WEBVTT - Crypto Revisited (Part Two) 0:00:03.160 --> 0:00:05.480 This is Red Pilled America. 0:00:06.160 --> 0:00:08.920 Before we start the show, just a reminder to share, like, 0:00:08.960 --> 0:00:11.760 and subscribe to this podcast wherever you're listening to it, 0:00:11.920 --> 0:00:14.360 and please give us a five star rating. Help us 0:00:14.360 --> 0:00:16.480 save America one story at a time. 0:00:18.600 --> 0:00:20.200 Previously on Red Pilled America. 0:00:20.280 --> 0:00:23.840 Over the weekend, speculation rose about the solvency of FTX. 0:00:25.600 --> 0:00:28.560 It appears that FTX has stop woodraws, so. 0:00:28.480 --> 0:00:31.280 It looks like all ftx dot com balances or zero. 0:00:31.520 --> 0:00:34.560 Sam Bankman Freed was a pillar of the crypto world. 0:00:34.920 --> 0:00:37.519 I grew up in the San Francisco Bay area on 0:00:37.680 --> 0:00:38.800 a Stanford campus. 0:00:38.840 --> 0:00:42.320 From his first breath, Sam was surrounded by the elite 0:00:42.520 --> 0:00:43.920 of the academic elite. 0:00:44.200 --> 0:00:47.320 Effective autism is about using your time and money as 0:00:47.360 --> 0:00:49.760 effectively as possible to make the world a better place. 0:00:49.960 --> 0:00:53.560 Sam set up a cryptocurrency trading company. He'd eventually call 0:00:53.640 --> 0:00:55.080 it Alanita Research. 0:00:55.200 --> 0:00:58.000 We want a bank account and if we're bitcoinn arbitraged 0:00:58.040 --> 0:01:00.280 trading shop founded by a bunch of twenty year olds, 0:01:00.360 --> 0:01:02.040 if that's the name of our company, we're not getting 0:01:02.040 --> 0:01:02.800 our bank account. 0:01:06.039 --> 0:01:07.479 I'm Patrick Carlci. 0:01:07.319 --> 0:01:09.160 And I'm Adriana Cortez. 0:01:09.080 --> 0:01:12.480 And this is Red Pilled America a storytelling show. 0:01:13.640 --> 0:01:16.200 This is not another talk show covering the day's news. 0:01:16.400 --> 0:01:18.360 We are all about telling stories. 0:01:18.880 --> 0:01:21.800 Stories. Hollywood doesn't want you to hear stories. 0:01:21.840 --> 0:01:26.120 The media marks stories about everyday Americans at the Globalist ignore. 0:01:27.600 --> 0:01:30.600 You could think of Red Pilled America as audio documentaries, 0:01:30.640 --> 0:01:39.600 and we promise only one thing, the truth. Welcome to 0:01:39.640 --> 0:01:51.680 Red Pilled America. We're at part two of our series 0:01:51.680 --> 0:01:55.000 of episodes entitled Crypto Revisited. If you haven't heard the 0:01:55.000 --> 0:01:58.240 first episode, stop and go back and listen from the beginning. 0:01:58.640 --> 0:02:00.840 We're looking for the answer to the question where is 0:02:00.880 --> 0:02:04.720 cryptocurrency going? By telling this story of the astonishing rise 0:02:04.760 --> 0:02:10.040 and spectacular fall of crypto entrepreneur Sam Bankman freed so 0:02:10.079 --> 0:02:12.880 to pick up where we left off. In late twenty seventeen, 0:02:13.120 --> 0:02:17.440 Sam launched a cryptocurrency trading firm he named Alameda Research. 0:02:21.600 --> 0:02:24.639 He chose research because Sam knew that the banking community 0:02:24.880 --> 0:02:28.679 wasn't too keen on the crypto world, but everyone liked research. 0:02:29.240 --> 0:02:31.520 The name was a perfect way to conceal the nature 0:02:31.560 --> 0:02:35.560 of his business. A problematic behavior was initiated. 0:02:35.919 --> 0:02:39.560 Sam's band of crypto novices began exploiting a Bitcoin price 0:02:39.600 --> 0:02:43.079 difference between the Asian and American markets, where they purchased 0:02:43.080 --> 0:02:45.480 bitcoin in the United States and re sold it at 0:02:45.480 --> 0:02:49.200 a higher price in countries like Japan. Sam would eventually 0:02:49.240 --> 0:02:52.320 move Alameda Research out of the United States at. 0:02:52.160 --> 0:02:54.960 This point, whereas most of crypto happening, it's not in 0:02:54.960 --> 0:02:55.959 the States, it's in Asia. 0:02:56.320 --> 0:03:00.040 That's Sam bankman Free explaining his company's