WEBVTT - A Critic of Cryptocurrencies Says Bitcoin Needs To Be Burnt With Fire 0:00:10.680 --> 0:00:14.040 Hello, and welcome to another episode of the All Thoughts podcast. 0:00:14.120 --> 0:00:19.000 I'm Tracy Alloway and I'm so Joe. I think at 0:00:19.000 --> 0:00:23.480 this point we've had a number of people either involved 0:00:23.640 --> 0:00:27.200 in the cryptocurrency boom or a massive fans of it 0:00:27.320 --> 0:00:30.240 on the podcast. Correct, Yeah, we have now, haven't we. 0:00:30.360 --> 0:00:33.360 I hadn't really like thought about that, but in the 0:00:33.440 --> 0:00:36.879 last um several months, it does feel like even with 0:00:37.159 --> 0:00:39.440 the sort of boom having waned quite a bit over 0:00:39.479 --> 0:00:41.920 the last year, we have talked to a number of 0:00:42.520 --> 0:00:46.479 hardcore true believers. Yes, and we've discussed this before, but 0:00:46.560 --> 0:00:49.240 our timing on this has been absolutely terrible because we 0:00:49.320 --> 0:00:53.240 basically waited until the bubble had burst for us to 0:00:53.280 --> 0:00:55.240 get a bunch of bitcoin people on. But you know, 0:00:55.280 --> 0:00:57.840 at least we didn't contribute to the bubble, because I 0:00:57.840 --> 0:01:00.720 don't think like we did a single cryptopisode in all 0:01:00.760 --> 0:01:04.240 of as far as I know, and so at least 0:01:04.800 --> 0:01:07.399 when everyone was like, you know, losing their heads or 0:01:07.520 --> 0:01:09.759 going crazy, at least we didn't at least we didn't 0:01:09.800 --> 0:01:12.880 amplify the hype. This is very true. But I think 0:01:12.959 --> 0:01:16.199 in the interest of fairness, at this point, we need 0:01:16.240 --> 0:01:20.360 to get a sort of anti crypto person on and 0:01:20.480 --> 0:01:25.560 in my search for this ultimate anti crypto person, I 0:01:25.600 --> 0:01:30.880 think I came upon the most sort of vociferous um 0:01:31.000 --> 0:01:36.360 argument against cryptocurrencies and also the underlying blockchain technology that 0:01:36.480 --> 0:01:38.399 I have ever seen. Wait, are we gonna are we 0:01:38.440 --> 0:01:42.040 talking to Jamie Diamond today? No, it's not Jamie. Jamie 0:01:42.080 --> 0:01:45.040 Diamond was not that convincing, because you know, he came 0:01:45.080 --> 0:01:47.480 to that conference said bitcoin was a fraud. But we 0:01:47.560 --> 0:01:49.640 know that JP Morgan at the same time that it 0:01:49.680 --> 0:01:52.640 says bitcoin as a fraud, claims to be experimenting with 0:01:52.680 --> 0:01:55.520 blockchain technology. So no, no, I mean, there's a there's 0:01:55.520 --> 0:01:58.440 a really interesting there's a really good point here, and 0:01:58.480 --> 0:02:01.360 it's something that I've always foundrustrating in the debate Whisha 0:02:01.360 --> 0:02:05.760 is that there's no shortage of bitcoin skeptics and Bitcoin 0:02:05.840 --> 0:02:07.720 critics and people call it a fraud in the Ponzi 0:02:07.760 --> 0:02:10.840 scheme in a bubble. What there is a shortage of, however, 0:02:11.320 --> 0:02:15.200 are people who are who call bitcoin of fraud or 0:02:15.240 --> 0:02:18.119 their skeptical of it, who have actually done the research 0:02:18.240 --> 0:02:21.359 and have the technical chops to understand it and understand 0:02:21.360 --> 0:02:23.639 what they're talking about. So you get all these people 0:02:23.680 --> 0:02:26.040 on stage or they say bitcoin is a scam, it's 0:02:26.080 --> 0:02:28.960 like okay, but when they usually don't have is anything 0:02:29.000 --> 0:02:31.800 interesting to say after that? And so