe it's international and it takes a few days to clear.

But if you just had a token representing the U.S. dollars, you can move them around the Ethereum network between two different addresses, very clean, very easily. for a couple dollars and in about 10 to 15 seconds. So there's all these different use cases for legacy businesses to leverage this technology. And then there's going to be new businesses, the things like we were saying before in DeFi, Decentralized Finance, that are going to pop up. The point is that Ethereum is so open and flexible that it lets developers build whatever tools they want. So go back to, as I was saying before, think of this like an operating system.

We all have a smartphone on us. and what Ethereum is, is that operating system. And so there's this toolkit basically that says whether you want to make the fitness app or financial app or weather app, this is the common infrastructure that everyone's going to plug into. And you're going to pay a little transaction fee for whatever activity you perform to be recorded inside of this operating system. And so that's why people are excited is that flexibility and that openness that lets anyone anywhere in the world plug into for whatever the activity is that they want to perform. Perfect, perfect. So I guess the way to look at, the way I kind of look at it is Bitcoin is, you know, I call it a digital trading sardine because you can't really do much with Bitcoin right now aside from actually just trade Bitcoin. But no, that doesn't mean it's our first pet rock. But, you know, gold has been popular, has been popular, valuable for hundreds of years. And at this point, there's not a ton of use for gold. So just because Bitcoin is a digital trading sardine does not mean that it doesn't have value. Right. But ether, what you're talking about, as you said, it's an operating. system. So you're buying into Ether and you're hoping you're buying into Microsoft Windows in

the 1980s and Ether is going to be the dominant operating system. Am I thinking about that correctly? A hundred percent. That's the way to think of it. And imagine that Ethereum is going to act as this toll road for value transfer, whatever it is, whether it's again traditional finance or this new world. This is the common infrastructure that everyone's going to plug into. So if you imagine a highway and you have to pay a toll to get your car onto the highway, it doesn't matter whether this is a high density transaction, a big car, you know, transporting a lot of stuff to a grocery store, or it's a couple of friends who want to go to their friends' barbecue. They both need to access this toll road and pay a little bit of a fee to go

from point A to point B. And this is an open system that if you want your information recorded in this open way that anyone in the world can verify that that activity took place, you're going to have to pay to get on that highway. And so if we go back to why people are are really excited about this, I like to break it down into kind of the history of the web where we have three basically different buckets. Web 1 in the 80s and probably early 90s, Web 1 was a read-only like structure. So you could dial into a Stanford server. You can read an essay. You could say, you know, awesome, hit close. That's pretty much all you were able to do with it. In Web 2, you ended up with this read and write-like structure where you could interact with the content

in a much richer way, and that gives rise to things like Instagram and Snapchat and messaging, because now you have this two-way communication going. It's not just dialing in and reading. Now it's reading and writing back and forth. And standards begin to emerge in Web 2. All these things like TCPIP and SMTP, all these technical standards that most people don't even know exist today, in the mid-90s you would have needed, if you wanted to set up, let's say, an email account. over time, that got abstracted away into the background, and that's powering a lot of the communications and the interactions that we have on the web. Now, what happened in Web 2 is you couldn't invest in that protocol layer.

That base layer of those technical standards, there was no way to invest. And so the value accrued up at the application layer, Google, Facebook, Amazon, that's where all the value accrues. What we're moving into now is what people refer to as Web 3. And why we're excited about Web 3 is because it's not just read or read write. Now we're going to have read and write and trust as this third part of the web. And we haven't seen read write trust be something that could be possible without some intermediary facilitating a transaction. So people who just look at Bitcoin as this number that shows up on their CNBC ticker going up and down or Ethereum as another ticker next to the Bitcoin ticker moving in probably the same direction, what they're missing is what they're missing is what.

that ticker represents. It represents this layer of the internet that we have not seen before. And recently in the news, A16Z and Dresen Horowitz, very famous tech VC out of Silicon Valley, Mark Andreessen invented Netscape Navigator, the first big browser ever on the internet in the early 90s when he was in his 20s. And they just came out and said that they are starting their next crypto fund with $2.2 plus billion that they are going to invest in the space. Now, why are they so excited about crypto? Why are they so bullish on it? The price is crashing. We've seen this huge drop. There's the energy consumption. Why are the tech VCs so into this? Mark, in the early days of the internet, when he was building that first browser, knew that there needed

to be some native way to transfer value between two different users. There needed to be some form of digital cash. He didn't know how to do it. And he's very vocal about this. You can hear interviews with him where he talks about, he knew that this needed to be a part of the browser in the web, but he couldn't technically solve for it. And so when Bitcoin came around and, you know, the rest of the crypto ecosystem, he went, wait a minute, someone solved this problem. I was thinking about 30 years ago in my, you know, parents' house while I was building that Scape Navigator, this solves this problem. And so that's what people are so excited about right now, was this third iteration of the internet that has not been able to be technically achieved before

without having the trust of, you know, someone facilitating all the transactions. And when people say, well, why don't we just have, you know, Apple will just build their own blockchain or or J.P. Morgan or, you know, some other big corporation can just do it and kill all this. The question is, who do you want to maintain the world's ledger for all the information? What is going to be that politically neutral open system? It can't be a corporation domiciled in a specific jurisdiction it has to be something that no one controls and that's what this whole movement is is all about perfect perfect i that makes sense of stuff i do want to step back to the we were alluding to ether as uh ether as an operating system right bitcoin is gold ether as an

operating system i think most people would think to themselves hey do i buy bitcoin versus ether right they compare the two but what we're kind of saying here is yes you can compare right everything as opportunity cost. But what you really want to do if you're looking at Ether as an operating system is operating systems are winner take all. You know, if you had bought Microsoft versus Apple's obviously made a comeback in the past 20 years. But from 1985 to 2000, you wanted to buy Microsoft over Apple because Microsoft was the dominated operating system. So when you look at ether right now, what are the other kind of operating system competitors that you look at and how do you value, how do you judge Ether versus them? I think it's really tough to say,

and I'll get killed by some crypto friends for saying this, I don't know that this is going to be a winner take-all environment. Okay. A lot of people will say, you know, Bitcoin is cornering the digital gold narrative. Ether is cornering the smart contract platform narrative. And a smart contract for anyone who's not familiar really just means a piece of software that you can program the blockchain to do a specific function on your behalf. So anytime you hear the word smart contract, just replace it in your head with software.

I don't know that we're going to have a winner-take- call where it's just going to be everything built on ETH. ETH has a very specific language to interact with the protocol that may be great for some applications and maybe for others it's not so great. There are competitors, smart contract platforms. They're sometimes referred to as ETH killers. We have not yet seen an ETH killer really make a dent into that developer community and shift over a meaningful amount of mind share, capital formation, infrastructure.

My friends who say, aren't you on Teen Eath, I'd be like, of course, I believe in ETH. I think it's absolutely going to be here to stay. But I don't think that, you know, you can say that for sure there isn't going to be some niche use case that another blockchain may be customized or built specifically to do that function. You know, maybe NFTs don't need, this is, again, NFTs are digital art. Maybe they don't need the security guarantees that Ethereum offers or that language. And it exists somewhere else.