move, and so. 0:03:00.000 --> 0:03:02.280 It also kind of became clear that, you know, we 0:03:02.400 --> 0:03:05.440 really want relationships with their customers. The police to be 0:03:05.720 --> 0:03:07.280 was well, at least somewhere in Asia. 0:03:07.440 --> 0:03:08.640 Sam chose Hong Kong. 0:03:08.919 --> 0:03:11.040 And then why Hong Kong, Well, we thought about a 0:03:11.080 --> 0:03:14.920 bunch of different things here, including like what's centrally located, 0:03:15.080 --> 0:03:18.799 where is the bulk of crypto happening, what's the relationship 0:03:18.800 --> 0:03:21.720 of the country like to the important jurisdictions in crypto, 0:03:22.120 --> 0:03:25.000 and how easy is it for foreigners to get to 0:03:25.000 --> 0:03:27.680 set up shop there, and sort of all of those. 0:03:27.840 --> 0:03:29.079 Mind together more. 0:03:29.160 --> 0:03:31.519 In markets like Hong Kong also didn't have the tight 0:03:31.600 --> 0:03:35.120 regulations that were in place in the United States. Sam's 0:03:35.120 --> 0:03:38.080 Alameda Research was at times shifting as much as twenty 0:03:38.120 --> 0:03:41.000 five million dollars a day, but the good times didn't 0:03:41.040 --> 0:03:44.480 last for long. The bitcoin price difference began to shrink, 0:03:44.720 --> 0:03:48.560 shrinking Sam's profits along with it. By late twenty eighteen, 0:03:48.800 --> 0:03:52.920 Alameda Research was already in trouble. The algorithm SAM created 0:03:52.960 --> 0:03:55.760 for automated trading ran up a series of losses on 0:03:55.800 --> 0:03:59.160 some bad trades. SAM was in need of money, so 0:03:59.360 --> 0:04:04.200 Alameda began to approach investors for loans. They missed high returns, 0:04:04.480 --> 0:04:07.760 as much as twenty percent. And here's the kicker. They 0:04:07.800 --> 0:04:13.880 promised their investors that there was no risk. In one 0:04:13.920 --> 0:04:18.440 presentation deck, Alameda Research claim to quote, these loans have 0:04:18.640 --> 0:04:23.159 no downside end quote in the world of finance, guaranteeing 0:04:23.200 --> 0:04:26.440 this level of return while promising no risk should have 0:04:26.480 --> 0:04:27.760 been a giant red flag. 0:04:28.240 --> 0:04:32.320 Be wary of fast growing financial services companies because ultimately 0:04:32.400 --> 0:04:34.960 anybody could grow a financial services company quickly if you 0:04:35.000 --> 0:04:36.160 just give away a lot of stuff. 0:04:36.360 --> 0:04:39.400 That's a representative from Doomberg, one of the most widely 0:04:39.480 --> 0:04:43.599 read finance newsletters on subscription based platform Substack. We'll be 0:04:43.640 --> 0:04:49.120 hearing more from Doomberg throughout this series. Alameda's presentation deck 0:04:49.240 --> 0:04:52.560 went on stating, quote, we guarantee full payment the principle 0:04:52.600 --> 0:04:55.800 and interest enforceable under US law and established by all 0:04:55.839 --> 0:04:59.960 parties legal counsel. To any seasoned finance veteran, it was 0:05:00.000 --> 0:05:04.080 a staggering claim. No less so because of who was 0:05:04.240 --> 0:05:06.080 likely shepherding Sam's legal efforts. 0:05:07.600 --> 0:05:10.400 I was the one that hired our early lawyers. 0:05:10.640 --> 0:05:13.760 That's Sam's father, Joe Bankman, in an August twenty twenty 0:05:13.760 --> 0:05:17.760 two podcasts discussing his early work with his son. According 0:05:17.800 --> 0:05:20.240 to Joe, Sam had been asking him for help in 0:05:20.279 --> 0:05:22.520 the early days of his cryptocurrency ventures. 0:05:22.800 --> 0:05:25.480 I wanted to make sure that I could do it 0:05:25.520 --> 0:05:28.880 and be useful. But I think from the start, whenever 0:05:28.920 --> 0:05:32.360 I was useful, I lend a hand, And it was 0:05:32.440 --> 0:05:35.760 clear at the start that on things like law, I mean, 0:05:35.760 --> 0:05:38.760 the company didn't have any lawyers, So I think my 0:05:39.120 --> 0:05:41.520 utility there was pretty obvious. 