Speaker 1: This is Bloomberg Crypto, a daily Bloomberg I Heard podcast,
Speaker 1: and I'm Stacy Marie Ishmael, Managing editor of Crypto for
Speaker 1: Bloomberg News. It's Wednesday, September. I'm Emily Nicole, crypto blogger
Speaker 1: for Bloomberg News. In today for Stacy Marie. If you've
Speaker 1: ever found yourself on crypto Twitter, you'll be familiar with
Speaker 1: the hype machine that keeps the industries. Thousands of projects
Speaker 1: going rallying cries of wag me an acronym for we're
Speaker 1: all going to make it, and to the moon abound
Speaker 1: found in tweets from accounts with colorful graphic profile pictures
Speaker 1: and usually a hashtag or two. But there are always
Speaker 1: two sides to a coin. And if you've come across
Speaker 1: the Twitter display name featuring the tulip emoji, you might
Speaker 1: have found a crypto skeptic. In add a reference to
Speaker 1: the Dutch to the Mania of the six hundreds these figures, technologists, academics,
Speaker 1: and writers among them are working to counteract cryptos steady
Speaker 1: rise to the top with a dose of reality. Today,
Speaker 1: I'm joined by Stephen Deal. I'm the author of the
Speaker 1: book Popping the Crypto Bobble. I'm one of the more
Speaker 1: outspoken critics of the cryptocurrency industry, a software engineer by trade,
Speaker 1: a leading crypto skeptic, author, and now co founder of
Speaker 1: the recently established Center for Emerging Technology Policy, I think
Speaker 1: tank set up to ensure regulators, policymakers and more are
Speaker 1: informed about where cryptos promises of a brighter tomorrow might
Speaker 1: actually be closer to me. So you often write about
Speaker 1: kind of the common misconceptions around crypto and blockchain and
Speaker 1: the things that the promises to solve. We're here to
Speaker 1: talk about those particular kinds of myths to day. So
Speaker 1: what are some of those problems can you explain them to?
Speaker 1: So cryptocurrencies are broadly speaking, a new form of highly
Speaker 1: speculative investment. Let's emerged in the last few years out
Speaker 1: of the birth of bitcoin, and the entire industry is
Speaker 1: wrapped in a level of sort of myth making about
Speaker 1: this new technology being the birth of like to say,
Speaker 1: a new Internet, or it's a new form of monetary policy, um,
Speaker 1: and not a lot of those stories actually kind of
Speaker 1: match the lived reality on the ground under the technology,
Speaker 1: on the economics or the financial side of the reality
Speaker 1: of the industry. I know you think a lot about,
Speaker 1: you know, how blockchain is a solution works for parts
Speaker 1: of financial services. It's something that if we think about
Speaker 1: the Bank of England and particularly speakers like Deputy Governor
Speaker 1: John con If they often espouse, you know, the benefits
Speaker 1: of crypto technology financial services and how it's going to
Speaker 1: transform the way that we do finance as we know
Speaker 1: it today. And I know that you don't necessarily red
Speaker 1: with the perspective. Yeah, there's a lot of rhetoric coming
Speaker 1: from inside government about you know, the transformative nature of
Speaker 1: say the blockchain technology to solves certain either civic or
Speaker 1: financial problems, and unfortunately you look at the reality every
Speaker 1: time the blockchain has been applied to specific applications and
Speaker 1: financial services, there's not a whole lot of track record
Speaker 1: of success for these projects. Because UM blockchain is a
Speaker 1: solution is something we've not had to build for about
Speaker 1: thirty years. It's not a new idea to build append
Speaker 1: only UM digital ledgers. We've known how to do this
Speaker 1: for quite some time UM and so in that sense,
Speaker 1: blockchain is really only useful for one real application, which
Speaker 1: is building cryptocurrencies, which is the whole other topic onto
Speaker 1: itself of discuss But if you look at specific applications
Speaker 1: of saying, I don't know, applying blocking technology for payment systems,
Speaker 1: your settlement and clearing, or you tracking of provenance for
Speaker 1: specific supply chains, um, most of these applications of this
Speaker 1: technology are strictly worse than using technology that's been around
Speaker 1: for thirty years and already exists. Do you think that
Speaker 1: is your fundamental objection to crypto or was there something
Speaker 1: deeper as well that happens within the industry that you
Speaker 1: think is the fundamental part of why you dislike it.
Speaker 1: I would say there's crypto assets and then there's blockchain.
