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 Tuesday, October. Some of you may already
Speaker 1: know the work and writing of Bloomberg opinion columnist Matt Levine.
Speaker 1: There's this notion of like season control of your economic destiny.
Speaker 1: That is that is like a real sort of like
Speaker 1: running theme in a lot of crypto, where it's like
Speaker 1: people who are like I don't like banks, I don't
Speaker 1: like I want to make money for everyone else. You
Speaker 1: are in for a treat. Matt's just published what I
Speaker 1: will admit is many thousands of words on the subject
Speaker 1: of crypto for a special edition of Bloomberg Business Week.
Speaker 1: He joins us today to talk about what motivated him
Speaker 1: to do such an intensive dive into the blockchain, why
Speaker 1: he thinks of crypto as a living laboratory for innovation,
Speaker 1: and what prompted him to start at the very beginning
Speaker 1: with one big question, what is crypto for? Matt's a
Speaker 1: pleasure to have you on the show. So we've got this.
Speaker 1: I hesitated to use the word magnimum post because I
Speaker 1: feel like there's going to be other things that you love,
Speaker 1: But it's this incredible deconstruction distillation of a question that
Speaker 1: we tackle on this show pretty much every day, which
Speaker 1: is what is crypto? Why did you do that? Crypto
Speaker 1: is relatively new and big enough to be really interesting,
Speaker 1: but small enough to be sort of contained, And so
Speaker 1: what I wanted to do was sort of start from
Speaker 1: like the first principles of crypto and say, this is
Speaker 1: like what Toci Nakamoto invented, and like what he typed
Speaker 1: in a white paper, and then build from there and
Speaker 1: sort of look at all of the possible ramifications and
Speaker 1: developments of that, and to try to do it in
Speaker 1: a way that it turned out to feel to me
Speaker 1: quite long, but like less comprehensive than I wanted. Like
Speaker 1: one wants to be able to say, here's all of
Speaker 1: crypto and one magazine issue, and of course that's impossible,
Speaker 1: but it's like more possible with crypto than it is
Speaker 1: with a lot of other subject matters. And I thought
Speaker 1: that challenge was really interesting to try to sort of capture,
Speaker 1: like like from the seed to like what it developed into.
Speaker 1: So you talk obviously about the origins, about Makamoto, about
Speaker 1: the white paper, but you know, over the course of
Speaker 1: the issue you also delve into things like decentralized finance
Speaker 1: and leverage and margins. Coming out the end of this,
Speaker 1: even where you say it's not possible to wrap your
Speaker 1: arms entirely around the whole thing, is there one thing
Speaker 1: you feel now that you understand more about why crypto
Speaker 1: is than at the beginning. That's an interesting question. I mean,
Speaker 1: like by the words you just said, the stuff that
Speaker 1: I wrote about, Like you know, part of it is
Speaker 1: that I come to this from a background of in finance. Right,
Speaker 1: I'm not a like a crypto evangelist or a technologist.
Speaker 1: I'm a person who works in finance, and so I'm
Speaker 1: interested in looking at like the way that crypto has
Speaker 1: both split off from traditional finance and found new ways
Speaker 1: to do things, but also like recreated some of the
Speaker 1: good and bad structures of traditional finance. And you know
Speaker 1: I say in the piece that it recreated two eight right,
Speaker 1: I mean like it had its own MANI like leveraged
Speaker 1: financial crisis that has a lot of rhymes with like
Speaker 1: what the traditional system did in two eight um. But
Speaker 1: I mean to your question, like one thing that I
Speaker 1: think that I didn't fully appreciate and and feel like
Speaker 1: I appreciate more is the extent to which like people
Speaker 1: in crypto feel the same way, which is that this
Speaker 1: is a really fun way to build almost a toy
Speaker 1: financial system that like works in a pleasing way for
Speaker 1: the people who use it, and that feels like it
Speaker 1: gets rid of some of the inefficiencies of the traditional
Speaker 1: financial system and makes to makes it just sort of
Speaker 1: more fun to innovate and to build new products and
Speaker 1: to trade products. And I think that that is interesting
Speaker 1: as a lens on like what crypto is for. Like
Speaker 1: one thing it's for is like making financial people happy,
Speaker 1: which has a value in the sense of, like you know,
Speaker 1: like what are the odds that you'll build like the
Speaker 1: next important financial product, the next like you know, the
Speaker 1: future of the banking system, the future of like risk hedging, um,
Speaker 1: you know on quote unquote the blockchain versus doing it
Speaker 1: in traditional finance. Well, if a lot of really smart
Speaker 1: people are really enthusiastic about being in the cryptosystem, that
Speaker 1: creates better odds of like doing real economic work in
Speaker 1: the cryptosystem, just because like it appeals to the people
Speaker 1: who are doing that work. Right, you describe it as
Speaker 1: a blank canvas for all your esthetic views about how
Speaker 1: markets should work, right, which is something that I think,
Speaker 1: like I have a lot of aesthetic views about markets,
Speaker 1: and I think that one thing that I try to
Speaker 1: do in my writing is suggest that that's like a valid,
Speaker 1: you know, concern that. And I think that when you
Speaker 1: talk to people in crypt like they feel the same way.