Again, to date, we haven't seen it happen somewhere else, but it doesn't mean that it can't in the future. And so when you're thinking about allocation in a portfolio, I think it's still going to be a ways away before these assets become uncorrelated. Right now, they are so directionally correlated, you know, something bad happens to Bitcoin, ether is going to go down with it. Something great happens to ether, Bitcoin's going to trend up with it. And so does everything else in the space, a quick little view of coinmarketcap.com or CoinGecko,

whatever the website is, people want to check the prices, they'll see it's either all up or all down. There's not a lot of stuff that goes on where something skyrockets while everything else was crash it. There are a few diamond in the roughs, but for now it's highly correlated. I think the biggest question for people is how much exposure do you want to the space inside of a portfolio? What is your risk tolerance? I actually don't see these assets as risky. I see them as volatile. And I think people flip those two words around or or what they mean is it's extremely volatile. I don't know that it's super risky.

I don't think that this technology is going back in a box and going to disappear from the world. The question is, what is your time horizon when you invest in these assets? Can you handle that amount of volatility? Are you someone who's 65 who's looking to move towards retirement and you're taking that 401k and you want it to spit out a 5% dividend and that's how you're going to build your life? Or are you a 20-year-old who's going to figure out, how do I buy my first house? How do I buy a car? Maybe they're saying, I don't care what happens to the price, you know, two months, six months, one year down the line.

I believe in five years this technology makes up a big piece of the internet. And therefore, I'm willing to make a bigger bet size in my portfolio into this asset class. Then inside of the asset class, where they go, you know, it's kind of the same question. Do you want more volatility and to look for smaller cap protocols or projects being built on any of these networks and have exposure there? In bull markets, they'll probably outpace the blue chips, Bitcoin and Ether, but in a bear market, they probably are going to get slaughtered and there'll be a lot of blood in the streets. They can also look at where are the developers rallying around. This is something that I think is really important that I'm always trying to get people to pay attention to.

People will quickly look at competitor projects to Ether or other forms of flavors of Bitcoin, and they'll say, well, this one says that it's going to be faster and more scalable than Ether. and I read this blog post and it said that they have these partnerships, X, Y, and Z. I always say, pause for one second, let's look at where the developers are actually building. But I'm about to put on my Eith Bull Hat for a second here. I like it. There's a website that I check a couple times a week called Cryptofees.info. And what this shows is where transaction fees are accruing to these various blockchains.

And what's really interesting about this website for anyone who's going to pull it up, is you'll notice that Ether has more transaction fees happening on that network than not only other ETH competitor platforms, but also Bitcoin. So ETH is this huge platform that people don't realize how much it's being used. And what's nice about it is it kind of abstracts away what the usage is, because people will say, well, what do you use the network for? I have no friends who try, I don't buy my cup of coffee in ETH. My friends don't buy their pizza in ETH.

So why is this valuable? You know, if you look at the Internet, do we think it's valuable because we can pinpoint every piece of activity that takes place on it? Or do we just know there's tons of people who use it for tons of different use cases? And it's just common infrastructure that we all plug in and use in our everyday life. The answer is yes, you shouldn't care what the usage is. And so the last part I would say is cryptophies. Info shows you how much eth is being used. And all those things in pink is other applications that are running on top of Ethereum. So those pink things are also Ethereum related.

applications. And as you scroll down towards the ETH killers, the Cardanos, the Tezos, the EOSs, you can see that they are not even close to the same amount of developer and capital formation, mind share, infrastructure. People are just not paying transaction fees to use those networks in a meaningful way. At least not yet. Doesn't mean that they won't in the future. But this is where you can try and get a sense of where should you place your capital if you want to make a five-year bet and no, people are actually using that network for meaningful activity. And that was one of the things that initially attracted me to Ether. I think you were the one who tweeted out because I see the chart and I'm pretty sure I saw

a screenshot from you, but it wasn't just that Ether is the dominant in terms of fees. You know, it's over 5x more fees than Bitcoin is generating right now. But it's actually that things that were built onto Ether are starting to generate more fees than Bitcoin is. So I'm just looking Uniswop today has generated almost 2x. the amount of fees that Bitcoin does. Now, I'm not crazy, crazy familiar with Uniswap, but it just seems to me like, you know, and to go back to the operating system, you mentioned earlier, maybe you want to buy multiple operating systems, but my experience with operating

systems and things on the internet is, it's winner take almost all, right? Yes, you can have niche use cases for things. You know, a duck, duck go can compete with a, can compete with a Google because of privacy. But in general, 95% of searches are going through Google. And it does to me, if this is an operating system, you're already starting to see that network effect kick off and everyone's building on Ethereum. Maybe it's not perfect for everything, but just because developers are used to and everything, they kind of go with it on that. Do you want to comment on that or can I kind of ask my next part? I think you're absolutely right. And I think one thing I would add is a lot of people who think that these new blockchains are competing with Ethereum.

What they may actually be competing with in the end is what's called Ethereum Layer 2. And one of the criticisms on ETH is it's expensive to use. It's slow. It can't have the throughput for some of the applications you'd like to perform. And so now what you're seeing is this kind of, think of like a road that's on top of the highway that's much faster and cheaper to use. But it's still the same infrastructure. It's still going in the same direction. You still use the same ramp to kind of go on and off those two highways. It just might be a little bit less secure to be on that second layer. And so that lower density activity may not need to go to these other blockchain. that are saying, come over here, it's cheaper and faster to use, well, those platforms may not

be competing with that base layer of Ethereum. They may be competing with that second layer to Ethereum because that second layer offers the same kind of speed, but it already has the infrastructure and the developers. What you haven't seen really yet, and I think someone on Twitter commented on your post earlier today, we haven't really seen leakage from the Ethereum community of developers onto these other platforms. There have probably been a few handfuls of people who have gone to try and build somewhere else. But it's tricky because what ends up happening is once someone builds enough infrastructure or a group of people build infrastructure in the Ethereum land, it's very hard to bootstrap

and copy paste all those things somewhere else. You need the wallets. You need the capital formation. You need the lending platform and the stable coins. And then you need the decentralized trading exchange. And so why would you build somewhere else if you could just do this on Ethereum? And the way I like to describe this to people is, if you are, let's say, a VC, a VC is going to take, let's say, 1% of their LPs money, and they're going to place that bet onto some other platform. There's not really a lot of risk there, right?

They lose that 1%, no big deal. They still have other bets that they're able to make. A developer, though, is going to stake 100% of their time, 100% of their reputation, 100% of their product, and 100% of whatever it is they're trying to, achieve in terms of security, in terms of can they get people onto that platform, they're risking everything to build in the middle of the desert because they decided not to build on Ethereum. So you can say that Ethereum is crowded. It's the Manhattan, right?

The infrastructure is a little bit old. You can't get into restaurants when you want. It's, you know, it's crowded. It's expensive. It's slow. You should build somewhere else. But that developer is going to say, fine, I'm going to build in the middle of a desert and it'll be faster, cheaper, and easier.

But where are the users? Where's the gas station across from where I want to plant my restaurant? Where's the convenience store and all that other infrastructure? And so it's very risky. And so I always just say, look to the developers if you want to know where the future is going to be. And then just invest in and around where those developers are staking their time and reputation. This very much reminds me of, I haven't studied the company in a while, but are you familiar with Twilia, the company that does like APIs, especially for phone calls and stuff?

Yeah. And basically what they did was they got all the developers on board early and all the early stage developers. And then when they would go start new companies, they'd be like, look, we already know how to do everything on Twilio. Yes, maybe there's a product that's better or something. But all the developers know the language. We already know they've got all the connections elsewhere. If we're going to do this, like we might as well do this and not recreate the wheel and be worried, hey, are there going to be product, other platforms that support us? So it just makes so much sense to me.