0:05:41.520 --> 0:05:44.440 From the beginning. There was a problem with Alameda Research's 0:05:44.480 --> 0:05:47.400 business model. To make big money in the trading business 0:05:47.440 --> 0:05:49.800 of buying low and selling high, you need to be 0:05:49.920 --> 0:05:53.880 right practically every time. If you're wrong, if you instead 0:05:53.920 --> 0:05:56.520 buy high and sell low, you can lose everything in 0:05:56.640 --> 0:05:59.839 one day, Especially for using algorithms to trade in the 0:05:59.920 --> 0:06:03.360 volatile ecosystem of crypto. The smart money in a world 0:06:03.360 --> 0:06:06.560 of finance typically tries to go a different route. They 0:06:06.640 --> 0:06:09.359 try to become a middleman, where fees are made on 0:06:09.480 --> 0:06:12.400 both sides of a trade. As a middleman, you don't 0:06:12.400 --> 0:06:14.880 have to be right all the time. You just need 0:06:14.920 --> 0:06:17.560 to be in the room, matching buyers with sellers and 0:06:17.600 --> 0:06:21.119 shaving a little off the top in the form of fees. Now, 0:06:21.160 --> 0:06:24.480 in the early crypto world of just bitcoin, a middleman 0:06:24.640 --> 0:06:27.680 may not have had as many opportunities to be this matchmaker. 0:06:28.360 --> 0:06:31.320 Imagine one or two stocks trading on the stock exchange, 0:06:31.560 --> 0:06:35.039 not much action. But if the ecosystem expanded a bit, 0:06:35.440 --> 0:06:38.000 if there were more things to trade, there may be 0:06:38.160 --> 0:06:41.159 enough trades to make a killing as a middleman. And 0:06:41.200 --> 0:06:47.920 that's exactly what was developing in the world of crypto. 0:06:49.080 --> 0:06:53.120 By twenty eighteen, the industry was quietly undergoing an evolution. 0:06:54.080 --> 0:06:57.000 Just as the bitcoin price difference began to fade, a 0:06:57.080 --> 0:07:00.719 new type of cryptocurrency was flooding the market. Bitcoin was, 0:07:00.760 --> 0:07:04.200 no doubt that dominant crypto, grabbing all the headlines, but 0:07:04.240 --> 0:07:07.599 there were new cryptotokens popping up outside of the mainstream 0:07:07.800 --> 0:07:10.640 that started to change the character of the crypto community. 0:07:11.120 --> 0:07:14.000 Before we explained the significance of this phenomenon. We should 0:07:14.040 --> 0:07:17.040 give a quick refresher on Bitcoin and the initial problem 0:07:17.080 --> 0:07:22.920 it was purportedly created to solve. Bitcoin was the original 0:07:23.040 --> 0:07:27.360 decentralized cryptocurrency, launched in early two thousand and nine by 0:07:27.400 --> 0:07:30.200 an anonymous figure or group of figures no one really knows, 0:07:30.640 --> 0:07:34.360 known as Satoshi Nakamoto. Bitcoin was pitched as a digital 0:07:34.400 --> 0:07:37.400 cash that looked to bypass the out of control dollar 0:07:37.440 --> 0:07:40.920 printing press of the Federal Reserve, the United States central 0:07:40.960 --> 0:07:44.280 bank that was causing massive inflation and wreaking havoc on 0:07:44.320 --> 0:07:48.400 the American economy. To bypass the Federal Reserve, Satoshi needed 0:07:48.440 --> 0:07:51.440 to overcome a critical problem that until the two thousand 0:07:51.440 --> 0:07:55.040 and eight financial crisis, had gone unsolved. For decades. Prior 0:07:55.080 --> 0:07:58.960 to the crisis, computer programmers called cryptographers had been trying 0:07:59.000 --> 0:08:01.680 to figure out how to create a digital coin that 0:08:01.720 --> 0:08:04.400 could only be possessed by one person at a time. 0:08:05.080 --> 0:08:07.520 When I send an email to someone, both I and 0:08:07.560 --> 0:08:10.080 the person receiving it have a copy of the email. 0:08:10.480 --> 0:08:13.280 So Toshi's technology devised a way to send what some 0:08:13.320 --> 0:08:16.920 consider a digital object to someone without leaving a copy 0:08:16.920 --> 0:08:20.320 with the sender. He called that digital object, the bitcoin. 