Speaker 1: They're like, this is esthetically cool, Like this is like
Speaker 1: it is fun to work here, um in a way
Speaker 1: that they didn't feel when they were at their jobs,
Speaker 1: you know, in traditional hedge funds or whatever. But one
Speaker 1: of the things that you managed to do in the
Speaker 1: copy is there's a strong sense of like you're working
Speaker 1: out a puzzle, like you're you're riddling through something that
Speaker 1: seems intellectually very interesting. Do you actually like puzzles? Sure?
Speaker 1: I do. You know, I do puzzle hunts, like where
Speaker 1: you like go around in New York City all all night,
Speaker 1: like trying to solve puzzles and like it's like a
Speaker 1: scavenger hunt. But like with cryptography, and you know, I
Speaker 1: do those and like everyone there works out a high
Speaker 1: freakincy trading. Like the overlap between like puzzling and you know,
Speaker 1: financial infrastructure is very, very large, and you know, crypto
Speaker 1: obviously appeals to some of the same same dynamics. Well,
Speaker 1: the idea of a puzzle is that it has kind
Speaker 1: of a single solution, right, or at least a most
Speaker 1: a more elegant solution than something else that somebody can
Speaker 1: come up with. Do you feel like crypto solving for
Speaker 1: anything in particular? I think that one thing that I
Speaker 1: wanted to get across is that there are like half
Speaker 1: a dozen or a dozen big ways to take that question.
Speaker 1: Like I think if you asked Satoshi Nakamoto what he's
Speaker 1: solving for, you get a different answer from what if
Speaker 1: you ask like metallic pewter and what he's solving for. Right,
Speaker 1: Like there are the sort of basic building box of crypto.
Speaker 1: You can say, the thing we're solving for is uh,
Speaker 1: decentralized censorship resistant money flows. We want to be able
Speaker 1: to like send money to each other without worrying that
Speaker 1: the government of Russia Venezuela will take our money way
Speaker 1: from this, or you can say we're solving for like
Speaker 1: a really resilient worldwide computer that can run programs that
Speaker 1: like you know, instantiate a stock exchange, rather than having
Speaker 1: those that exchange like live you know, in the the
Speaker 1: computers of a of a corporation, or you're saying like
Speaker 1: we're solving for like allowing communities of web users to
Speaker 1: like cat sure the value of that community for themselves
Speaker 1: rather than give it to Facebook or whatever. Or you
Speaker 1: can like have a bunch of different you know other
Speaker 1: uh sort of big themes that you're trying to do
Speaker 1: in crypto, and and there's sort of room for allow
Speaker 1: those things. And uh so, no, I don't think there's
Speaker 1: like one thing crypto is for, but I think there's
Speaker 1: like a dozen things. I think some of them are
Speaker 1: uh implausible you know goals, and I think some of
Speaker 1: them are like bad goals. Like when I read about
Speaker 1: like weeb three is going to make everyone an owner,
Speaker 1: you know, everyone an investor in like the books they read,
Speaker 1: I'm like, well that just sounds bad. Um So, I
Speaker 1: think there's a lot of like you know, and I
Speaker 1: think different people have different like aesthetic ue on that.
Speaker 1: But like, I do think there are some goals that
Speaker 1: are you know, like we're gonna build a decentralized financial
Speaker 1: system that is permission lists and allows people to uh
Speaker 1: like build products without like negotiating is those with with
Speaker 1: six major banks before they like start building a product,
Speaker 1: Like that's a that's a goal that like, I think
Speaker 1: it's kind of cool, and I think there's like a real,
Speaker 1: you know, sort of goal of a lot of people
Speaker 1: on crypto. There's also this over ching theme that of
Speaker 1: everything you've described there that kind of comes down to
Speaker 1: the inter relationship of trust, of money, and of community,
Speaker 1: whether you trust that community with your money or not.