Let's go back to something you said, you said, look, these are, you view them as volatile, not risky. And I agree with some of that. And I disagree with some of that. I certainly agree that volatility is not risk, but I do think there is quite a bit of risk in the system. But let's use that to transition into valuation. You're the CEO of Ether Capital Corp, nothing on here is investing advice. We're not saying people go by it. But obviously, ether capital course, 95% of the value is tied up in Ethereum. Right. So when you look at that, how do you value Ethereum and think about running a company that has so much of their network

tied into this? So let's move away from Ether Capital and just talk. Yeah, just I was just using that to say, yeah, yeah. Sure. I don't think that there is a way to value these assets right now. I don't think that there's a way to know that Bitcoin today is worth $32,000, but the markets priced it down at $28.5. So therefore, you know, we can make a bunch of assumptions in and around that. I think we're ways off from being able to do that. And people have tried to come up with all sorts of charts and data and stock to flow models to figure these things out and sometimes it maps well, sometimes it doesn't at all. I'm more focused on where are these assets in five years from now? Where are these networks? Where's the world? And then decide,

do I want to buy this kind of call option on what's being built today? Are a lot of smart people rallying around these networks and building infrastructure that I may or may not understand? If the answer is yes, then I probably want exposure to it. And a little story that I like to give people is in my early days in 2013, Bitcoin is moving from, you know, let's say $50 up to $1,200. And I have this email, I have this email with a very good friend of mine who entered the space at the same time, where the price of Bitcoin's gone from kind of $100 up to 800. And one of us says to the other, Bitcoin just hit $800. Are you still going to buy some? And someone responded by saying, I don't know, but you know what? If it goes back to

600, I'll pick up a little bit more, but otherwise, forget it. Well, here we are five, 10 years later, and, I mean, it's not 10 years, but you know what I mean? A number of years later, would you have cared if the price of Bitcoin was $600 or $800? You would say, of course not. You should have just bought it because you believed that the bet was so asymmetric, right? There was so much alpha and just believing that this was going to be this huge thing that everyone else had written off as crazy and didn't want to invest in, that you should have bought it at 600 or 800. It didn't matter what the correct valuation was at that point in time. And I'm pretty sure that we're going to see that play out again, whether it's one year from now or five years from now or 10 years from now, I don't know that time horizon.

But I think that that's going to remain to be true, that ether at $2,000, you know, when ether is $10,000, if it ever gets there, people will look back and say, you shouldn't have cared if you paid $2,000, $2,800 or $1,400 or $3,400. It's still outperformed so many other assets because of how much it's being used. Let me give some friendly push back on that because again, I like either, but I'm also coming from a value investor's background, you know, for years. I remember reading up on Bitcoin was 1,000. I was like, this is digital trading starting. So, you know, kick me. But I hear you say that. And I don't disagree. But it also, this is a little earlier than my time, but it reminds me so much of the argument for pets.com and all of the, all of the big bubble stocks in the late 90s, early 2000s, right?

Like, all of those arguments actually turned out to be right. Pets.com is Chewy. Chewy just came along 20 years later when the infrastructure was developed. Pets.com was an absolute zero. You know, Amazon, it worked that well because Amazon Web Services and stuff came along, but basically every other, every other giant company, Microsoft, right? It took you 20 years or 15 years to get back to break even on Microsoft. So I don't disagree that something can be the future,

but it's hard for me to look at Ether at 2000 or Bitcoin at $50,000 or wherever it is and say, oh, I know how to value and I'm not paying like bubble multiples or bubble prices because it's tough to kind of anchor on. So how would you respond to that? I don't disagree with that. And I think that there is no answer to this. Anyone who says, I figured out this crazy calculation to come up with what the correct prices today, I just say, well, no, if that was the case, you should have been able to figure out how to short in 2018 when Bitcoin hit 20,000 and dropped all the way back down to 3,500. But you're right, you know, that it's so hard to know.

We do know that something is going to emerge from the space. And that's why I keep pointing in this conversation back to this argument of follow the developers, look where the developers are. If you see in mass exodus people leaving the Ethereum community because there's a new blockchain that pops up, I think you'll be able to figure out that there's the chewy that's going to replace the Pets.com because the developers in the capital formation are going to flee from one place to another. It's not as much of a black hole, I think, as the Pets.com versus Chewy, because these things are public. You can see how many transactions are taking

place on the networks. You can see what the transaction fees that are accruing to the validators or the miners. And so you do have some purview into where people are going to use this technology, where they are deciding is a good place to build or where there's value. And you'll see where there isn't, right? You'll see that this one is scammy or junky or no one seems to be. be interested in it. And you can steer your investment appropriately. Again, whether something replaces Ethereum and Bitcoin, I don't know. I don't think that they will be displaced. I think that they are here to stay. But again, this just goes back to people who decide how comfortable they are and what percentage of their portfolio they want to allocate into these technologies. You can continue to sit on

the sidelines. The question is just how much asymmetry do you want in that bet? In 10 years, if these assets are much higher and lower volatile, that's great. And that may be an entry point for a lot of people, but the asymmetry will be less pronounced. So it's really just where along the timeline do you want to start writing a check and building a bit of a position? What I do like about, you know, when you put something into the spaces, then you have skin in the game. You're going to do research. You're going to start listening to podcasts and going on Twitter and reading some articles. And it's good for people, of course, to think objectively about what are the pros and cons, what are people saying, negative against all the pro arguments of why the

technology is good, go and read all those things. I think until you have some percentage of your capital allocated there, 1%, 5%, 10, whatever it is, you're not going to go and do that homework, right? Most people will just be kind of by standards and just say, I don't know, I read a couple articles and this all seems too crazy, forget it. So I think it's a great way to dip your toe in the space and over time decide how comfortable you are and where you want to place those. bets. I'm just glad you said until you have some amount of your net worth 1%, 5%, 10%. I'm just glad you started cutting yourself at 10% because I feel like the lawyers were going to come out if you went any higher than that. But I'm not making a, I'm not making a recommendation

for anyone. The lawyers won't jump on me. But I do, I do think, you know, what you are seeing a trend right now in particular in the world in the last year is you're seeing a lot of retail investors, what the traditional financial system would call meme stock trade. you know, emerging. And I think that the traditional financial system is frustrated watching people go on Reddit and Twitter coordinate their capital, coordinate things that they want to try and manipulate the price, and that the little guy has the ability to start pushing back on the institutions that have kind of locked out a lot of those people. The accredited investor law is something that I find very frustrating, even though I'm

an accredited investor, is it was designed to protect the everyday person. from investing in super high risk private private market opportunities. At the same time, though, it also cut them off. It cut those people off from having the ability to invest in things that would be highly asymmetric. For sure, there's lots of scams that got pushed away because of it. But I do think that there's this frustration in the market now where retail investors are sitting on Reddit saying, I don't want to buy things after the VCs have made their 100 Xers. And the only people who could put into those venture capital funds are other accredited investors, people who have already made a lot of money.

So those people get to make the 100x. And then the retail investor gets to buy it once it goes public and they can try and make, you know, 5% or 20% a year. And so the reason that people in the last 12 months are willing to go beyond that 1, 5% or 10% threshold in their portfolios is they're chasing the volatility. They want exposure to assets that they think are going to well outpace the market, either because the bailout money wasn't allocated appropriately, or it wasn't enough money. And that's kind of their only shot at potentially picking some coin, whether it's good or junk. They don't care.