0:08:20.640 --> 0:08:22.840 So when I send a bitcoin to someone, I no 0:08:22.960 --> 0:08:25.600 longer have a copy of the bitcoin. The person I 0:08:25.640 --> 0:08:28.720 send it to now has sole possession of the digital coin. 0:08:29.080 --> 0:08:32.880 It's handed off, just like cash. The technology that performs 0:08:32.920 --> 0:08:36.560 this task is called the blockchain. It records the transaction 0:08:36.800 --> 0:08:39.920 into a public ledger through an automated system of computers 0:08:39.960 --> 0:08:44.000 throughout the world, removing the costly middleman like Bank of America, Visa, 0:08:44.040 --> 0:08:48.120 and PayPal that deduct large transaction fees. Bitcoin was thought 0:08:48.160 --> 0:08:51.439 to be the first functioning Internet cash. Instead of gold 0:08:51.480 --> 0:08:55.239 coins or paper dollars, this new internet cash used bitcoins. 0:08:59.640 --> 0:09:02.280 A crucial feature of this bitcoin system is that there's 0:09:02.280 --> 0:09:05.360 a limit to the amount of bitcoins in circulation. Unlike 0:09:05.400 --> 0:09:07.440 the US dollar that can be printed by the Federal 0:09:07.480 --> 0:09:11.160 Reserve at will. The maximum number of bitcoins that will 0:09:11.160 --> 0:09:14.000 ever exist is twenty one million, and the bitcoins come 0:09:14.040 --> 0:09:17.440 into existence in a not so easy way. Computers raised 0:09:17.480 --> 0:09:20.400 to solve the complicated math problems of the blockchain, and 0:09:20.440 --> 0:09:23.600 when they do, they're rewarded with bitcoins. This is called 0:09:23.640 --> 0:09:27.360 bitcoin mining. The bitcoin system was designed to mimic the 0:09:27.440 --> 0:09:30.199 old gold standard, where the number of US dollars were 0:09:30.200 --> 0:09:32.840 confined to the amount of gold in the Treasury Department. 0:09:33.120 --> 0:09:36.720 This is a very important point today. As the Federal 0:09:36.800 --> 0:09:40.440 Reserve continues to print money, the US dollar loses purchasing 0:09:40.480 --> 0:09:43.280 power over time because there are more dollars in circulation. 0:09:43.840 --> 0:09:46.079 If you think of dollars as shares of stock in 0:09:46.120 --> 0:09:48.720 the United States, the more dollars that there are, the 0:09:48.800 --> 0:09:51.320 smaller the share of the United States you own. So 0:09:51.440 --> 0:09:54.480 the value of a US dollar decreases from year to year. 0:09:54.920 --> 0:09:57.679 That's why the price of products continue to rise every year. 0:09:57.880 --> 0:10:02.239 It's because your dollars are losing value. Sotoshi Nakamoto allegedly 0:10:02.240 --> 0:10:04.800 wanted to solve the this inflation problem by limiting the 0:10:04.880 --> 0:10:07.280 number of bitcoins that could ever be in circulation to 0:10:07.280 --> 0:10:10.160 a finite number that's twenty one million, so from year 0:10:10.160 --> 0:10:12.960 to year. Unlike the US dollar, bitcoins can't just be 0:10:13.040 --> 0:10:20.400 printed at will. When the Bitcoin network first launched on 0:10:20.480 --> 0:10:23.079 January third, two thousand and nine, almost no one was 0:10:23.120 --> 0:10:26.360 paying attention, but as a single bitcoin went from zero 0:10:26.520 --> 0:10:29.120 to one hundred, then to one thousand, then to nearly 0:10:29.240 --> 0:10:32.920 twenty thousand dollars, a crypto gold rush infected the globe 0:10:33.120 --> 0:10:37.079 and people wanted in. By twenty eighteen, hidden behind the 0:10:37.120 --> 0:10:41.720 bitcoin headlines, a dramatic shift was underway. Speculators entered the 0:10:41.720 --> 0:10:44.880 market wanting to make fast money on crypto, but it 0:10:44.960 --> 0:10:47.199 was a bit too late to ride the bitcoin shuttle 0:10:47.200 --> 0:10:49.680 to the moon. Gone were the days of buying a 0:10:49.720 --> 0:10:52.400 single bitcoin fo one hundred dollars, then watching the price 0:10:52.440 --> 0:10:56.800 skyrocket to twenty thousand. These speculators needed something new to 0:10:56.840 --> 0:10:59.520 happen in crypto so that they could try to ride 0:10:59.559 --> 0:11:02.680 the wave. And that's something new was a whole new 0:11:02.760 --> 0:11:10.520 job of cryptotokens going against Bitcoin's decentralized ethos. Hundreds of 0:11:10.679 --> 0:11:15.200 unscrupulous characters began creating their own cryptocurrencies controlled by the 0:11:15.240 --> 0:11:20.079 person creating them. Bitcoin's decentralization ethos went out the door, 0:11:20.559 --> 0:11:24.600 and these new tokens presented an opportunity, an opportunity that 0:11:24.720 --> 0:11:32.920 Sam Bankman Freed and his inner circle appeared to recognize. 