Speaker 1: Blockchain I dislike from a sense that like, I don't
Speaker 1: think it's a particularly good solution, but that's really a
Speaker 1: matter of like a software architecture perspective. I don't think
Speaker 1: there's a whole lot of public harm concerns related to
Speaker 1: append only databases. But then you over look over at
Speaker 1: crypto assets. These are financial products that are sold to
Speaker 1: the public, which exists specifically to arbitual securities laws UM
Speaker 1: and to create extremely risky assets that are sold directly
Speaker 1: to the public, oftentimes masked in this kind of veneer
Speaker 1: of techno solutionism or you know, some sort of revolutionary technology,
Speaker 1: and the technology itself is questionable at best, and the
Speaker 1: financial assets themselves come wrapped in an enormous amount of
Speaker 1: risks and some very dubious economics. And what about the
Speaker 1: social side of this too, Because a frequent retort in
Speaker 1: crypto is that tokenized versions of assets are going to
Speaker 1: fix a variety of issues, and developing countries are Carl
Speaker 1: Salvador banking the unbanked. That's something I always get told
Speaker 1: when we asked about bitcoin is that it's an alternative
Speaker 1: monetary system that's going to bring everybody out of poverty
Speaker 1: and save the world from censorship. The reason that most
Speaker 1: people are on bank is simply because they don't have
Speaker 1: enough money to hold a bank account. UM. And it's
Speaker 1: unclear to me that's you know, it's this private money
Speaker 1: issued by corporations UM, which is highly volatile its value,
Speaker 1: is actually going to address any of those issues. And
Speaker 1: so I fundamentally disagree with the notion that creating new
Speaker 1: private forms of money is the solution to the unbanked.
Speaker 1: What's the unbanked need is probably like basic bank account
Speaker 1: subsidized by the government UM and enough money to be
Speaker 1: able to, you know, hold those accounts, and those are
Speaker 1: hard problems to solved. I don't the crypto has many
Speaker 1: answers to those. You need only look at All Salvador
Speaker 1: because in the last year they've been running an experiment
Speaker 1: by trying to use bitcoin as legal tender there and
Speaker 1: it's not going well. But blackly, we had several speakers
Speaker 1: from the Crypto Policies and Posium come who are all
Speaker 1: Salvadorian citizens and talk about their lived experience on the
Speaker 1: ground in All Salvador, and it turns out really bitcoin,
Speaker 1: because of its very basic economic design, cannot function as
Speaker 1: money um and when you try to roll it out
Speaker 1: as a means of exchange inside of the country, it
Speaker 1: goes very badly. They cannot um fund their government wallet
Speaker 1: with their bank account as easy as other people can,
Speaker 1: like they had to physically go to key d M
Speaker 1: in a consulate location that sometimes it's really far away
Speaker 1: from where they live. People have to drive six hours
Speaker 1: eight hours to reach the nearest consulate and it's not
Speaker 1: a practical thing to do. And particularly as well this year,
Speaker 1: we've seen a lot of incidents in crypto that I
Speaker 1: think have brought this to front of my view, has
Speaker 1: created a bit of more of an urgency than I
Speaker 1: think you've had to face in previous years, you know,
Speaker 1: with bankruptcy is happening, with Celsius and the Quorn and
Speaker 1: the collapse of Tara Luna. It's definitely been a year
Speaker 1: that regulators probably want to hear from you more than ever.
Speaker 1: They certainly do, and we've had a lot of productive
Speaker 1: conversations with regulators and both sides of the pond. Um certainly,
Speaker 1: what you're seeing is sort of the inevitable outcome of
Speaker 1: an industry that has been purposely built outside of regulation,
Speaker 1: and unfortunately, there's nothing new under the sun. What you're
Speaker 1: seeing is a lot of the same kind of financial
Speaker 1: catastrophes that occurred both in two thousand eight and sort
Speaker 1: of the pre the Securities Act era, unfortunately, and it
Speaker 1: turns out when people don't have um, you know, sensible
Speaker 1: disclosures and sensible investor protections and sensible rules around romans
Speaker 1: and custody of funds, then you get a lot of
Speaker 1: sort of accidents in the financial services industry and a
Speaker 1: lot of retail investors get hurt. And I think we
Speaker 1: all recognized that even on the crypto industry that there
Speaker 1: needs to be some framework put in place so that
Speaker 1: members of the general public are not so much exposed
Speaker 1: to these financial risks. Coming up more from Stephen Deal
Speaker 1: on what tools cryptos skeptics are using to make their
Speaker 1: voices heard on the global stage. And so you're American,
Speaker 1: but you're based in London. I'm also in London and
Speaker 1: I interviewed you earlier this year for a series of
Speaker 1: mini profiles we did about crypto's most influential players in
Speaker 1: the UK, which I'm sure is a monica you didn't
Speaker 1: expect to receive. UM. But you've done a lot of
Speaker 1: work recently with regulators in the UK and Europe and
Speaker 1: in the US as well on cryptos encroachment into finance particularly,