If it can skyrocket, that's life-changing money. And a lot of people see it as they'd rather lose $1,000 or $5,000, but have the chance of making, you know, they're hearing rags to riches kind of stories, hundreds of thousands of dollars or millions of dollars. And so they're chasing this asset class and maybe what seems like an irresponsible. way, but I understand why they're doing it. Perfect. And let me ask you, just coming back to looking at the value of Ethereum, Ether, whatever, you know, right now it's about a, let's just round the numbers.

It's about a $200 billion all in market cap for all of Ether with Ether trading around $2,000, right? So just rounding. I believe in the past 24 hours, there's been about $5 million in fees paid for trading ether and all that type of stuff. And I think I've seen some people say, hey, if you, annualize $5 million. That's about a $2 billion run rate in fees. You could start looking at Ether as a kind of quote unquote company, 200 billion market cap against $2 billion in fees. That's

a hundred times price to sales. And 100 times price sales is obviously very expensive, but you look at how quickly this is growing, how many things are developing. I mean, you know, there were several days back in May where I think Ether was printing 50 to $100 million in fees in a day. So it's obviously volatile, but as all these projects come on, it could generate a lot more. So I know some people who look at it through that value. What do you think about valuing it kind of on a annualized fee number, or is that kind of looking at it the wrong way? People, again, are trying to do whatever they can to come up with a correct valuation of these networks. The problem with all those models is they don't really factor in the exponential growth of developers and how

money Legos and these systems all stack together and how quickly capital can fly in. A good example of this might be something like a stable coin. So again, stable coins are just tokenized U.S. dollars. They come in a number of different flavors that live on Ethereum. And at the beginning of 2020, there was about $4 or $5 billion of tokenized USD floating around the Ethereum blockchain. We're now at $90 to $100 billion of tokenized USD just one year later. And so those models, do they predict that there's going to be this, you know, 50x

growth or 30x growth and that each year it's going to continue to happen, I don't know. I haven't looked at those models. Again, I don't try and ever come up with an exact valuation of any of these networks. I just keep looking at the developers and saying, as long as people are building there, then that's where I want to invest and be heads down, doing reading and deciding that that's where I'm going to have exposure in my portfolio to that part of the space. Perfect. Let me try coming at this question from one more way, and I'm sorry to put you on the spot with it, but ether, $2,000 right now, market cap about $200 billion. Is there a point in time where you say, with what you know about Ether today, if either

hit this level, hey, it's time to lighten up, I think it's gotten ahead of itself or anything like that? I don't think so. The way that this is going, as I said before in this Web 1, Web 2, Web 3 is let's bucket Bitcoin and Ether into kind of two different camps. Bitcoin is going to have this value because let's call it the Mona Lisa. It's the first. It's the most well-known.

known. It's the biggest by market cap and biggest by brand. But there's kind of this ceiling on what the Mona Lisa is going to be worth, right? We can call that $100 million, $200 million, $200 billion. There's some ceiling on what the Mona Lisa is going to be worth. What Ethereum is trying to do is capture all of the world's economic activity into this open ledger. Now, my view is that that is worth substantially more than the Mona Lisa. How you assign a number to it, I don't know. It's closer to saying, what is the internet worth? If you could assign right now a dollar value to what is that infrastructure worth to the world, how would you do it? I have no idea. I just know it's a lot more than $200 billion. And so Ethereum today may be $200 billion because people are pricing

in, well, something could displace it. So it shouldn't be worth a trillion dollars today. Something can come along and displace it. Maybe something goes horribly wrong. There's a bug. Maybe some governments try and ban it and it suppresses the ecosystem for a while and delays the timeline. I mean, my view is that it doesn't really matter what any jurisdiction does. Technology is here to stay. You can't really put it back in a box. You can regulate the on and the off ramps, but you can't kill it just as a way that you can't really kill the internet.

It's kind of here. And so I think that ether is worth substantially more than $200 billion, but just when does that happen when we see really the whole world plugging into it? When do we see more, these like Visa, say, we can use this network in a very specific way for a certain type of activity? When will the banks do the same thing? When will other businesses say, we're going to stop doing wires and just plug into this system? When are we going to see auction houses, you know, art be auctioned off? And they just start using the blockchain for that to be the settlement layer.

Same thing with real estate and cars, you know, just have a token that represents the ownership in the car. This is far more efficient than all the paperwork that exists in the world today. there's a lot of infrastructure that has to get built long before that's even possible. So I often hear people talking about tokenizing the deed to a mortgage and using real estate on the blockchain is going to be a great use case. I go, sure, but we're nowhere close to that yet. There's so many things that have to get built first. So it's definitely exciting, but it's a long ways away. So when Ethereum gets into the trillions of dollars of valuation, don't know.

But I do think it does deserve to be valued there, if they can actually. actually achieve what they're trying to, to build. Yeah, so I guess the way I would, I'm kind of thinking about it in my head is like, what is email worth, right? Like, nobody's been able to really monetize email. Yeah, Gmail, like, it boost Google's value. But most people haven't been able to monetize email because it's just a standard protocol. And as you're saying, like, ether could be almost you're capturing G, you're capturing email,

you're capturing HGP, like you're actually capturing the protocols. What is that worth? Probably a lot. But remember, remember that in this. new world, Gmail or Google has monetized Gmail, it's just done in a different way, right? It's you're not paying to use the service. They're taking the data and then they're running it in the back end to find ads that they think are going to be relevant to you and showing that to you in the sidebar. That's how they're monetizing email. In this scenario with Ether, what's happening

is that any activity you want to perform inside of this network, you have to pay a transaction fee in order for the transaction to be validated and secured by the network. So it's not free to use. Every activity is going to cost something, right? You want to get on that highway. The question is, what is the ticket going to cost to get onto the highway? Is it going to be a penny? Is it going to be a thousandth of a penny?

Is it going to be a dollar? I don't know. No one has a crystal ball into the future. But there will be some cost associated with using this network. And it has to be that way. It has to be that way because if it was free to use, then someone will just spam the chain, they'll spam the protocol, they'll create millions of transactions, what people will refer to as bloat, where all of a sudden there's just all this

data that's completely worthless, someone's just trying to kill the network. So the way that you get around that is to say, well, there's a transaction fee, so you're not, being a jerk is going to cost you a lot of money, and so people won't spam it. No, I'm glad you cleaned up my metaphor, and it does, it reminds you to bring it back to email, spam email, right? It costs nothing to send out 50 cajillion spam emails, it would cost nothing to spend up 50 cajillion spam transactions, but having a little transaction fee actually purchase the network. And interestingly enough, I haven't read too much about this, but the story that I've heard is that the

origins of proof of work came out of someone trying to solve email spam. And so email spam, we all know, someone's just sending out whatever, either to blow to network or to try and extract something from you, get you to click on a nefarious link. But it doesn't cost them anything to be the jerk, right? And so the idea of proof of work was to say, what if instead of you could just send an email whenever you wanted, what if your computer had to do 10,000 CPU cycles before it sent the email? Meaning it had to waste some electricity and time before it could send the email. Then all of a sudden, if you wanted to blast out a million

spam emails, well, it costs you something. It cost you, one, the electricity that your computer had to run those CPU cycles, and it costs some time. And so this is what people refer to as proof of work, because you are proving mathematically that your computer has done some amount of computation in order to do something else. And what that does is it washes away bad actors because it becomes expensive to be a jerk. And so you will only use it for good. And this is the heart of Ethereum and Bitcoin today is mining and validation. And Bitcoin mining, right, is people who are spending this.

