S1: This ad free podcast is part of your Slate plus membership. Hello and welcome to the long awaited Crypto episode of Fleet Money, your guide to the Business and Finance News of Everything Crypto. This is something a lot of you guys have been asking for. We get a lot of emails from people saying, can you get someone who actually knows what they’re talking about to talk to us about Crypto rather than just getting a bunch of snark mongers to snark about NFTE? We have listened to you. So I am Felix Salmon of Axios. I’m here with Emily Peck of Fundrise. Hello. Hello. I’m here with Stacy-Marie Ishmael
S2: of no affiliation, of
S1: no variation, but definitely Crypto adjacent in some way. And most excitingly, we have meie Zehavi who’s going to basically spend the next hour telling us everything that you ever need to know about. Crypto Myatt, welcome. And who are you.
S3: Thanks for having me. I’m Crypto investor who’s been in this space both and the Enterprise and the Wild West of DFI for the past seven years.
S1: And you’re based where?
S3: Tel Aviv, Israel.
S1: This is the one great thing about pandemic era podcasting is it’s just as easy to get someone on the show from Tel Aviv. It used to be we used to insist on people coming into the studio in Berkeley, and I have no idea when that’s going to happen again. Miah, you are going to tell us just an absolute smorgasbord of information about privacy. Define what that is. Exchange is regulation, the dream of where we can wind up in this brave new world of Crypto? Who’s doing it well, who’s doing it badly, who’s making money off it, what kind of ways the world will change? It’s an absolutely wonderful conversation. Thank you so much for coming on the show. And all of that is coming up on Slate Money. So let’s start with the very, very big picture, my the main thing everyone knows about Crypto is that there’s this thing called Bitcoin and it goes up in value. And if you want to make lots of money, you can buy Bitcoin and then get rich. And then if you worry that Bitcoin has already gone up and isn’t going to go up anymore, there are other coins you can buy instead, which you can buy and get rich. Of course, obviously, if you can get rich, you can lose money as well. Take us one step beyond that. Presumably there’s something here beyond just a purely speculative gambling vehicle.
S3: Yeah. So in my view, that’s the least interesting part. If you want to play that game, then just empirically speaking, buy your Bitcoin or ether and forget about it and it might go up and just consider yourselves as though you’ve already lost that money. But the interesting thing is what happens behind the scenes, specifically on a theory and Crypto markets and what is being built and experimented with. And I think that is several light years ahead of anything going on in FinTech right now.
S1: So when you say fintech, you mean basically I can venmo you money from my phone.
S3: Yes. Or you can log in to Robinhood.
S1: Well, I can log into Robinett and I can buy Bitcoin. But what’s happening in Crypto is beyond that. How what’s the what’s this like utopian vision of Crypto that is is driving so many people to become true believers?
S3: I think I would break that down into three different parts. One is the monetary part aspect of that, where people have hard coded monetary policy in a way that sometimes really fits in with their politics, meaning deflationary economy. And by doing so, choosing Crypto is almost like a political choice, a libertarian one at that. The second one, which I think is probably more powerful, is that the entire concept of having programmable money is a novelty, that despite ten thousand years of human civilization, we have never managed to create a form of value where we can program ahead of time. What happens without value? When is there going to be a pay out interest payment, bond collection, different allocations of Treasury funds and so forth? And the third aspect is the permission was one which essentially strives to create an interoperable digital network where no one single player can shut it down. And that in practice sometimes means governments can’t supervise it. But on the other hand, you’re not beholden to any one party or corporation. And by virtue of that, anyone can build anything.
S2: Maya, do you have any examples right now? Because I think we want to talk. We want to spend a good amount of time on the governments. Can’t shut you down angle, but do you have any examples that you find particularly interesting of those smart contracts?
S3: Yes, Crypto, for example, I think Yuni swap is one of the most famous ones and the very basic and historically revolutionary ways. It really changed the Gambit DFI from being something theoretical to something accessible. And it’s essentially where
S1: I’m going to stop you right there because we’ve already disappeared down the rabbit hole. When you say permission slips where you’re not governed by any central government or central entity or corporation, that’s what defines it stands for decentralized finance and it’s all distributed around a network of computers around the world. It can’t be shut down in any one spot. And then if once once you’ve understood that concept, you can understand the concept of something like Youngness Swap, which is basically a mathematical algorithm that sets buy and sell prices for two different coins and creates like two way markets in those coins. Is that more or less it?
S3: Yes. And the provisional aspect means that anyone can list any one of those tokens or assets into that paper. No one can stop that trade. On the other hand, you can really trade anything, meaning you have a whole lot of worthless assets being traded. And on the other side of that, any one of the traders, it’s unidentifiable. And you don’t know whether or not they could even pass the KYC designation.
S1: In other words, we just don’t know if they’re a bunch of money launderers and criminals and basically this entire edifice. I mean, this is definitely something we hear from the anti Crypto crowd a lot. Is that well, who’s most attracted to any kind of system that is out of the reach of any government? Obviously, it’s going to be criminals. Right. And we’ve seen this big uptick in ransomware, which would basically not be possible without cryptocurrency.
S3: So allow me to push back on that. I don’t think. And you see a lot of different analysis. One of the most important attribute to bargain is that everything’s transparent and as such, you have a lot of analytical firms that basically sit on all the data on the block chain. Right. Every single participant of a bacik holds all the historical data and can see what the transactions that just occurred on the network are. And by doing some historical analysis, you see that a very small sliver of the transactions are actually criminally related. And even if you are able to identify them as somehow related to terrorist financing or criminal activity, the transparency allows people or enforcement agencies to trace back all those transactions and as such have a lot more information about the different participants in that audit trail.