0:11:34.520 --> 0:11:38.959 After we close today, I'm going to visit one of 0:11:38.960 --> 0:11:41.559 my sons who has a startup in Berkeley. 0:11:41.960 --> 0:11:45.280 That's again Sam Bankman Freed's father, Joe Bankman. In early 0:11:45.320 --> 0:11:46.200 twenty eighteen. 0:11:46.400 --> 0:11:49.280 It's a business and my father was a businessman and 0:11:49.360 --> 0:11:53.840 while I'm not quite evidently, I feel my father jumping 0:11:53.880 --> 0:11:58.760 into my skin a little bit and appreciating the intricacies 0:11:58.800 --> 0:12:00.240 of the business's built. 0:12:00.559 --> 0:12:02.839 Joe was a law professor at Stanford, but in the 0:12:03.040 --> 0:12:05.800 early days of Sam's crypto ventures, Joe had a side 0:12:05.880 --> 0:12:08.959 hustle helping his son. While Sam was busy trying to 0:12:09.000 --> 0:12:12.240 grow alume to research his father, Joe was exploring some 0:12:12.280 --> 0:12:14.520 of the legal issues surrounding cryptocurrency. 0:12:14.760 --> 0:12:18.320 Welcome to Stanford Legal, where we look at the cases, questions, conflicts, 0:12:18.320 --> 0:12:20.920 and legal stories that affect us all every day. I'm 0:12:20.920 --> 0:12:22.840 Pam Carlin along with Joe Bankman. 0:12:23.320 --> 0:12:27.160 Joe co hosted at Stanford Legal podcast. Just as hundreds 0:12:27.200 --> 0:12:30.040 of new cryptocurrencies flooded the market, Joe and his co 0:12:30.120 --> 0:12:32.600 host were introducing the industry to his audience. 0:12:33.520 --> 0:12:36.560 So, Joe, suppose that you and I decide to go 0:12:36.640 --> 0:12:39.839 in on a gift certificate to send a beloved friend 0:12:39.840 --> 0:12:42.040 to a day spa, and I owe you a bunch 0:12:42.080 --> 0:12:45.240 of money for it. I could hand you the cash 0:12:45.840 --> 0:12:47.840 as I did, or I could I could write you 0:12:47.880 --> 0:12:50.760 a check. You could tell me your bank account please, 0:12:50.880 --> 0:12:52.760 and then I could make a deposit or else, maybe 0:12:52.760 --> 0:12:55.360 a withdrawal. I could use a credit card if I 0:12:55.400 --> 0:12:57.959 was buying the gift certificate from the spy itself, where 0:12:57.960 --> 0:13:00.320 I could use PayPal, although I wouldn't. Those aren't the 0:13:00.320 --> 0:13:01.840 only ways to pay people these days. 0:13:01.960 --> 0:13:06.400 That's right. You could also also use blockchain technology. Blockchain's 0:13:06.480 --> 0:13:10.959 kind of a master electronic ledger that records transactions. It's 0:13:11.000 --> 0:13:16.600 often used with a cryptocurrency like bitcoin, and supporters say 0:13:16.600 --> 0:13:21.400 that blockchain technology is actually faster and cheaper as a 0:13:21.400 --> 0:13:22.520 way of sending money. 0:13:22.720 --> 0:13:26.800 By September twenty eighteen, most people had already heard of bitcoin, 0:13:27.080 --> 0:13:30.160 but far less new about the alternative crypto tookens flooding 0:13:30.200 --> 0:13:33.720 the market. Joe Bankman asked two crypto experts about some 0:13:33.760 --> 0:13:35.880 of the growing oddities within the industry. 0:13:36.200 --> 0:13:40.440 How about these things that are called icos. There's thousands 0:13:40.480 --> 0:13:46.319 of cryptocurrencies. I don't know if you'd call those digital assets. 0:13:46.520 --> 0:13:47.920 Tell us about those. 0:13:48.400 --> 0:13:50.600 Icos are at the next level of complexity. 