computing hardware and electricity. They're performing proof of work, proving to this network that they've spent this real-world resource, a commodity external to the network, in exchange for validating the network and receiving the native token, the newly mined Bitcoin and Ether. And so obviously it didn't work really with email. It never took off, but the idea stuck around. And it's something that really is at the heart of these networks. Now, Ethereum is starting to transition into something called proof of stake, where mining is going to be reporting. placed by being able to lock up your native token, Ether, into effectively a bond with the protocol in exchange for the opportunity to validate. And that will get rid of the need for this

electricity, waste, and computing hardware, which really didn't live up to the ethos of decentralization that the founders of all these networks wanted. I live in Toronto. I pay 12.5 cents a kilowatt hour. There's no way I can compete on these networks to validate with someone who lives in, you know, somewhere in Asia with basically free or near free electricity, the mining is going to end up being centralized in those parts of the world. And I can't help validate this network. So proof of stake will abstract away or get rid of all those technical complexities or most of them and allow someone like me to participate in the security of these networks. So that's really exciting. Perfect. No, look, this is a great transition because my next question was ether 2.0 coming up,

it's transitioning to proof of state. I know that you guys have some experience. staking either. I'd love to just talk a little bit more about proof of stake, your experience with staking, all that type of stuff. So again, quick recap for anyone who's not familiar with these terms, these networks currently are run by something called proof of work, which is people just running computing hardware and electricity, proving to the network that they spent that real world resource, and then they get the new token reward for performing the validation. And so what's happening now in Ethereum is they're saying, because you have this, smart contract platform, it's very easy to just say, we can write some code where you'll lock up

your ether, the native token of the network, into a bond with the protocol, and let's go around and basically, you know, round-robin like fashion, and take turns validating the network. Now, in proof of work, when you're a jerk, what you lose is the cost of the electricity for that period of per block where you try to validate, but you perform some nefarious proposal to the network, and they say, we're not going to accept your block proposal, so you just wasted electricity and got nothing for it. You didn't get the new Bitcoin. In proof of stake, what happens is you don't need to prove that you wasted electricity and computing hardware. Now, if you're a jerk, they will just slash some of your actual ether. So the value that you're putting at risk is an electricity

and computing hardware. It's the native token. And what I like about this, and a lot of people like about this is it aligns the incentives of the validators and the token holders. Because in proof of work mining. The miners may not be the token holders of the network. They could be people just performing the kind of picks and shovels meat and potatoes opportunity to say, well, we've got this ability to arb the cost of electricity. So I'll just perform, you know, I'll just do it and capture that spread. I love the electricity arb where somebody's like, oh, there's a giant mall over there. I'll just go plug a couple servers into their electricity illegally and run it. That's been my personal favorite one so far. But that's basically, you know, what it is. Some people I'm sure do

care very much about, I'm sure that the majority do care about the Bitcoin network, but I'm sure there's also a group of people who don't care. Now, in proof of stake, they can also not care. The point is that the thing that they're putting at risk is the native token. The token holders become the validators in proof of stake. So let me just make sure I'm thinking about this correctly. So you've put up, the minimum to stake is 32Eath. You've put up 32Eath to validate, right? I send a, I use ether to buy a pizza or whatever. I don't know, but I use ether to buy a pizza. You would have to validate that transaction. And in proof of stake, what would happen is if you missed it for some reason, the first time they'd kind of give you a slap on the wrist and say, hey, Brian, you missed this transaction.

The second time, they might actually think and say, hey, we're taking one of your ether away from you. And so that's your risk. If you're improperly validating, you're going to lose an ether or something. But your reward, in exchange for validating, Andrew sends a pizza to, Andrew buys a pizza, you're going to get, you know, if I use one eighth to buy a pizza, it'd be a damn expensive pizza. but 0.01 of that Eth would get, I think it's a, it's not going to be a gas fee under the proof of mistake, but 0.01 would basically go, and in this case, 0.005 would get burnt and 0.005 would go to you. I know I threw a lot of numbers out there, but am I directionally thinking about this correctly? you basically got everything right but also everything a little bit wrong so let's just go in and let's just go and correct a couple a couple things here so when you say that it requires 32 eth to validate what that really means is it's 32 eth to run a single node a single validator

on your own so it will be possible for anyone your listeners included where they can contribute to a pool and say together we can run a validator whether it's through a centralized platform or they can, in the decentralized world, look at something like rocket pool, which can pool those resources together. So each validator does require 32Eath, but the individual user doesn't necessarily need 32Eath to participate and generate. And not investing advice, but if you've got Coinbase, right, I know Coinbase has a wait list to go. You could own as little as 0.05Eth, and you could join the Coinbase stake and get rewards for that stake. Correct. Yeah. So that's how those validators are running. And as you're saying, they're performing the validating.

on the network of all the transactions that are taking place. Now, when you talked about getting slashed, if you are offline, think of this like someone's coming to the door and knocking and saying, hey, can you validate this block? Now, if you're not home because your server went offline, you turned off your computer, it crashed, you're not going to get slashed. All that happens is you're going to miss the opportunity to receive the reward. So it's not a slashing event. It's just a missed opportunity to generate yield.

Now, if you get the knock on the door and you open it with this evil grin and go, oh, I have some transactions for you. And you falsify, I don't know why I went this. I'm a very funny person. I liked it. No, I liked it a lot. If you show up and you're like, I've got some transactions for you and you propose some nefarious, funky stuff, then you would get slashed because the rest of the network will see that what you're doing doesn't actually add up to the rest of the blockchain. And you would get slashed some of that staked ether that you've put up at risk. to be a validator. So you don't get slashed if you just go offline.

Now, go ahead. Go ahead. Please. I was, no, you go because you're going to ask something relating to this. I wanted to go to your next part of where the transaction fee goes. But you know, I was skipping head. So please continue with what you're. Okay. So the transaction fees, when you perform on the network, this is, it's kind of nuanced and I don't want to go too in the weeds today because we're not in this system yet. This is the thing we are transitioning to is proof of stake, and I think you're referring to something called EIP 1559, which is that the transaction fees are going to have something funky going on in the next little bit. What currently happens on this network, for anyone who's not familiar, is when Brian sends Andrew one ether, I also

have to attach a little bit of extra eth, what they refer to as guess, to pay for the validator to include it in a block. So for that transaction to be public on the ledger and confirmed, I can't pay nothing. I mean, I literally, I could pay nothing, but no one is going to confirm it and take that transaction and say, sure, I'll stick it in the next page of the ledger. They're just going to completely ignore it. So that's what a gas is, a gas fee is. What is happening in the new world when these upgrades happen is a portion of those transaction fees are going to be taken out of supply, similar to a buyback, a share buyback. And so it's possible that the monetary policy moves deflationary, on this network. You know, it really all depends on how much activity is taking place in a certain period of time, right? Because we know what the base fee is per block. We know what the inflation schedule is. What you don't know is how many people are trying to perform various activities. And so it's possible the network is, um, is inflationary for one block or 10 blocks or a day. And it's possible that then the network is being used a ton and then the total supply starts to