S1: You’re saying if I’m involved in ransomware, eventually I’m going to feel the FBI’s hand on my collar because they’ll be able to trace the chains, the bitcoins that I was paid, even if I put them through Mix’s or whatever, and eventually they’ll find me and arrest me.
S3: Yeah. And yes. And more than that, if you what we see right now, ransomware, which I think is more cybersecurity issue than a Crypto issue, it’s like saying ransomware is a Crypto problem is very low hanging fruit. But a lot of the services that ransomware attackers use is ransomware as a service, basically kind of like the A.W. asked for hackers. And part of those services is that they already have different Bitcoin addresses and mixers and so forth. So when a federal agency, for example, is able to target one of those entities by simply tracing them back, they can also be able to locate all the other criminal activity. So in that sense, I think because criminals are rather stupid and they haven’t gone into the privacy coins. I mean, let’s face it, and they don’t realize that Bitcoin makes it easier for law enforcement to find them. And you’ve seen a lot of different FBI seizures of cryptocurrency. And when you talk to these agencies, they actually admit that the blockade is a very helpful tool for them.
S2: So if any criminals are listening to better,
S3: please come use Bitcoin. I’ll send you some
S2: of those a lot of money right there. So there are people who are less dumb, let’s say, for the sake of argument, not necessarily criminal elements who are attracted to that decentralized nature. And potentially, even if the transparency comes back to you, making it harder to say you can or cannot do something. And I know that’s an area that you’ve talked a lot about. And I think both Emily and I are really interested in kind of hearing your perspective on what you what you’ve described as dissident technology. Yes.
S3: So I think we’ve seen, especially in Hong Kong, I think that was the first rise of organized protest that ended up being cracked down by closing down technologies, different location services or apps or telegram chats and so forth. And as the world is becoming a bit more authoritarian, especially in Asia and Eastern Europe, dissidents would naturally flock to an infrastructure that allows them to continue to organize, be it messaging or get financing and share information across networks that are not closed down to them. And this is where is Crypto networks. And blocking can be a very powerful tool that will allow maybe a shadow economy or social network to evolve
S4: before we dig in more to dissident tech, which I’m really interested in. Can you maybe for like a kindergarten level of Crypto, can you maybe, like, go back and explain to me the difference between coins and currencies and the block chain and the technology? Because what I keep hearing from the Crypto people is like this technology is the future. This is going to change and revolutionize everything. But then when I read all the news coverage, it’s basically just like you said, Bitcoin prices are going up, dogecoin prices are going up, they’re going down. Bitcoin isn’t a currency, so the whole thing isn’t real. But then I hear it. Don’t pay attention to that. This is a technology that’s going to change the world. But what I don’t understand is what is the technology? It’s just contracts. Don’t we have technology that tracks contracts? Like I just don’t understand what the new technology is that’s changing the world.
S3: So the first block, just to put it in context, was Bitcoin. And what Bitcoin revolutionized was a new form of a consensus mechanism. And without going into computer science, it basically allowed an unlimited group of parties to agree on the state of the world without having to rely on another party to basically coordinate between them. And that is where the currency plays into in terms of game theory, because it’s able it’s a mechanism, a pricing mechanism that allows them to align all their incentives to make sure that the state that. Each entity is reporting back or seeing or sharing is the same one as any other party to that network and. When we first came out, I think some people, some crazy financial geeks like myself, got really excited because we said, OK, maybe we don’t need the currency, but just having a bunch of banks agree what their liabilities are and what their swaps or overnight repo markets look like can be a really good solution to alleviate a lot of the concerns that we had back in 2008. And that was just the immediate use case that we saw along with instant, real time Salomon system.
S1: So, yeah. So I just I want to jump in here and just sort of cast my mind back to the forty eight hour long emergency meetings at the New York Fed in September 2008, when everyone was like, is Lehman Brothers insolvent? Is AIG insolvent? What do we need to do? Who do we need to bail out? And one of the problems that we discovered was that these massive financial institutions, if you asked them, like, for their balance sheet, it could take them weeks to provide it to you. There was no way of just being able to look at what they owned and being able to tot up like how much of the assets are worth, how much of the liabilities were which number was bigger than the other number. And the idea that there could be a huge decentralized global network where everyone had access to all of that information because there’s no reason why it shouldn’t be public or even private, for that matter. But just to have something that automatically updates itself, because that’s how the contracts work would have been insanely valuable back in 2008.
S4: I think I’m beginning to understand. So basically, it’s like a level of transparency in finance that had existed before is possible with this technology. No other you could do it.
S3: Transparency, it was real time transparency where everyone sees everything and they’re able to agree on what the balance is of every single party is. And just he said the concept of having a gold source for all those balances and debt agreements. It became so powerful to Biggs when they first saw Bitcoin that they started to do what bankers do, drool out of greed. And they didn’t want like the Bitcoin or the prices or any of these currencies, just like Emily. If you we’re just taking out the block chain. We don’t need the curb the tokens on it. We don’t care about Bitcoin. We don’t care about Ethereum. We’re going to have our own separate network of, say, the DPI, more goods at Barclays and Santander is of the world. And we’re going to use that for our consolidated debt obligation. So instead of that having to take three weeks in order to settle, we can now do that within twenty four hours. And I had the pleasure and the experience of working with some of those banks, trying to look at how block chain can solve the really boring middle and back office issues that banks pay a lot of people a lot of money to deal with. And if I were to fast forward that about five years, what we found is that without the greed element of actual currencies and the price volatility, the incentives just aren’t there. And you can see that the Wild West of Crypto with all these tokens and criminals and isco, that NFTE managed to build a much more resilient infrastructure and innovate more effective tools and debt instruments than anything that happened in just watching. And and
S4: so it’s kind of like the rise of the Internet, where if you go back to the late 90s or mid 90s and people were
S1: like, I kind of hate this metaphor like this. I mean, this is someone who’s been writing about Bitcoin for almost ten years now. The one thing you keep on hearing for the past decade is this is just like the early days of the Internet. And if you talk to people today, they’re like, this is just like the early days of the Internet. And you’re like, well, dude, you’ve been saying that for ten years. And the Internet actually managed to get somewhere in the first 10 years more than Crypto has in terms of like real world applications. But I do think I do see the the parallel. I just don’t necessarily. But the question I have, though, to my point about the about the unregulated kids rather than the big banks, like actually creating the applications because they have that kind of, you know, greed, the ability to make a huge amount of money really kind of helps in terms of driving innovation. One of the things I want to ask about is stable coins. So I’m completely fascinated by a stable currency. So these coins, which are worth exactly one dollar, you can buy as many as you like of them and you will never make any money because they are pegged to being exactly one dollar and they have just come out of nowhere in the past couple of years to be worth hundreds of billions of dollars.