Speaker 1: What do you think if you were to use one
Speaker 1: of the examples from your story and like, you know,
Speaker 1: help somebody understand why you think trust and community are
Speaker 1: so important in understanding crypto, what would you tell them.
Speaker 1: I think that there's this sort of like folk story
Speaker 1: about crypto that like it is about avoiding trusts, Like
Speaker 1: people didn't like trusting banks, so uh, they invented crypto,
Speaker 1: which is like trust less and uses code in lieu
Speaker 1: of trust. And I think one thing that I try
Speaker 1: to get across is that trust has to sort of
Speaker 1: sneak in the back door somehow, right. I mean, one
Speaker 1: way that it sneaks in is the obvious way, which
Speaker 1: is that people are like I like, managing our own
Speaker 1: private keys is hard. I'm going to trust in exchange
Speaker 1: to hold my crypto for me, or like I'm going
Speaker 1: to trust a crypto lender to get yield from me,
Speaker 1: and then like sometimes that trust is wildly misplaced. You think, like,
Speaker 1: like our norms of trust that that are in the
Speaker 1: background are so strong that these people who are like
Speaker 1: I want to avoid trust, I'm not going to trust
Speaker 1: any banks ever again, go and trust Celsius and then
Speaker 1: Celsius loses their money. But the other thing is that
Speaker 1: like when you sort of look at the mechanics of
Speaker 1: crypto and you look at the mechanics of how blockchains work,
Speaker 1: it's not like the stuff operates automatically with nobody um
Speaker 1: verifying transactions or whatever. It's that it the transactions are
Speaker 1: verified by the community, by a distributed community of people,
Speaker 1: and it is sort of hard to get that community
Speaker 1: to change its mind right to say we're going to
Speaker 1: reverse this transaction that we think is bad. But it's
Speaker 1: not impossible. And so like one example is, you know
Speaker 1: the famous like story earlier in the history of ethereum
Speaker 1: is like there's the hack of the Tao, where like
Speaker 1: this early to centralized the ton of this organization got
Speaker 1: it's you know, smart contract hacked and lost all this money,
Speaker 1: and like the people in the ethereum community came together
Speaker 1: and said that was bad. We're gonna just reverse it.
Speaker 1: We're gonna just all get together and make the blockchain
Speaker 1: and say something different because we think that was bad. Right,
Speaker 1: So there's this notion that um Like it turns out
Speaker 1: that money as a concept is kind of embedded in
Speaker 1: community and embedded in in in sort of social values,
Speaker 1: and you don't get away from that in crypto. You
Speaker 1: do it in a different way with more technology, but
Speaker 1: you still have that sort of basic need for community
Speaker 1: and trust, Like you don't need money if there are
Speaker 1: no other people in the ecosystem, right, And you can
Speaker 1: think of money as like an objective thing, or you
Speaker 1: can think of money as being a sort of social
Speaker 1: credit system, where like money is like what you have
Speaker 1: done for society to get the money and what society
Speaker 1: owes you in exchange for the money. And I think that, like,
Speaker 1: there's this notion in crypto where people like the idea
Speaker 1: of it being an objective thing, where like your bitcoin
Speaker 1: live in your private keys, and like no one can
Speaker 1: take it away from you, and the government, you know,
Speaker 1: doesn't have any say in it, and I think that
Speaker 1: you see that that's not quite true, and that like
Speaker 1: even in crypto money is socially determined, and like it's
Speaker 1: just a different sort of social group that determines how
Speaker 1: much money you have and whether you can spend it.
Speaker 1: Coming up, you'll hear more from Bloomberg opinion columnist Matt
Speaker 1: Levine on all things digital assets. We'll be right back.
Speaker 1: You have. They're both an existential and positivist definition of money.
Speaker 1: How would you define bitcoin with like those same sorts
Speaker 1: of parameters. One thing it was designed to do, Let's
Speaker 1: give a person an ability to send digital cash without
Speaker 1: using a bank. And it's not so much doing that
Speaker 1: in the sense that like bitcoin is not great cash
Speaker 1: because it's value is volatile. But like um, but it
Speaker 1: is it's now you know, it's, as they say, a
Speaker 1: story of value. It's now a nice investment commodity. UM,
Speaker 1: it's a it's a thing that you can trade. UM.