decrease. We don't know yet. There, there isn't going to be an answer. It's going to be something that's constantly in flux. And for people who are wondering, how can you invest in this if there's no hard cap? Why would you do this? Well, this is kind of a funny thing for me because I always like to say to them, you don't know what the hard cap is of any potential company who may create new shares down the line. You don't know what a foreign currency is that you buy or gold. We don't know what the hard cap of gold is. We know what the inflation schedule is. It's roughly, I don't know if it's like 1.6 or 1.7% a year that they extract out of the ground. But I don't know, maybe they find some new way. And all of a sudden, it moves to 3% per year. And you still

with 20 tons of gold and drops right into our laps. Yeah. It doesn't make these things uninvestable. Because that's what I hear a lot. People say, I can buy Bitcoin because I know that monetary policy and I know long term what it's going to be. Ether doesn't have this fixed supply. So how could you invest in it? And I turn around and go like, what about all the other things that you invest in that that doesn't seem to bother you. But, the second thing is that there's a there's a fundamental difference socially in these two networks and that is in the bitcoin protocol what you have is this guaranteed monetary policy with a long-term security uncertainty so to hammer to to help unpack this a little bit

you are paying the miners in new bitcoin right that's how bitcoin is being created they're validating transactions and then new bitcoin comes into supply and then they're also receiving the transaction fees. Now, roughly every four years, the reward of new Bitcoin gets cut in half. So we're making our way up to $21 million. That's the hard cap in Bitcoin. It happens in the year roughly $21.40. And so the thesis was that over time, the block reward, that base fee per block will go down. The transaction fees will make up a bigger percentage. And so the validators get compensated in a happy way and everyone goes on. The problem with this is we have never seen a proof of work chain that's existed solely on transaction fees. So in our best case scenario, it does

work, but it's a huge experiment and a huge security risk. So are you following me so far? Yes, yes, yes, absolutely. Yeah, okay. Yeah, because the question, just for one more time for anyone who's just trying to think this through, the question is, if you didn't have new Bitcoin coming into the supply and you were just paying them in transaction fees, will that be enough to secure the network in five years, 10 years, 20 years. The issue is going to be, it's so dependent on how many transactions are happening, right? If there's 100 billion transactions happening every day, there's going to be huge amounts of transaction fees, whereas if there's five transactions happening every day, there's

basically nothing and the miners have no incentive to do anything. Correct. And an added little nuance here is that there's something called the Lightning Network, and there could be other side chain, side channels, call them whatever you want, where transaction fees can be cheap or free if you trade off a little bit of the security and you move that Bitcoin onto, let's say, the Lightning Network, and then you and I go out for beers and we just keep, you know, trading that Bitcoin back and forth for free on the Lightning Network. You only have to pay the main chain, the base layer of Bitcoin when we want to settle up and say, okay,

I'm done with you as a friend. Thanks for the good times. Let's settle up our final bill and pay that main network. Now, if that were to happen and everyone moves on to the Lightning Network, who's paying the transaction fees to the miners to validate this network? So this is something that I haven't heard a good answer to what the long-term game plan is on Bitcoin. And so in Ethereum, while people say there's no hard cap, the difference is that they've decided what we want is a long-term guaranteed security baked into our protocol. So it's constant low inflation. So forever, there will always be some amount of inflation on Ethereum.

And while people say that's bad, why would you want it? Their answer is because that constant low inflation guarantees security of this network. And so we can always know, regardless of if people are on other layers, if they're on a layer two, if they're on another chain, they're on a bridge to another chain or whatever it is, Ethereum at its core will always have compensation for the validators to make sure the network's secure. I got almost everything. My only question is you said there's constant low inflation on Ethereum. And I thought at some point Ethereum went to you just get a percentage of that gas.

fee for validating rights. So it doesn't go. Oh, the percentage of the gas. Bitcoin does that. Say again. Bitcoin over time shifts from new Bitcoin being created as part of the compensation to just solely transaction fees. Ethereum will always have a base fee per block as part of the monetary policy's inflation. Okay. That will always be there. Okay. And so where does the, we talked about, I think it's E1959 or whatever. When that breaks up and they start taking a percentage of the gas fee and it goes to it's just a share of buyback. So it's just going to reduce the.

Okay, okay, great. I think. Yeah, so 1559, what Andrew is referring to right now, it's called EIP, Ethereum Improvement Proposal, or I think that's what EIPP stands for. In Bitcoin, it would be called the BIP, Bitcoin Improvement Proposal. So what EIP 1559 does, anyone can Google EIP 1559 and read the Clifference notes is saying what's going to change on this network is a portion of the transaction fees that took place per block. Instead of them going to the validators, 100% of those fees going to the

validators, some of them are just going to get taken out of the circulating supply. And so we know what that the base fee is going to be per block, the inflation, you know, part of the monetary policy is going to be, let's say, two-eth. Well, it's possible that the transaction fees that got taken out of supply is 30th. And all of a sudden, that the next block, we've been, you know, got, you know, a lower circulating supply than we did a couple minutes ago. The reason people are really excited about EIP 1559 and where this is going long term is that in proof of work mining, there's a cost to validating this network, right? If you're a Bitcoin miner today or an Ethereum minor today doing proof of work, then what you have to do is you're selling some amount of your

newly mined ETH or newly mined Bitcoin for a couple things. The first is, let's say most jurisdictions have roughly 50% tax. So I have to sell some because I need to pay the tax because this is considered an income activity. So I have to sell 50% of that Bitcoin, you know, to pay tax. And then the electricity costs is roughly 40% of the newly minted supply of Bitcoin or ether. So I have to sell that as well because I need to make sure that I can pay my bill at the

end of the month, right? If the price drops and I waited until then, you could be in trouble when the electricity bill comes. So people are maybe only hoarding 10% of what. what they mind, that either they decide to sell, they hold, whatever they want to do just you know for fun, for kicks, for profit. And so 90% though is basically being pushed out into the circulating supply on an exchange through an OTC trade desk, whatever it is. What's going to happen in Ethereum is let's run through logically how this is going to play out.

So in proof of stake, there was no more electricity in the equation, right? Because all I did is I locked up my ether into a bond with the protocol. So I don't need to sell that portion anymore into the open market. I can just hoard it. So I still have to pay the 50% for tax. That I'll have to sell. But 40% more, now I get to decide what I want to do with it. Well, if I can stake that ether and generate yield off that staked ether, why wouldn't I just hoard it? Why would I go on some exchange and sell it? I'm going to hoard it because I can now use that to just up my yield, right? This is like just compound interest. And so what's very possible, the reason so many people are extremely bullish in the next six months on Ethereum is that as proof of stake transitions in and the London

fork upgrades 1559 to be baked into the protocol, a lot of the validators on the network are not going to sell this newly mined Eath. They're just going to hoard it to try and generate more yield. They're not going to have to have the same amount of sell pressure in the open market because they don't have that electricity cost. And so you kind of have this perfect storm. for transaction fees reducing the circulating supply. Everyone just starts hoarding ETH because there's no longer an incentive to sell. And anyone can be a validator. And so people are going to want to validate to participate in this activity.

So this is really exciting. It's still months away. The reason I think someone on Twitter was asking, why would we expect a price increase as these things happen? Wouldn't it already be priced in? This is one of the replies to your question this morning of what should we talk about. the answer to this is it's really hard to know when anything gets priced in, right? Yeah, but this is a stock market focus podcast.