S2: And and why and yeah.
S1: And that really is. Is the kind of. Deep sort of the pavement, rails, the infrastructure, that kind of thing, the the there is money to be made on them. If you run a stable coin, you can invest the collateral, the dollar collateral underpinning it in something which has a positive interest rate. And then you can make that small positive interest rate while everyone else just is worth one dollar. But it does seem that’s exactly the kind of innovation that you’re talking about, right. Is that it’s not necessarily greed based, but it enables and provides like the lubrication that allows a lot of other things to happen.
S3: Yeah. So I think you you brought up a great example, the fact that you can get about six to eight percent annual interest on a stable Choying like us see today makes it a lot more valuable and brings in more money into the device base just for that. And that money can later be used to invest in other DBI applications to bring liquidity to those markets. Stable coins, though, didn’t start out as an investment. It actually became experiment for Crypto markets to have a stable point in order to help lubricate the trade and doing business over the blockade because of the volatility of tokens like Bitcoin. Any theory, right? If you came in at twenty thousand and raised a bunch of Bitcoin and now the market tanked and you have to use those reserves or those tokens in order to fund your business. But right now the price of Bitcoin is five thousand. You don’t have a way to gauge your runway. And that’s where Stable Point really came in, because companies were able to divest a lot of their Crypto holdings into stable coins and by doing that, pay employees fund their businesses and so forth.
S1: But why couldn’t they just do that with dollars?
S3: Because banks wouldn’t let them open bank accounts. A lot of times there were for many, many years. If you said that you dealt with Crypto, you wouldn’t be allowed access into the banking system. So it’s kind of ironic that a lot of the teens or it started that wanting to get into Crypto in order to build tools for that and eventually found themselves being unbaked because of that business.
S1: One of the more interesting documents that I have open in a tab right now is a page from Dafa Labs. These are the people who run NBA Topshop, which is the most successful NFTE site, basically. And we’ve talked a little bit about NFTE on this show before. But yeah, you can trade these little basketball clips and they go off and they go down and you can make money. But then at some point you need to convert that money from their own cryptocurrency, which is called flow into dollars. Otherwise, it’s just, you know, flow want you can’t do anything with flow except convert it into dollars. So they have this way of saying, yeah, we will cash you out in dollars and transfer the money into your bank account unless you happen to be banking with obscure no name banks like JP Morgan or Wells Fargo, in which case we can’t because they won’t let us transfer money in. And I’m like, you know, NBA top shot is not like some obscure part of the money laundering, but it’s a place which is sponsored by the NBA and which is just a fun place to trade trading cards and even that the banks seem to be highly suspicious about.
S3: True. And just to add to that NBA type jobs and labs in general is a marketplace where they can track every single action that a user did because it’s one of the more centralized blockade companies, meaning they own every single validator, wallet and so forth. So it’s still interesting how banks kind of freeze out Crypto businesses and essentially push a lot of those users into stable coins. But then again, stable coins as just as a fintech revolution. There are a lot cheaper for cross-border remittances these days. If you want to invest in your Crypto company, instead of waiting three, four days and paying about seven percent in fees through things, you can start using the USDA tokens. So I’m not so sure if there isn’t an inadvertent effect of basically putting Crypto people into stable coins. And right now it’s coming back to bite some of these banks.
S1: So tell me about remittances, because this is, again, one of the things which like if you were talking to Crypto people in 2012, they were like remittances is the obvious use case and it never really took off. But let’s say that I have a bunch of us, D.C., and I send it to a friend in Nigeria because I want them to have my money. How did they then convert that US DC into local currency? Or if they send me up to see how do I convert that into dollars?
S3: So first off, there’s a lot there’s a global network of called local bitcoin, which is how you can meet up with someone in Nigeria or in Kenya or wherever and essentially trade in Person B. When your USDOT or your Bitcoin into the local fiat currency, I think a lot of countries right now have their own exchanges, some of them, even if they have a regulated exchange on premise in that country and you want to trade your view this D.C., you’re still a block from the local bank. So it doesn’t eliminate the issue that we were trying to solve. I’ll give you that. I do think, on the other hand, that if you’re looking to cash out specifically in US, D.C., you can do that through exchanges directly, especially the global ones, State Cracken FDX, but you won’t necessarily want to do that to your local bank. But more international banks will allow you to take out your money.
S1: So that brings up one of the big questions that I wanted to ask you about, which is the way in which there seems to be increasingly unregulated Crypto of us and everybody else Crypto this and that. There are companies like Circle, which runs the FDIC or FDX you just mentioned, who very much embrace the idea of US regulation, and we want US regulators to give us lots of clarity. And circle actually just came out and said they want to become an actual regulated bank FDX who said they want to be an actual regulated Securities Exchange stock exchange in the United States. And then on the other hand, you have companies that exist maybe in the Cayman Islands or no one really knows where really big companies like Bynum’s Phoenix and no one really knows. And a lot of what they do seems to be designed precisely to get around US regulations and to be out of the reach of US regulators. And they put up walls to make it incredibly difficult for US residents to use those services. Are we building like a sort of two parallel Crypto versus here? What’s going on here?