Speaker 1: We've had several regulations announced this year alone in the
Speaker 1: UK and Europe. UM. What trends have you been seeing
Speaker 1: in the financial services industry with crypto and how do
Speaker 1: you think policymakers should approach that either you know to
Speaker 1: be to be containing it, providing rules for it, or
Speaker 1: should you know banks be running away with blockchain. There's
Speaker 1: definitely been a rise in interest UM in crypto assets
Speaker 1: from what I've considered the traditional financial service sector. It's
Speaker 1: still very much sort of a separate world because there's
Speaker 1: sort of the regulated world of banks and normal financial institutions,
Speaker 1: and there's the crypto world, which is largely you know,
Speaker 1: set up in offshore tax shelters and exists largely outside
Speaker 1: of the regulatory perimeter at the moment. The Securities Act
Speaker 1: from the nineteen thirties is a very broadbrush and it
Speaker 1: paints a very robust framework that we've been using for
Speaker 1: almost last hundred years. And I agree with Chairman Ginsler
Speaker 1: from the Securiity Exchange Commissions that almost all crypto assets
Speaker 1: or securities contracts, and we know how to regulate securities
Speaker 1: contracts UM. There's some rather robust framework around disclosures, reporting,
Speaker 1: UM and investor protections around these assets that we know
Speaker 1: very well. And just because security has offered on a
Speaker 1: blockchain versus a like a stock certificate doesn't really change
Speaker 1: the underlying legal reality of what are and once crypto
Speaker 1: assets are brought within the regulatory premature and classify as securities,
Speaker 1: I think a lot of the risks go away. Finally,
Speaker 1: I wanted to find out where you think crypto will
Speaker 1: be in five or ten years time. You know, do
Speaker 1: you think that it's going to be a fully legally
Speaker 1: regulated industry and everyone will be registered as broken dealers
Speaker 1: and that will be, you know, all above board, or
Speaker 1: do you think we might have a version that looks
Speaker 1: a little bit like how we have it today. You know,
Speaker 1: we're still having booms and busts and customers losing out.
Speaker 1: The question of where crypto was going is ultimately a
Speaker 1: question about what comparable assets can you find to crypto?
Speaker 1: And I think many of the tokens that are being
Speaker 1: issued today look very much like securities. They're being used
Speaker 1: to raise funds common enterprise with the entrepreneurial efforts of others,
Speaker 1: where the investors are expecting our return, right, So in
Speaker 1: that sense, they're basically like a stock. And I think
Speaker 1: there's a very sensible framework that we've had for a
Speaker 1: hundred years. But how to deal with those? And then
Speaker 1: you have some other ones, you know, your doge coins,
Speaker 1: you have your you know, sheet booty news, and it's
Speaker 1: unclear what the purpose of these projects are. And if
Speaker 1: we were to look at sort of the fundamentals of
Speaker 1: these investments, you know, there's zero sum write any money
Speaker 1: that any person makes off of them, is ultimately money
Speaker 1: that someone else lost. They're not going to fund a
Speaker 1: common enterprise or any kind of platform. They're just they
Speaker 1: exist kind of ostilate up and down randomly, and in
Speaker 1: that sense, they look very much like gambling products. Um,
Speaker 1: they look verty much like you know, wagering on sports betting.
Speaker 1: And if I were to say that the latter category
Speaker 1: probably should follow in the same kind of regulatory framework
Speaker 1: that you know, like the Gambling Commission has right, they
Speaker 1: should be treated like sports betting. And I think under
Speaker 1: both those frameworks the market probably collapses down into something much, much,
Speaker 1: much smaller than itself right now because those are industries.
Speaker 1: So crypto will shrink down into a much smaller version
Speaker 1: of itself and be regulated as either digital equities or
Speaker 1: as gambling products. All right, well, thank you for your
Speaker 1: insights and thanks for joining us today. You can find
Speaker 1: more reporting like this on the Bloomberg terminal, on Bloomberg
Speaker 1: dot com in the Bloomberg Crypto News set up, and
Speaker 1: you can follow me on Twitter at Emily je Nicole.
Speaker 1: I'm Emily Nicole. In today the Stacy Murray Ishmael On
Speaker 1: the next episode of Bloomberg Crypto Climate Change, It's real,
Speaker 1: it's happening, and it's got consequences for how the US
Speaker 1: government thinks about crypto. We spoke to Costos Samaras, who
Speaker 1: works at the White House. He's the Chief Advisor for
Speaker 1: Energy Policy in the Office of Science and Technology Policy,
Speaker 1: and we asked him all about crypto and the climate.
Speaker 1: This is Bloomberg Crypto, a daily podcast from Bloomberg and
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Speaker 1: producer of Bloomberg Crypto is Vicky very Galina. Our senior
Speaker 1: producer is Janet Babin. Our producer is Mohammed Farouk. Associate
Speaker 1: producer is Moses on m Desto One Rod is our engineer.
Speaker 1: Original music by Leo Sidron. I'm Stacy Maria Shmaal. We'll
Speaker 1: be back tomorrow.