Who knows what's priced in at any point in time? I'm with you. Who knows? Who knows what's priced in? You know, there's a lot of risks where people say, well, why isn't it $5,000 in Eath? If that's so bullish, like, why isn't it five grand right now? There's risks here, right? You're going to have to fork the network and put in this upgrade. There's lots of bugs that could come out. There's something that could be catastrophic to the network, something could blow up on the launch pad. You could be locked up in ETH2 for some period of time where you don't know. What I mean by that is ETH2, Ethereum 2.0, rolls out in a few different phases. Currently, we're in phase zero. And so in phase zero of ETH2, there's no liquidity

on your ether. So you move your ether from ETH1, which is the existing Ethereum network. Anyone who buys Ethereum today, you're buying ETH1.0. When you move it on to ETH2 today. You run a validator, you go to some platform that lets you validate with a pooled group of people. And that ether goes from ETH1 onto ETH2. Think of it as an airplane that's being built mid-flight. Right. So here's the ETH1 airplane on the left. And then we're building this ETH2 airplane over here. And what they decided is we want to make sure that nothing blows up on the launch pad. And so we're going to strip out all the functionality out of the gate to make sure that the most basic form of this network, nothing goes wrong. And so one of the things was you can't

sell the ETH, you can't trade the ETH, you can't move it between accounts. And so some people are pricing in. I don't know how long I'm going to be locked in ETH2 phase zero before the network upgrades and gives me liquidity on that ETH. So there's lots of reasons. Oh, and plus something could of course blow up in a really bad way where ETH2 fails. There was some bug. There was some way to exploit it in a really bad way. I would like to think that this stuff has been battle tested and there's a lot of really smart eyes on it at this point that that shouldn't happen, but that risk is always there. The unknown unknown is definitely there. And so there's all these things that are holding ETH back from being $5,000. And when you saw ETH run in the second

half of 2020 from basically $100 at the beginning of the year or when the COVID big market crash happened. A lot of the reason that ETH was so depressed more so than Bitcoin in that bear market from 2018 till 2020 is that people said proof of stake is never going to ship. ETH is never going to be able to get this upgrade off the ground. It's been one month or six months away for four years. They've been saying it's around the corner, it's around the corner, and they don't ever seem to ship it. So the market started discounting that so heavily because they just said, this is not actually going to ever come to fruition. In that second half of 2020, it no longer was just this idea of it will materialize and it'll come about. It turned

into this, no, no, the code is live. It's being tested on a number of different nodes, validators networks. People are now tinkering with it and seeing that this works. And so people said, oh, shoot, they're actually going to ship the first part of ETH II. And so all of a sudden the price, people are getting really excited and bullish about it. So you saw this huge run in the price of ether from about July till pretty much today, it outpaced Bitcoin in a pretty big way. To me, that's because the market had to take away that discount on ETH2 not shipping. So where the market says ETH2 is going to go, I don't know, but it's really hard to know when something is priced in. That was a long and kind of nuanced answer, but I don't think

you'll ever know exactly how to figure out where ETH should be. I just do believe that the opportunity for these assets to go from unproductive commodity. to a yield generating instrument is really exciting because that has not been able to be done before with Bitcoin in a decentralized way. I have two basic questions here. First, most basic. If I buy ETH right now, and I know you've participated a little bit in the ETH 2.0 in the state, but if I buy ETH right now and a year from now, ETH 2.0 is live, everything.

Your ETH automatically conversed into ETH 2.0, right? It's not going to be like a complete forking event where you have, if you have one ETH today, you have one ETH 2.0 and one ETH tomorrow, right? It's everything's going to be ETH 2.0. Sort of. So ETH2 is live right now, but it's in phase zero. So you can move your ETH from ETH one to ETH two. And let's go back to that airplane example.

You have to get across from, you know, this airplane, the nice big, cushy one that we've known and loved for almost six years, into this new wireframe airplane. And the way you do that is you send your ether to a very, specific contract, again, piece of, you know, software that lives on the blockchain. And it effectively burns it on ETH one. And then the ETH two, the Sairplane over here is watching that specific contract and mince into your account one ether. So you're not going to have, you know, your ETH balance is not going to exist in two different places. You can either have it on ETH one or you

can have it on ETH two. Long term, this will all merge into just ETH two. But there's a lot of little nuanced steps along the way. But the short answer is that you won't get your balance in two places. You can't game the system in any kind of fancy way if that's where you're, that's where I was not looking for game. I was just making sure that eventually. Because what was it? Was it was a Bitcoin that forked into Bitcoin and Bitcoin light when there was a confusion around some contract terms or something? I can't remember specifically which one. In 2017, there was a disagreement. I mean, the disagreement started in when I came about in 2013, which was how do you scale up this network. Blocks are getting full. We need to have more transactions and more

throughput. And you had disagreements in these communities between how to best solve this problem. Do you double the size of the page of the ledger, the block? Do you make it 20 times larger? Do you make it elastic? I mean, there were all sorts of proposals. And eventually one group of people in mid-2017 said, screw it. I was going to say the F word, but we'll be PG-13 here. And they said, screw it. We're going ahead with this upgrade. We've built it technically. And on a certain date and time. I think it was about August 1. We are launching that software upgrade. And what happened was, as you're saying, it's called a hard fork. And a hard fork basically means that everyone agrees on the, some people may be listening to this, so they're not going to see, but my hands are

making a V at my wrists. Everyone agrees on the state of the ledger before August 1. We all know when Brian sent to Andrew and Andrew sent to someone else. Everyone agrees what happened then. the question is after that hard fork that software upgrade by one group of people when there was let's say an entire block full for everyone but then this group of people says wait a minute there's some extra transactions sitting around hey no problem our new software can include them all of a sudden you have this hard fork in the network where these two blockchains will never be able to talk to one another i shouldn't say never because there's probably a way down the road that they'll be able to bridge back and forth but the point is that now you had to two flavors of Bitcoin. You had the Bitcoin that everyone knew, and then you had Bitcoin plus an upgrade that started at a certain point in time. And so that's how you had Bitcoin and then Bitcoin cash. And because they agreed on the state of the ledger on August 1st, you ended up getting that balance in two different places. Now, logically, you would think that the value of Bitcoin would just be split in some proportion between these two networks. And so maybe it's 90-10, maybe it's

70-30, maybe it's 50-50. I mean, it doesn't matter. That's what you would think happens. For some reason, that is not whatever happens in crypto. The chain, the original chain that didn't do the upgrade of the fork pretty much maintains its value. And then there's this free value that just appears on the forked chain. Why it happens that way, I don't know. That's just what it is. However, over time, I think networks have started to realize that hard forks are not really great for users. It's not great for developers. It fractions away at the community's interest. People don't know which chain they should be building, where they should be pointing their wallets towards. It's a big pain in the butt. And you usually don't have the fork chain turn out to be the winner,

I think, in a lot of the cases. And now when we see hard forks, because then people started forking Bitcoin to try and just create all sorts of different flavors. There was Bitcoin Diamond, Bitcoin Gold, Bitcoin Satoshi's Vision, BSV. There's all these different flavors of Bitcoin. Now they no longer have this 10 or 30% value of the main Bitcoin chain. They kind of are worthless. So the communities don't seem to like this or want to play these games anymore. They're still theoretically possible.