S3: Yeah, so yes, that’s true. But I think there are two premises that we that are pretty important to explore before we kind of go into that. The first one is the US dominance within the Crypto markets. And it’s just very ironic how the US dollar has become a national security issue, especially with the rise of Chinese digital currencies and Crypto and so forth. But Crypto markets in general have actually kind of proven that the world is still dominated by the dollar A and B. Much more important, I think, is that the only regulator that really matters in this world, if you’re looking at the the more regulated OECD countries, is the US. And if we saw that in the past with what was the FATCA regulations, which the US basically lobbied all of Europe in order to pass. We’re seeing that in Crypto to every other regulator, be it the EU, Singapore, the FDA has been kind of dragging their heels and not saying anything about doing anything on a national level, waiting for the US to act. And even if we have seen different frameworks in the EU and more regional meaning in the UK and Singapore, there hasn’t been one cohesive policy decision that you can say applies to all of Crypto markets of, hey, these are the best practices. And as such, you saw two or three kinds of players, one people who said, hey, we can’t operate in the US right now, we’re better off going to Hong Kong because they’re much more supportive. We get banking, but we know that eventually we’re going to be listening to whatever the S.E.C. or the OCC tells us to. And in order to prepare for that, we are already starting to engage with the regulators. And that’s FTF that you see smaller exchanges or not smaller, but US based exchanges who have been regularly trying to engage with regulators, state by state money, transmitter license by money, transmitter license like Coinbase or crack, and working through the weeds of the entire process. And on the third bucket I put its finances. Those are saying, hey, you know what, we don’t need any law because the law just doesn’t count in for us. And we’re going to be what initially they called a distributed company, meaning where this optimist’s that’s everywhere and nowhere. And we’re going to allow anything to happen as long as we’re the ones creating the market. And it’s not a coincidence that Baghdad’s rose to prominence right at the IPO bubble where any meeting or pump and dump scheme just became too valuable to to not list. Now, the other aspect of that is the kind of going back, which is the stable points right now because everyone ended up using USDS based coins, the US is almost compelled to look at Crypto markets as a narrow banking financial stability risk, understanding that the more entangled crypto markets become with the traditional finance market, it presents more of a risk to Wall Street. And we’ve seen for the past year, I think. U.S. regulators, be it Manoogian with a stable act or different legislative proposals, coming in, trying to understand which regulator should actually take charge of stable coins before they become an illegal banking system that really is designed for criminals. And all this is happening in parallel to the national security threat that Facebook actually started deformable of both the U.S. and the EU, looking to understand how a digital dollar or digital euro looks like and how that fits into our system and the existing commercial bank system that we kind of rely on. And my theory of things is that while everyone is busy understanding these systems, the monetary implications, privacy, how does government identity look on the block chain for for stimulus money and so forth? The US is essentially doing what the U.S. has always done, and that is rely on private enterprise to come in with private moneys and build our own rails. And that’s how I see the US stable coins like US access becoming a real digital dollar.
S4: Stacy sent around a podcast interview. You did, I think, before the pandemic started. And one thing I was thinking about, I think you just said, which is like when Facebook and social networks were coming up, they were very under regulated. Everyone kind of was like, this is amazing. And we see how that wound up. Now is the same thing now happening with Crypto, is that what you’re saying?
S3: Yeah, but it hasn’t taken them 15 years to get to that point.
S4: It’s happening faster.
S1: So it happened almost immediately. Right. We had Facebook come out and announce this thing called Libra in conjunction with a bunch of big names coming to the FDA. And various other people would like
S3: Shopify strike,
S1: massive strike was involved. And then a bunch of regulators, both inside and outside the US kind of looked askance at this and said, are you sure about this? And then immediately everyone like rats left the sinking ship and everyone like
S2: I’m not sure the ship had made it into the water by the time that folks were leaving,
S1: exactly like it barely even existed at that point. It wasn’t even really a white paper at that point. And so, yeah, you know what, nevermind now it’s transformed into something called D.M., I think, which like I have even less concept of what D.M. is versus what Libra was. But the while there was maybe five minutes there that people thought that Facebook could become a major player and Crypto now it seems pretty obvious they’re not. And all of the big major players in Crypto are not like not only are they not big companies like Facebook or social media companies, they’re really not big established companies at all.
S4: Right. That’s what I’m saying. Like Facebook became a big established company and now can’t do things like create its own money.
S1: Yeah, you kind of need to be a quasi outlaw company. Right.
S3: But that’s the thing. Like the way I resent the outlaw,
S4: the US government regulators will ignore the little guys as they get big and then they’ll blink and they’ll be too big. And then we’ll have a Facebook we didn’t realize was coming again, like the same thing will happen again. Like once upon a time, Facebook was a little outlaw company. Right. And now it’s this monster.
S3: Facebook never really broke the law when it started out. We just didn’t understand implications of it sailing into a global scale. Right. But by doing that leap into a mega corporation that is almost a government, they’ve reestablished themselves as the new gatekeeper. They can kick out trump up their networks. They decide what the algorithm of content the people see, they can track it and so forth. So even if right now we’re looking at a wild west of Crypto and regulations are just coming in, the fact that the. Renegade maverick companies, most of them are not outlaws. They really do pay their taxes, despite what Senator Warren thinks, we might just be replacing our old gatekeepers who are established financial institutions that, despite the technology, still rely on legacy systems. And the financial intermediaries haven’t changed over the last hundred and so years with new gatekeepers that right now, you know, they’re not benevolent, they’re not nefarious, but they could end up in one of those two categories. And this is maybe where the timing of regulations coming in is pretty pitch perfect.