0:13:50.800 --> 0:13:54.720 An ICO is an abbreviation for initial coin offering. It's 0:13:54.800 --> 0:13:58.480 probably not an accident that ICO sounds a lot like IPO, 0:13:58.920 --> 0:14:02.240 or initial public offering, when a private company issue shares 0:14:02.280 --> 0:14:04.480 of its stock to the public for the first time, 0:14:04.800 --> 0:14:05.760 the expert went. 0:14:05.640 --> 0:14:11.720 On, Generally, icos describe a system that's going to use 0:14:11.760 --> 0:14:15.880 something like blockchain technology at some point in the future 0:14:16.240 --> 0:14:19.920 to do something that isn't done now, and you most 0:14:20.000 --> 0:14:24.480 frequently pay for these icos by using crypto now. In 0:14:24.520 --> 0:14:27.800 my own personal opinion, the large majority of these icos 0:14:28.000 --> 0:14:29.600 or frauds or they're going to fail. 0:14:30.040 --> 0:14:31.240 I'll totally agree with that. 0:14:31.280 --> 0:14:33.920 By the way, according to these experts, a new type 0:14:33.920 --> 0:14:36.600 of fraud was entering the crypto community, and it was 0:14:36.760 --> 0:14:40.680 entering through these initial coin offerings. These new digital tokens 0:14:40.800 --> 0:14:43.880 may have used blockchain technology, but in many ways they 0:14:43.880 --> 0:14:47.600 were controlled by the companies that created them. The cryptocurrency 0:14:47.600 --> 0:14:51.160 world was taking a detour away from the ethos of bitcoin, 0:14:51.480 --> 0:14:54.480 where bitcoin was about freedom and used the blockchain to 0:14:54.520 --> 0:14:59.320 create a decentralized digital cache that bypassed the central banking system. 0:14:59.440 --> 0:15:12.560 These new digital tokens were something entirely different. Joe Bankman's 0:15:12.560 --> 0:15:15.320 co host asked the expert to elaborate on these initial 0:15:15.360 --> 0:15:16.160 coin offerings. 0:15:16.360 --> 0:15:17.920 Can you give me a for instance of like, what 0:15:18.080 --> 0:15:18.880 is it they promised to you? 0:15:18.920 --> 0:15:21.440 Sure, let me use one that the sec sued. It 0:15:21.520 --> 0:15:25.000 was called Munchies all right, that if you sent crypto 0:15:25.160 --> 0:15:28.200 to the people who are going to issue these Munchie tokens, 0:15:28.840 --> 0:15:32.320 you would in the future get a token or a 0:15:32.400 --> 0:15:35.240 coin or a bit of code that would allow you 0:15:35.280 --> 0:15:38.800 to get discounts at restaurants, and in return for that, 0:15:39.440 --> 0:15:43.560 you would instagram photos of the food, you'd write reviews 0:15:43.640 --> 0:15:46.359 of the food. So it would be a mini economy 0:15:46.640 --> 0:15:50.040 built around food and restaurants and the like, and the 0:15:50.080 --> 0:15:52.840 currency that you would use would be these Munchies. 0:15:53.200 --> 0:15:56.800 In essence, these new types of cryptocurrencies looked more like 0:15:56.920 --> 0:15:59.800 vehicles to invest in a company rather than a form 0:15:59.840 --> 0:16:02.960 of digital cash. At least that's what the Security Exchange 0:16:03.000 --> 0:16:03.800 Commission thought. 0:16:03.960 --> 0:16:08.640 The SEC wasn't thrilled with this, and they actually went 0:16:08.840 --> 0:16:11.520 and they sued the people that were launching the Munchies. 0:16:11.920 --> 0:16:14.960 They said you had to register these. You didn't register them, 0:16:15.040 --> 0:16:18.280 and they settled and they withdrew the plan to raise 0:16:18.520 --> 0:16:19.840 crypto for the Munchies. 0:16:20.160 --> 0:16:23.320 Sam Beakman Fried's father seemed dumbfounded by the scheme. 0:16:23.720 --> 0:16:27.200 You know, it's so outlandish that I'm tempted to accuse 0:16:27.240 --> 0:16:29.600 you of just making that up. How many of these 0:16:29.640 --> 0:16:31.360 have been sold? Who's buying them? 0:16:31.520 --> 0:16:31.880 Encounter. 0:16:31.960 --> 0:16:35.440 You're twenty seventeen. There was about three billion dollars raised 0:16:35.440 --> 0:16:38.640 through icos this year. In twenty eighteen, year to date, 0:16:38.960 --> 0:16:41.800 you've already had ten billion dollars raised through icos. So 0:16:41.840 --> 0:16:44.720 it's actually increased a lot, and I don't see it 0:16:44.760 --> 0:16:47.160 slowing down a any time real soon, in part because 0:16:47.160 --> 0:16:49.440 I think we haven't seen as many regulators get as 0:16:49.480 --> 0:16:52.680 aggressive as I think they probably should in regulating what 0:16:52.760 --> 0:16:54.160 is a little bit of a chaotic market. 