They could happen in the future. But so far, it seems like that it might be a thing in the past. Perfect. No, that makes tons of sense. last question on is you know with ether 2.0 if you're a normal person who has some ether and it's not locked up in a defy project or something is there any reason why you wouldn't want to join a staking node so currently you wouldn't join a staking node because of that liquidity problem and so if you believe let's say ether is going to do a 50% return or 2x or 5x it's sometime

before this unknown time in the future because remember you need to upgrade from ETH 2 phase zero to the next phase to get liquidity and that could be months away, maybe something delays it and it turns into years away. No one has the answer to these things. So that would be one reason you don't want to do it. Maybe you think that technically there could be a bug and so you're going to sit on the sidelines and wait to see how things play out. Some people will just be lazy and not want to do it. And maybe some people aren't comfortable with validating or putting their ETH in with either a centralized exchange to help perform the staking activity in generating the yield, or they don't want to join a mining pool

because they just don't know who is running them, where the nodes are being, or the validators are being run, because you're, you are trusting someone else to do this activity on your behalf. So just to frame that a tiny bit more, you're going to run basically a server, let's say it's on AWS or DigitalOcean, doesn't matter where that server exists. If you are letting someone else run it for you and they are a nefarious actor and they screw something up and then they get slashed and you're part of that pool, you would lose some of your ether. So you're putting a fair amount of trust into this pool of capital that you're going to validate with or a centralized platform. I think most people are good actors. And so it's not

going to be a problem. But just there is some added risk to staking versus saying there's a good enough return from just holding ether because I'm long the asset. I don't need to try and generate this extra 8% or 15% whatever it's going to be. I'll just hold the asset and sit on the sidelines. Perfect. Perfect. Look, we're running long. This has been fantastic. I know there's tons of stuff we can cover with Ethereum and stuff. Is there anything you wish we had talked about or you think we should have that you want to hit a little harder before we wrap this up? I don't think so. I think, you know, the main things that are happening right now, if we kind of just look very high level, what is happening in this ecosystem. Prices have obviously come down

from their highs of about two months ago, but there's a lot of interest still in the space from institutions, from retail investors, from developers. There's a lot of networks being built up around Ethereum, competing with Ethereum, bridging into Ethereum. The space is stronger and better than ever. So when people are so focused on price, I'm constantly pointing out, the fundamentals now have never been stronger than ever in crypto's history. And so I think it's important to look at what's happening.

happening in the ecosystem, look at beyond just the price of things. People get really focused on what the price of these assets are to make a decision of if they should participate. Instead, they should really be focusing on what's being built, what the developer activity is. And a good example of this is NFTs. People are looking at NFTs and just saying, why is a digital image that can be right clicked and saved valuable? Or why is it valuable at $10,000? Maybe it's valuable for $1 or $0.50 or $10,000 or $100,000 asset. That's crazy. I think it's important not to get so focused on the price here and just look at why is the activity happening. What potential is there in that technology? And you can apply that to pretty much anything in this space. And if you can

take those kind of blinders off and look at the space and say, what is this technology going to allow in the future in a few years from now, five years, 10 years, 20 years? That's when I think, think you start realizing how much change there is coming into the world. And when people ask me like, do I think now is a good time for, you know, Bitcoin buying or ETH buying, and I'm still hitting the same message home to you that I've been this whole podcast of look at the five-year horizon, people should ask this one question. Do you think that the world is moving more and more towards decentralized systems, ways for capital to form and coordinate? Or are we moving more towards centralized services. I'm obviously in the decentralized bucket because technology allows

for it. Uber disrupted the taxi cab industry, Airbnb disrupted the hotel industry, the internet disrupted news and media publishing and broadcasting, right? There's decentralized ways now or more direct peer-to-peer ways of having these kinds of interactions. What you're starting to see is money that has largely been untouched for the last couple hundred years, now there are ways to build monetary systems that are digitally native, that are global, that are peer-to-peer, that will allow people to interact in a more trustless way and in a more direct way. And so that follows the Airbnb and the Uber kind of thing. And so that's why I always say, in five years, do you think that that is likely to continue

to be a trend or do you think it's going to go away? If you think that it's here to stay, then it's probably time to do some digging around the space and researching the asset class. Hey, that's why me as a normie is trying to learn more. And the only other thing I'd add, it's so funny because I agree with you. People look at this and they say, oh, it was $4,000 in February and now it's 2000. Like it's a bubble. It's bursting.

And maybe, you know, I'm much more skeptical of Bitcoin and a lot of these other, a lot of these other coins than Ethereum. It's the one I'm really most interested in. But two years ago, this was, Ethereum was one. what, 100, 150? And today it's 2000. Like, if you just zoom out a little, this is an up into the right chart. And I'm not, again, nothing's investing advice. I'm not saying anyone invested. I'm just saying so far it does seem to be working. You look at the fees that are coming onto the system. As you said, the development, it seems to be working to me.

Last question before I let you go, obviously I'm going to include your Twitter profile, Ethereum Capital Corpse website and everything. In the show notes, listeners can check those out to find those. Who else do you follow and find really smart in the space that people like me trying to learn more about should kind of consider following and looking at? I think that the bankless podcast, Ryan Sean Adams and David Offman, are absolutely people that everyone should follow them on Twitter. Check out that podcast. There's incredible content being put out by them. Again, if you're into podcasts, another one might be Laura Shin and Unchained is a great place. And then I encourage people just to check every day

a website like CoinDesk or The Block, which just have news relating to solely crypto. And you don't even need to read any of the articles. Just open it for 30 seconds and just scroll through the headlines to get a sense of what's happening. And click on, of course, if something's interesting to you, go and read it. But I think it's time for people to go to crypto news sources to try and figure out what's happening in the space. A lot of the mainstream media, the reporters are just not enough in the weeds.

so I don't think you're really getting enough good intel on why things happened or what may play out long term. You're just seeing this kind of biased, probably misinformed view of something that took place. And so between the podcasts and Coin desk, you'll have a good sense of what's happening in the space and start following along. On the mainstream media, again, this is mainly a stock folks this podcast, but people who are familiar with CNBC on stocks will say the same thing, right? If a stock's going up, they use the price to drive the narrative, right? And sometimes that's right, but often it's wrong. And with the theorem, like, it's not the price to me. It's more, as you said, the development, everything that's happening around it. So perfect. All right, Brian,

this, go ahead. I was going to say, if anyone has any specific questions, you can always find me on Twitter. You can find me on LinkedIn. You can shoot me an email. I'm always happy to point you in the direction of whatever content is appropriate for the thing you're trying to figure out. I fully sympathize with people who are new to the space who are saying, what the heck is gas? What is staking? I mean, there's this lexicon that people are going to have to learn. And the space, I hear some friends saying the space is going to have to do better education and help people figure it out.

And I'm thinking, I don't think it's going to work that way. I think it's everyone else is going to just have to learn these new terms because that's kind of just, you know, it's being driven by a bunch of nerds and jeans and t-shirts, coding in conferences. They're going to name things whatever they want. The exchange is going to be called uniswap and it's going to have a unicorn as its logo. It's not going to look like a regular corporation. There's a fork of that decentralized exchange called pancake swap. So the words and names to things are certainly tricky for a lot of people, but there's a lot of good resources out there. There's people like me who are always happy to help you figure it

out and learn this new lexicon and get up to speed. Perfect. Well, again, Brian's Twitter and Brian Twitter and everything is going to be in the show notes. So anybody who wants to find him can do it there. But Brian Mossoff, this has been beyond my expectations. This has been great. Thanks so much for coming on. Thanks for having me. Hope to be back soon. Cheers, guys.