S2: And I think that’s even made a couple of really important points there. One especially about the fact of the difference between legality and consequences, particularly when we’re talking about social consequences. And one of the biggest criticisms that is regularly levied at regulation is it represents a kind of capture of what the companies that are being regulated are willing to concede, which is often less consequential than the big areas that go unregulated. And to your second point about we don’t know whether folks will be benevolent or neutral, there is something quite scary about having your identity and other elements of your ability to pay or just transact in the world, being tied to something that is one immutable and that everybody else potentially has the ability to be like, no, no, no. We can see that this is this is the rule governing who you are as a person. Yeah.
S3: So if I were just to go back to Facebook, I think that was the biggest risk of labor at the time. Facebook is an identity surveillance company. Right. But they don’t necessarily have access to your financial data. And one of the really brilliant things about our existing financial infrastructure system is that even without the backing, it’s pretty distributed, meaning there is no one party that sees your entire historical financial data. And even if you’re looking at your FICO scores, they only see a sliver of just one screenshot of assets or income and so forth. And Facebook getting into the financial transactional data would have been detrimental for social scoring, almost on a tiny scale. And you’re absolutely right. And one of the things that is going to be crucial going forward in terms of how blocking networks or Crypto evolved is going to be privacy tech like what we call Thira knowledge Krooks like multiparty computations, basically technology that allows people to share information without revealing the underlying data. And as such, they may be able to use cryptography in order to block routing back a bundle of information to specifically to Stacey. And we’re going to see more and more political influence asking questions about identity being raised in relation to central bank digital currencies, Facebook and what kind of information the government really needs in order to regulate. This is a very specific aspect of technology that I think is going to eventually be a very powerful tool for regulators. But it’s also a risk for us in potentially creating our own surveillance apparatus and forgoing a lot of our liberal right.
S1: Can I ask you, in terms of regulation, one of the problems we have in the United States is we have an insane alphabet soup of financial regulators. There’s more different financial regulators. And I can probably count on my fingers and toes. I know that the FCC, especially under Gary Gensler, is being very aggressive in maximalists about saying they want to regulate Crypto. The CFTC is saying similar things. The O.S.S. certainly was trying to get involved. It’s a bit unclear whether they still are, you know, presumably like the Financial Stability Oversight Council cares about this. Treasury will care about this. Probably state will care about this, too. I mean, this is a big, like diplomatic thing. Is there any hope in hell that the US will be able to get its regulatory ducks in a row and coordinate all of these different regulators to be able to come up with a clearly comprehensible regulatory regime that everyone can just operate under?
S3: I don’t know. And still very optimistic about the U.S., even if thing. And that is not a rational opinion at this point, because having witnessed the sausage making of the infrastructure bill last week, I think we got like a promo version of how cross regulatory agency legislation is going to look like. And a lot of it is a power grab instead of a very thoughtful process of what you need the technology for, who do you want to protect and what are the goals? So theoretically, all the laws or regulations for Crypto already exist, right? Security laws, commodities, consumer protection, yadda, yadda, yadda. But de facto, none of that does because Felix you hit the point. It’s so distributed and intermingled across agencies, not
S1: to mention among 50 different state attorneys general, all of whom can interpret those laws in however way they want.
S2: And your earlier point countries, because these are supposed to be borderless transactions ultimately.
S3: And how are you going to be able like if one country has one legislation, how are you going to have a cross-border across jurisdictional decision whether or not you reach finality of that transaction? So there’s going to be a lot of politics involved. But then again, I think every regulator on the face of the planet has an incentive to get involved in Crypto because they’re already thinking about their retirement plan. And God knows, I think a lot of US regulators have put aside money for their kids college funds just doing Crypto.
S1: OK, so let’s talk about the revolving door a little bit, because we’ve had two high profile resignations just in the past couple of weeks, including most high profile level. Brian Brooks used to run the O.S.S. under Trump. He was always very Crypto friendly. And then he goes off to join the regulated US arm of finance, which is one of the more sort of outlaw Crypto companies. And he loves, what, three months?
S3: Because the more than the O.S.S., you know, it’s almost like a half life, because when you go back, he started as the general counsel at Coinbase. Right. And from there, he went into Trump’s O.S.S.. That’s a very interesting one, I think, because I don’t understand what he did at Binyon. I think anyone in the either from the industry or looking out into the industry would have raised an eyebrow or two or even took out a Crypto based on for another Rotary’s. Why make that move?
S1: Like why appoint him CEO of Bynum’s US in the first place.
S3: Yeah. How much was he paid before you even took the job? Because finance is not only a dodgy company, it’s one of those actors that we might have mentioned earlier who operate outside the scale of any law in any jurisdiction and kind of decide that distribution is there a corporate structure and obfuscation of regulation is their M.O. And so even a regulated US entity for finance was very easy to kind of circumvent through VPN, to do blocks and so forth. And I don’t think finance took any real effort to prevent US people from trading on their platforms and just decided for people to understand what kind of exchange we’re talking about. This is a change that had a two hundred X margin trading markets listed. Anything you just wanted. Sometimes you had to pay and you could sign up for their accelerator, which almost guarantees listing liquidity and what might look like a pump and dump, but might maybe it’s not. Can we go
S4: back a little bit again? And can I ask you if I had to write a listicle for BuzzFeed and the list was like ten ways Crypto and the block chain is going to change the world in 10 years. What are the actual like? I’m sorry to go back to this again, but I still feel a little lost in the weeds. Is this a technology that’s going to mean that in 20 years banks will be completely different than they are now or stock brokerage? Like, what are the practical uses? Who’s going to be obsolete? Right. Because I know Felix isn’t like the analogy, but if you go back to the beginning of the Internet, people were like selling pet food online. That’s dumb selling books online. It’s all dumb. I don’t see what it matters. You know, even when Napster came out, no one saw a lot of people said this will end the recording industry or change it the way it works fundamentally. And there were, of course, correct. Can you just tell me what is going to happen? What are the practical implications? Talk to me like I am in first grade, please.