Speaker 1: And I just you read some Toshi Nakamoto's white paper,
Speaker 1: which is from like two thousand, like early two to nine,
Speaker 1: and you feel the sense of disappointment in the banking system.
Speaker 1: How over leverage the banking system was, how much it
Speaker 1: was built on debt, and how how like poorly that
Speaker 1: turned out. And then you fast forward to you know,
Speaker 1: this year, and you think about like all of the levered,
Speaker 1: interconnected crypto financial institutions that were like we're going to
Speaker 1: use loans against crypto to speculate on more crypto um,
Speaker 1: And I don't know, it's just funny that like, uh,
Speaker 1: like one one way to say what crypto, what bitcoin
Speaker 1: was designed to do was it was it was a
Speaker 1: way to have money without debt, Like debt is so
Speaker 1: deeply ingrained in the modern banking system, Like your dollars
Speaker 1: are just someone else's debt, Like that's what money is.
Speaker 1: It's the debt of a bank in the first instance,
Speaker 1: and that you know, the bank has debts that you
Speaker 1: know holds those other people's debts. So everything is debt.
Speaker 1: Everything is sort of dollars are built out of debt.
Speaker 1: And Bitcoin was not that right, Like bitcoin was a
Speaker 1: bitcoin is not someone's debt. It's just this independent thing
Speaker 1: that exists on the blockchain. And I think that certainly
Speaker 1: early in bitcoin's life, like that was very appealing. There's
Speaker 1: a lot of sort of hard money, like people who
Speaker 1: are suspicious of fractional reserve banking who have found bitcoin
Speaker 1: very appealing, And I think if you look at the
Speaker 1: cryptosystem now, it's like, well, there's a lot of leverage
Speaker 1: in this system because like that's how you make money,
Speaker 1: and it's I don't know, I think it's fun to
Speaker 1: see that creeping back in For me as a sort
Speaker 1: of person who likes traditional finance. Obviously if you lost
Speaker 1: your money on Celsius, you don't find it that's fun.
Speaker 1: There's an incredible momentum about the way that your story
Speaker 1: moves forward from you know, like the white people to
Speaker 1: where we are today and the kind of the highs
Speaker 1: and lows of getting there. But it does seem like
Speaker 1: a lot of crypto, as you just identified, is hell
Speaker 1: bent on reinventing trad five. I mean part of that
Speaker 1: is what I said about you know, the people who
Speaker 1: worked at hedge funds were like, this is okay, but
Speaker 1: I would like to make more money and have uh
Speaker 1: like more fun, more ability to just kind of make
Speaker 1: stuff up and like sort of like build the market
Speaker 1: structure that I want to see rather than the one
Speaker 1: that like exists on the New York Stock Exchange. Um. So,
Speaker 1: like I think like the early phase of crypto is
Speaker 1: very much not people wanting to reinvent trad fire. It
Speaker 1: was people who were wanting to get out from the
Speaker 1: system of trad five. But then you could make a
Speaker 1: lot of money in it. And so all these people
Speaker 1: who worked at hedge funds and like making money, we're like,
Speaker 1: I'm gonna make a hedge fund in crypto, and so
Speaker 1: like it's just like it's just a sociological fact of
Speaker 1: like that it's reinventing trad five because um, you know,
Speaker 1: the people who come to it are people who want
Speaker 1: to make money. But it is also like there is
Speaker 1: a charming naivetite some of crypto, where like it's some
Speaker 1: of the people invent in crypto are not coming from Trapfi.