0:16:54.320 --> 0:16:57.440 Joe Begman concluded the discussion with an obvious question. 0:16:57.800 --> 0:17:01.160 Let me maybe close by covering something a lot of 0:17:01.200 --> 0:17:04.680 people are wondering about, which is, how do we value 0:17:04.760 --> 0:17:09.200 these assets? I mean, bitcoin goes from nothing to fifteen 0:17:09.280 --> 0:17:13.679 thousand to six thousand, however useful they are, how do 0:17:13.760 --> 0:17:14.720 we know what they're worth? 0:17:14.960 --> 0:17:17.280 The short answer is, who the hell knows. They're all 0:17:17.320 --> 0:17:19.679 sorts of theories. I don't think a single one of 0:17:19.680 --> 0:17:24.359 them actually works. I have profound concerns about the reliability 0:17:24.359 --> 0:17:27.040 of information in the market. This isn't a market like 0:17:27.080 --> 0:17:30.440 the SEC where we know that we have credible information 0:17:30.600 --> 0:17:33.880 about secondary market trading and the like. It is very 0:17:33.920 --> 0:17:37.919 easy to spam. The information networks have false transactions, have 0:17:38.080 --> 0:17:40.600 false prices, and the like a lot of it is 0:17:40.640 --> 0:17:41.440 who the hell knows? 0:17:44.920 --> 0:17:49.120 These ico tokens sounded outlandish to Joe Bankman, but this 0:17:49.160 --> 0:17:53.240 new genre of digital token was clearly making money, big money, 0:17:53.280 --> 0:17:57.160 with very little regulatory oversight. People were, in essence, issuing 0:17:57.200 --> 0:18:00.320 company stock in the form of a private cryptocurrency token 0:18:00.520 --> 0:18:03.199 without having to undergo much of the oversight of an 0:18:03.200 --> 0:18:09.840 initial public offering, and this is where the opportunity was presented. 0:18:14.880 --> 0:18:18.360 Creating a cryptocurrency and becoming a middleman in the trading 0:18:18.400 --> 0:18:21.640 of them could be very lucrative, much more so than 0:18:21.680 --> 0:18:24.480 being a trading firm like Alimta Research, where you need 0:18:24.480 --> 0:18:26.960 it to be right on every trade to make money. 0:18:27.640 --> 0:18:30.600 Sam Bankment, Freed and its inner circle could no doubt 0:18:30.640 --> 0:18:33.720 see the possibilities and they wanted in on the action. 0:18:37.160 --> 0:18:40.000 Life can be pretty stressful these days. You want to 0:18:40.040 --> 0:18:43.680 know what makes me feel better? 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What I 0:19:18.040 --> 0:19:20.199 also love about the Liquorice Guy is that it's an 0:19:20.200 --> 0:19:22.960 American family owned business. And you all know that I'm 0:19:23.000 --> 0:19:26.360 a big proponent of supporting American companies. Right now, Red 0:19:26.359 --> 0:19:29.240 Pilled America listeners get fifteen percent off when you enter 0:19:29.480 --> 0:19:33.920 RPA fifteen at checkout. Visit Licoriceguy dot com and enter 0:19:34.160 --> 0:19:38.600 RPA fifteen at checkout. That's Licoriceguy dot com. They ship daily, 0:19:38.800 --> 0:19:41.360 treat yourself and those you love, and taste the difference. 0:19:44.080 --> 0:19:49.560 Welcome back to Red Pilled America. So by twenty eighteen, 0:19:49.760 --> 0:19:54.560 the cryptocurrency world was quietly undergoing an evolution. Bitcoin was 0:19:54.600 --> 0:19:58.560 monopolizing the headlines, but new types of cryptocurrencies were entering 0:19:58.560 --> 0:20:02.080 the market. Unlike Bitcoin, where computers had to work hard 0:20:02.160 --> 0:20:06.080 solving mathematic problems to mine a limited number of bitcoin. 