S3: I’ll get discussed. First off, I think the BuzzFeed listicle has to have Crypto kiddie’s hash, mask’s Crypto points and Peck. Sure, that’s first. Second, the number one thing that you are going to use Bachi for in about ten years is if you want to log in to BuzzFeed or to Slate, many, instead of using your email or your Gmail or using your Facebook identity, you might be able to use your Crypto wallet behind the scenes and basically sign with the cryptographic signature. You wouldn’t even notice it. And by doing that, you would send a micro transaction to Slate, many specifically for this podcast, and get access. So that would be a form of micropayment and identity. And the other thing would be a feeder’s economy. For right now it’s for the head and not for the fat, but for a different way for monetizing media content are what digital games in a much more interoperable way than what we’ve become accustomed through Patreon or Step Stack and or even within the Spotify market. Right. Well, we see the big years of the world taking in the lump sum of the money while more obscure artists still have to struggle for the pennies that they get on every list. So those would be like, I think the very basic uses and
S1: I want to jump in here and say, like all of those uses in one form or another payment
S2: is identity a payment?
S4: It’s an admission. Password’s identity
S3: is not a payment then is
S1: not a payment. But the idea is that the reason why Slate wants to make this podcast available to me and not you is because I’ve paid for it and you have it like it’s connected to payments in a pretty sort of tight way. And it does strike me that payments is the one area where Crypto is going. Absolutely nowhere like that. How? Genuinely been a lot of really interesting development in cryptocurrency exchanges and finance and block chain, but not in payments. And I mean, I do have a dog in this fight. I do have a bet with Ben Horowitz on this. I hope we will ever have Crypto payments taking off. But are you with Ben on this one? Are you someone who thinks that, yeah, it’s been 10 years and we haven’t really got anywhere, but yeah, give us another three years and we’ll start seeing Crypto payments all over the place.
S3: My I said ten years. I’m actually with you Felix. I’ve thought about this a lot. I know about this but I’m with you and I’ll explain why. I think other than micro transactions, existing payments like for example, I think the best payments network right now is faster payments in the UK are just by every single criteria, better than anything we’ve seen in Crypto. On the other hand, across jurisdictional payments, Crypto, it really is an alternative. But essentially payments are not the UK’s case. Financial markets, digital assets, if it’s gaming or content or so forth. It’s not the payment element as much as the fact that the payment has a conditional as it is incorporated into another programmable asset that makes it that powerful. But if it’s just payment persay Crypto, how you
S4: saying are you telling me that Crypto will make it so that in a few years I won’t have to log into every site that I subscribe to on the Internet and things will make a lot more sense. And in terms of just like password hegemony.
S3: Yeah, let me one up that the
S4: terrible the paywall that we if that is, I might be coming around
S3: honestly. Well, I got one better for you. This is like one of my favorite. Imagine your own stock and through your identity, you can use WhatsApp or Telegram or Twitter down to someone else and you don’t have to log out and look for that messaging app in order to find that person.
S4: That’s another use case.
S3: I think that’s super powerful because that you’re basically using the back end of Crypto networks in order to create cross organisational sharing of data at the end or log IDs or payments or just financial transfers.
S4: So making the online world as seamless as the real world where I can just go up and say hi to Stacey and tell her something without having to, like, figure out a sign up with my password on it and check to see if we’re speaking the same language first and whatever else. People, people.
S3: Yeah, that it’s
S4: very pretentious language there.
S2: One of the biggest concerns that I have is exactly what you are describing, which is tying payments to identity. Right. Because for me, I am just as a person who gets really annoyed whenever I see. Yes. Another retailer or, you know, like the NYC Metro Underground subway. Gosh, I’ve lived in too many countries say that we are no longer accepting cash in order for you to be able to buy a Metro card. And suddenly it’s like your ability to move is tied to a payment mechanism that identifies you to one or more people with great ease. And is this a problem that Crypto, lockshin et cetera, is supposed to solve, or is this a problem that it can actually reinforce?
S3: I think you’ve hit the nail because I don’t know the answer to that. I think we’ve seen the surveillance capacity of digital payments in Hong Kong when different protesters were tracked. You see that in the UK on the tube, right? If you’re using Apple Pay, it’s sometimes like they can really figure out and you can have access to that later on. It’s not the the surveillance data that kind of encompasses us or kings and Trace’s people back together is not necessarily just financial transactions. A lot of it is geolocation or the fingerprinting that we leave. And that is something that Crypto has no aspiration to solve. And it’s a much greater, I would say, even a regulatory problem from all the Google logging’s and Android and Facebook apps that we see. Right. But there is a second order effect where Crypto is evolving a lot of privacy applications that can later be used to obfuscate our data in different settings that aren’t necessarily financial, but our financial. And the incentive from Crypto people to do that is they don’t want other people to know what their trades were or what they hold or what their net worth is. And it’s not necessarily criminal. It’s just because if that information would be transparent, then you’re allowing a new vector for market manipulation on the walking.
S4: Yeah, what Stacey was asking was sort of the question I had after listening to the podcast she sent around, which was on the one hand, it was like blocking could make it easier for dissidents to have privacy. And then on the other hand, blocking is going to make it easier for you never to have privacy and everyone to see everything you do. So I was just so confused by that contradiction.