Speaker 1: They're coming from you know, their twenty two and they
Speaker 1: just finished their computer science degree or whatever, right, and
Speaker 1: they're like, I'm going to build like this sort of
Speaker 1: exchange and like they haven't sort of seen the ways
Speaker 1: for things to go wrong. And so some of the
Speaker 1: leverage products are like, you know, if you work at
Speaker 1: a bank and someone says to you, let's take some
Speaker 1: risky assets and lower them twenty to one because we'll
Speaker 1: make more money, You're like, wait a minute, I've heard
Speaker 1: that one before, but if you work in crypto, you
Speaker 1: may not have heard it before. And then like literally
Speaker 1: may not have heard it before. We're not like sentient
Speaker 1: in two thousand. Yes, as I remind myself constantly, one
Speaker 1: of the animating impulses of crypto is ownership and monetization. Thereof, Yeah,
Speaker 1: I don't know if that's yeah, I mean yes, but
Speaker 1: it's certainly one. That's again, I want to be careful that,
Speaker 1: like that's one strand. And I think you can have
Speaker 1: sort of crypto views that are not like everything needs
Speaker 1: to be monetized, um, but why because? Um? Because like
Speaker 1: like when you say crypto, one thing you mean is
Speaker 1: like venture capitalists on Twitter talking up their investments. And
Speaker 1: if you ask a venture capitalist why everything has to
Speaker 1: be monetized, like they'll they'll be like, what are you
Speaker 1: talking about? Why would things not be monetized? Um? So
Speaker 1: that's I mean, that's why answer to why? And I
Speaker 1: don't know, I mean like I think that like there's
Speaker 1: this notion of like kind of like season control of
Speaker 1: your economic destiny. That is that is like a real
Speaker 1: sort of like running theme and a lot of crypto
Speaker 1: where it's like people who are like, I don't like banks.
Speaker 1: I don't I want to make money the stuff that
Speaker 1: I do on my computer. I wanted to bring value
Speaker 1: to me. And I think that, um, that's part of
Speaker 1: the animating impulse. The other thing is just like you know,
Speaker 1: I think of like the sort of web three notion.
Speaker 1: I do think that there is this belief that is
Speaker 1: not totally untrue that there was sort of a golden
Speaker 1: age of like building the Web where there was a
Speaker 1: lot of like open protocols that people worked on in
Speaker 1: their spare time in order to like let everyone use
Speaker 1: email and email as this sort of like you know,
Speaker 1: like you can have Gmail, but like the sort of
Speaker 1: bones of it are just open source and everyone can
Speaker 1: use them. Um. And then there was like a second
Speaker 1: phase where Facebook was like we're gonna We're gonna like
Speaker 1: make social networking a like a walled garden, and like
Speaker 1: that turned out to be incredibly lucrative, and I think
Speaker 1: that there's there's like a backlash to that where people
Speaker 1: are like, wait, the Internet is incredibly lucrative and all
Speaker 1: the value is going to Mark Zuckerberg, Like what if
Speaker 1: it went to us instead? What if we found a
Speaker 1: way to do something that looks like an open protocol
Speaker 1: but captures money and the money goes to someone other
Speaker 1: than Mark, goes to goes to Andres and Horrowitz, but
Speaker 1: still like um and so I I think that's like
Speaker 1: a that's like a reasonable impulse where it's like building
Speaker 1: Internet protocols is incredibly valuable, but like, how can we
Speaker 1: do it in a way where the value accrues to
Speaker 1: the users of the protocol? Like I when I when
Speaker 1: I push like a little on that notion, when I
Speaker 1: think about what does it mean for the value to
Speaker 1: recruit to the users of the product, I'm like, this
Speaker 1: is all pretty annoying, but like at a high level,
Speaker 1: I understand that impulse. It's such a pleasure to have
Speaker 1: you on that. Thank you. You can find more of
Speaker 1: Matt's opinion columns on the Bloomberg Terminal on Bloomberg dot
Speaker 1: com or follow him on Twitter. He's at Matt Underscore Levine.
Speaker 1: That's m A T. T. Underscore L E V I
Speaker 1: N E. And of course you should check out the
Speaker 1: special edition of the Bloomberg Business Week magazine dedicated to
Speaker 1: all things crypto. On the next episode of Bloomberg Crypto,
Speaker 1: what you thought there wasn't anything else we could possibly
Speaker 1: say about the merge, Think again. We're gonna be talking
Speaker 1: about how the biggest ever upgrades to the Ethereum blockchain
Speaker 1: may have minted an entirely new class of crypto kingpins.
Speaker 1: This is Bloomberg Crypto, a daily podcast from Bloomberg and
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Speaker 1: supervising producer of Bloomberg Crypto is Vicky Verglina. Our senior
Speaker 1: producer is Janet Babin. Our producer is Sharon Barriro. Associate
Speaker 1: producer is Thy Butler. Desta wonder At is our engineer.
Speaker 1: Original music by Leo Sidrin. I'm Stacy Marie Schmal. We'll
Speaker 1: be back tomorrow