0:20:06.440 --> 0:20:09.840 Some of these new cryptotokens were just created at will. 0:20:10.240 --> 0:20:12.840 They looked less like digital cash and more like an 0:20:12.880 --> 0:20:16.000 initial public offering of a stock. In fact, they were 0:20:16.040 --> 0:20:20.160 even called by a similar name, Initial coin Offering or ICO. 0:20:20.720 --> 0:20:24.760 Joe Bankman thought the whole scheme sounded outlandish. How could 0:20:24.800 --> 0:20:28.159 the value of these lines of computer code even be determined, 0:20:28.280 --> 0:20:31.520 he thought out loud. But the astonishing thing is. Within 0:20:31.560 --> 0:20:35.160 a matter of months, his son, Sam Bankman Freed decided 0:20:35.240 --> 0:20:38.240 he wanted to become a crypto middleman and use his 0:20:38.280 --> 0:20:41.680 own initial coin offering. To get that idea off the ground, 0:20:44.480 --> 0:20:46.920 Sam reached out to an old friend, a guy named 0:20:46.920 --> 0:20:50.640 Gary Wang, a Chinese American. Gary first met Sam way 0:20:50.680 --> 0:20:53.040 back in high school when they both attended a math 0:20:53.119 --> 0:20:56.760 summer camp. The two became roommates at MIT. Gary got 0:20:56.800 --> 0:20:59.800 a degree in mathematics and computer science and could write 0:20:59.840 --> 0:21:03.679 the code necessary to build a cryptocurrency exchange and also 0:21:03.960 --> 0:21:06.399 any backdoor in the system that could be used to 0:21:06.520 --> 0:21:10.119 hide shenanigans. The two became co founders in Sam's new idea, 0:21:10.320 --> 0:21:13.720 and in May twenty nineteen, Sam announced his crypto middleman 0:21:13.840 --> 0:21:14.800 venture to the world. 0:21:15.000 --> 0:21:19.280 We also recently launched a derivatives exchange in crypto called FTX. 0:21:19.800 --> 0:21:22.959 FTX was in exchange where people could trade and store 0:21:23.080 --> 0:21:27.359 different cryptocurrencies. With Gary's knowledge of writing code and Sam's 0:21:27.400 --> 0:21:30.120 experience working as a Wall Street trader, the two could 0:21:30.200 --> 0:21:33.159 create a cryptocurrency exchange that had the look and feel 0:21:33.240 --> 0:21:37.000 of a legitimate stock exchange platform, a platform so sleek 0:21:37.240 --> 0:21:40.680 that it could attract the traditional trading community. As Sam 0:21:40.720 --> 0:21:44.640 and Gary were developing FTX, alternative cryptocurrencies got a jolt 0:21:44.680 --> 0:21:46.159 of credibility. 0:21:45.600 --> 0:21:49.360 Facebook announcing a new digital currency called Libra, and Facebook 0:21:49.400 --> 0:21:51.879 says this digital currency aims to make it as easy 0:21:51.880 --> 0:21:54.000 to send money around the world as it is to 0:21:54.119 --> 0:21:55.040 send a photo. 0:21:55.080 --> 0:21:58.720 With Facebook entering the race, the crypto gold rush expanded, 0:21:59.160 --> 0:22:02.760 no doubt. Seeing the opportunity, Sam quickly jumped in the game. 0:22:06.600 --> 0:22:10.280 In July twenty nineteen, he launched his own initial coin, 0:22:10.359 --> 0:22:14.040 offering the same type of cryptocurrency offering that his father, 0:22:14.520 --> 0:22:17.520 just a few months earlier learned was rife with fraud. 0:22:17.760 --> 0:22:20.520 Now, in my own personal opinion, the large majority of 0:22:20.560 --> 0:22:23.280 these icos are frauds or they're going to fail. 0:22:23.720 --> 0:22:24.919 I'll totally agree with that. 0:22:24.960 --> 0:22:29.159 By the way, Sam called his new cryptocurrency FTT. It 0:22:29.240 --> 0:22:31.960 may have been a digital token like bitcoin, but unlike 0:22:32.000 --> 0:22:36.680 Satoshi Nakamoto's brainchild, FTT was not mined by computers performing 0:22:36.800 --> 0:22:41.200 massive amounts of computational work. Sam just made FTT tokens 0:22:41.240 --> 0:22:44.719 himself out of thin air. These tokens functioned kind of 0:22:44.800 --> 0:22:47.960 like a stock in his company FTX. He now just 0:22:48.080 --> 0:22:51.080 needed investors to put their money into that stock. 0:22:53.880 --> 0:22:57.320 It was around this time that a man entered Sam's life. 0:22:57.600 --> 0:23:00.000 So I was born in China and then I moved 0:23:00.000 --> 0:23:00.720