S3: Because I think we’re just living in a very tumultuous time where we see that the end of what we thought was the attack that protected us and ensured our rights is not going to be enforceable in the future. So you look at black teen tech and I can very easily see it being used by some authoritarian regime in order to track everything and everyone like what we’re seeing coming out of China lately. But on the other hand, the second order effects that I was mentioning or privacy technology there, Crypto markets are really pushing for, could actually end up becoming the tool to better maybe not surveillance, but obfuscate a lot of the transactions in our data in the real world. You know, this is where we have a conflict of interest between anti money laundering and financial terrorism tracing and privacy, because since the Patriot Act, a lot of the money laundering tools that national security apparatus has used to trace back terrorism has been surveilling the financial system. And as part of FATCA, as I mentioned earlier, they’ve decided that they’re much better having a purview that’s permitted to everything that’s happening in the world rather than targeting the specific culprits and suspicious activities. And I and saying that the financial intermediaries that we know today as i.e. the banks or the brokers and regulators, all they have to do if they see something suspicious is write on a piece of paper or a SARS report and say, hey, this is suspicious, give it to the regulator who already has stacks of paper that they would look at. And, hey, we just covered our behinds so no one can come back and point at us to tell us it’s our fault. And we also saw that in the recent Senate legislation where they’re basically saying, hey, we don’t know what we’re doing, so give us all the information because everyone could be a suspect. But on the other hand, we see that in the past, for example, the IRS has said, you know what, you report to us voluntarily, all your data, what you think your tax liabilities are, and we’re going to sue. You’re telling the truth. But if you’re not, we’re going to come hard at you and it’s going to really hurt. So it’s not a question of what the government wants to see and what the technology allows them to see. And that balance act is still up in the air. And I think it’s very dependent on on the political atmosphere.
S2: Absolutely. De.
S1: I want to talk a little bit more about governments specific, specifically this whole issue of central bank digital currencies, which everyone is talking about right now. Let’s do that in the slate. Plus, though, because I feel like we need to have a numbers round because that’s nothing more amenable to a numbers round than Crypto or whatever you want. Stacey, do you have a number?
S2: Yes, it’s nine point seven percent. And Sharda to unlock the best numbers newsletter in the game, but I was really interested by this and it means only nine point seven percent of people in the largest 50 cities have an ability to charge an electric car within a five minute walk. And this settles for me along where I’m trying. I don’t have bets with people at the scale that you do Felix. But I have a very active conversation with folks about what are the infrastructural and environmental challenges of electric cars. And one of them is where do you charge it? If you don’t work for a large tech company that subsidizes your charging and its parking lots, like, what are your options? But I didn’t realize it was that low and I haven’t done the math yet, but I’m going to see what that relates to compared to the percentage of the people in the 50 largest U.S. cities who actually own one of these cars.
S1: This is definitely something that the infrastructure bill is trying to increase. But just logistically speaking, it stands to reason. Apartment living and parking spaces don’t live well together. I actually have a Crypto related number, which is six hundred and eleven million
S1: which is the amount the something called the Poly Network, which I have to admit I had never even heard of, hacked to the tune of six hundred eleven million dollars, including eighty five million of those stable coin’s two hundred and seventy three million of etherial and various other things including finance. And it’s what’s known as a cross chain hack. And at this point, my ability to understand what is going on here completely. I go, I go whopping out of my depth. So maybe my you can just give us a very quick what is across Genack and should we still be worried about the same thing? We are worried about 10 years ago, which is the big problem with Crypto is that I don’t understand how to keep this stuff safe and I can just have it all hacked one morning and lose everything.
S3: So anyone I’ve spoken to in the past two hours or three hours since the attack, no one has ever heard of the polidor. So it’s one of those random things that happen even from Crypto people. This is like the back alley christain exchange. That’s like, oh, wait, that existed six hundred million dollars in a network. No one heard of Crypto across what essentially is like if you have two different networks and you want to move money from one network to the other without going through an exchange that’s across chain swap and that actually increases the amount of money on the line because then you have money in one chain, which was in this case and another that was the polygon and both got swiped in. But and I saw that over the last hour. You can actually trace all the different swaps that the hacker did. He already holds about eighty million dollars of us. Do you see which he’s going to be blocked and you won’t be able to use that. And there’s a coordination effort to blacklist all those tokens. So no other protocol or network will accept them.
S2: So they can’t do anything with this money, really.
S3: They can send it to other criminal
S2: aspects of the criminal network.
S4: We go so well, the people who lost the money get it back.
S3: So, Max, do that. And there have been defi hacks that actually ended up negotiating compensation to the hackers in return for the money, which I just kind of love, where it’s like I’ll steal your money and then you get to pay me to give it back. So that does happen because it’s so open. You have to understand that this is like the battle testing of money in Crypto and it’s like everyone has an incentive to attack. And if you attack it and you take the money, that doesn’t necessarily make you a bad guy if you return it.
S2: It’s called adversarial testing for sure.
S1: Crypto Emily. What’s your number?
S4: My number is not related to Crypto. I was I just got back from vacation, so my number is six. Six is the number of episodes in the HBO series The White Lotus, which I am recommending. Everyone is moneyless. It is really good. And I know so many listeners are big success and fans and we haven’t had new episodes of that series in a while. So the White Lotus is similarly about the lives of rich people, but it all takes place at a resort in Hawaii. Looks really good. And it doesn’t just focus on the rich people. It focuses also on several characters who work in the resort and they are among the most delightful in the series. I will give away no spoilers. I think by the time you listen to this episode, it might be completely all six episodes will be available for you to binge right away as soon as you stop listening to this. And so, yeah, you should go and watch that as soon as you stop listening to this.
S1: My No.
S3: I have a Crypto related one in a non Crypto
S1: do the non Crypto we’ve had. This is a very Crypto heavy episode. So what’s the non Crypto number
S3: six percent, which is apparently the inflation in McDonel prices since the pandemic started because apparently the supply chain crisis is so bad. I went on a redit rabbit hole. Wow. After I saw this story in the Wall Street Journal where they basically ran out of wrapping paper. So now they’re serving food on trays in the driving’s because they can’t resupply straws or paper bags to McDonalds.
S2: OK, that’s a good number.
S1: I think that’s probably for the main show. We’re going to keep on talking to Meyer a bit about CBD and the Slate plus. But otherwise, thank you, Maya, for coming on this show, which was just absolutely illuminating. I feel like I learned so much. Thank you to Jessamine Molli for producing. Thank you to all of you guys for e-mailing us on Slate money at Slate dot com. And we will be back next week with even more sleep money. So obviously, folks that sleep money numbers around we’ve recorded before Mr. White had decided to return that six hundred eleven dollars million. We talked about that last week on Slate Plus. But Maya’s point absolutely stands. OK, folks, we’re going to do CBD, CS in Slate, plus trying to make it as high level as possible, Miah, there’s been a huge amount of talk about this. They’re called central bank digital currencies. China has won a lot of other countries on their way. The United States is talking about it. That’s going to be a big paper from the Fed coming out in the coming months. My first big question for you is, do they have to be Crypto? Is this a Crypto thing? Are they that they have to be blocked? Obviously, we’re moving into a world where everything is electronic and central banks want to do things much more digitally. But to what degree is this even does this even belong in like a Crypto episode of Slate Money?
S3: Because it’s a Crypto misnomer? I think there are three elements of something being Crypto. First of all, it has to be nice to it has cryptographic signatures. And three, it’s decentralized. So the question becomes who can be a participant and who is a validator on that network without getting into the weeds of what is a validator? They’re just the people who kind of work to uphold the network. And a lot of the CBD is more about the gatekeeping. And when you eliminate the gatekeeping, it’s a centralized service for all intents and purposes.
S1: So CBD basically, insofar as it’s issued by a central bank backed by the full faith and credit of a country, the central bank has full visibility into what coins are where and how they’re moving and they get to control the money supply. At that point. It’s basically not a cryptocurrency anymore.
S3: It’s not a currency and it doesn’t necessarily rely on a block chain. It could just as well be one centralized database that has different backups and stores, the same amount of data of all the financial transactions.
S1: And yet if you talk to people like Circle who run the table, like, it seems pretty clear that on some level CBD users are going to compete with stable clients and they’re going to have that. The whole point of issuing one is to create a form of currency that has a lot of the same utility that you talked about on the show. And presumably there will be people who, upon finding AC DC and saying, oh, this is the I can trust my government, I can have the same faith in this currency so I can have in my paycheck currency, they would prefer that to a cryptocurrency. That is just permission lesson invented by an anonymous guy called Satoshi Nakamoto. So is it fair to say that even if they’re not cryptocurrency themselves, they do on some level compete with cryptocurrency?
S3: Yes, I would even go so far that the best case scenario is that codices would be like a public option for private companies that are USDA or private enterprise stable ones, so that without having to registered or do a KYC to any of these elements, you’d still be able to use AC DC while being on Unbaked. Right? I mean, there’s the irony. And people that are basically banned from the financial banking industry today thinking they’re going to be able to get CBC while they can’t open a bank account or Coinbase account. So CBC is supposed to be available for everyone.
S2: Miah, there’s an acronym that you’ve used a couple of times I meant to ask you about. So for the benefit of aversely plus listeners, can you explain the concept of KYC or know your customer?
S3: Know your customer means that every financial intermediary in the system has to keep a record of every single client. And by keeping a record doesn’t mean only a name. It means storing their identity document or sometimes a proof of address and so forth, so that when there is something suspicious, they can just point back and say, Oh, that was my Zehavi she’s the person you need to look for.
S2: Got it. Thank you.
S1: What’s your prognosis to CBD? So is everyone going to have one? Is the United States going to have one?
S3: I think as soon as one big Western country is going to have one, everyone’s going to have one. Up until then, it’s still up in the air. Like you said, the US is very has been very busy talking about who’s going to be talking about a Fed coin or DC, whereas the EU and the ECB have done a lot of research and a lot of progress and kind of tried out. And it’s really interesting because the most advanced central bankers in terms of CBC development, I think really are leading the pack here. And in this case is Singapore and the Central Bank of Canada. They’ve done it with privacy, as we discussed before, had zero knowledge and identity, and they’ve managed to have transactions from Singapore to Canada in one block change. So that’s really the Holy Grail, private cross jurisdictional transaction. I don’t know if they’re if the CBC is really going to exist, but right now everyone’s trying to say there’s a CBC in the works and figure out like, why do we really need a CBC other than the fact that we’re scared of trying and Facebook taking over the world. And right now they’re like three good use cases that might justify that. No. One is cross-border remittances. As we mentioned earlier, Seconde is airdropping different. As many and furlaud and welfare checks and number three, that I don’t think gets enough attention, but is definitely a really big incentive and that is negative interest rates. So I don’t know. For those of you who don’t remember, there was a lot of talk several years ago about trying out negative interest rates. And there were talks between different banking I.T. departments where central bankers asked them what happens if we put in a minus the interest rate of our databases and they simply would have crashed and central bank digital currencies kind of allowed them to have that lever into the system where they can decrease the value of different deposits for people, which is scary, but it might actually be a new, interesting and fuzzy monetary tool.
S1: Ken Rogoff loves his negative interest rates and he also loves digital currency. So there you go. Yeah, the links at the hip. Thank you. Now, I know CBD is
S2: and why
S1: so. Yeah. Yeah.