that is what 0:02:31.840 --> 0:02:35.840 I'm absolutely what I'm hoping that maybe we can accomplish today. Absolutely, 0:02:35.840 --> 0:02:38.880 And what you often hear from the crypto proponents is, oh, well, 0:02:39.040 --> 0:02:42.000 you don't understand the technology, or you don't understand the 0:02:42.000 --> 0:02:45.840 technology is potential, and so it's not worth talking to you, okay. 0:02:45.919 --> 0:02:48.760 So I'm very pleased to say that we have found 0:02:48.800 --> 0:02:51.359 not only a tech expert, but someone who is sort 0:02:51.400 --> 0:02:55.280 of the ultimate anti crypto person who gave a presentation 0:02:55.440 --> 0:02:58.560 at the Enigma Use and Next conference in California just 0:02:58.600 --> 0:03:01.400 about a month ago. The title of this conference was 0:03:01.480 --> 0:03:06.000 Cryptocurrencies and blockchain burn it with fire. You can't get 0:03:06.040 --> 0:03:08.680 stronger than that, can you. So I'm very excited to 0:03:08.680 --> 0:03:11.840 say that our guest for this episode is Nick Weaver. 0:03:12.000 --> 0:03:15.720 He is a researcher at the International Computer Science Institute 0:03:15.840 --> 0:03:19.440 and a lecturer at UC Berkeley. Nick, thanks so much 0:03:19.480 --> 0:03:23.440 for coming on, Thanks for hosting me. Uh So, Nick, 0:03:24.160 --> 0:03:27.920 I gotta say cryptocurrencies burn it with fire. You know 0:03:28.360 --> 0:03:30.720 you're you're clearly not mincing your words here. You have 0:03:30.760 --> 0:03:36.040 strong feelings about the crypto sphere, yes, and that's because 0:03:36.160 --> 0:03:40.880 I've actually been able to watch it for uh three 0:03:40.960 --> 0:03:44.680 quarters of a decade now. So what happened when the 0:03:44.800 --> 0:03:54.520 cryptocurrencies first came out in in and is most people 0:03:54.560 --> 0:03:58.080 who looked at it with technical understanding went, oh, this 0:03:58.160 --> 0:04:02.880 is bovine excrement and walked away. But I have a 0:04:02.920 --> 0:04:07.839 monetization model. I can watch the cryptocurrency space and turn 0:04:07.920 --> 0:04:12.760 it into both academic papers and non academic papers, and 0:04:12.880 --> 0:04:16.479 so I've been able to basically mind comedy gold from 0:04:16.520 --> 0:04:20.479 the field for uh several years now. And that means 0:04:20.600 --> 0:04:25.640 I've been aware from the beginning from Saga's such as 0:04:26.440 --> 0:04:29.680 ten percent of all bitcoin being invested in a ponzi 0:04:29.760 --> 0:04:34.320 scheme run by a guy called Pirate at forty so uh. 0:04:34.600 --> 0:04:38.800 In your presentation and in your talks and tweeting your 0:04:38.839 --> 0:04:42.120 critical of both sort of public block chains which is 0:04:42.120 --> 0:04:46.760 what we call cryptocurrency, uh, and also corporate block chains. 0:04:46.920 --> 0:04:49.520 I'm a little less interested in the corporate side because 0:04:49.560 --> 0:04:53.600 I feel like there are very few defenders of them anymore. 0:04:54.160 --> 0:04:56.320 And so you'll find a lot of agreement even among 0:04:56.360 --> 0:05:00.719 cryptocurrency enthusiasts when you look at cryptocurrent these however, and 0:05:00.760 --> 0:05:03.880 this idea of like bitcoin as this sort of permission 0:05:03.920 --> 0:05:08.880 list kind of anonymous payment system, decentralized, what is, in 0:05:09.000 --> 0:05:12.240 your view, the sort of fatal flaw that makes it 0:05:12.440 --> 0:05:16.479 not live up to the hype of its advocates, the 0:05:16.560 --> 0:05:20.920 big fatal flaws. It doesn't actually work as currency if 0:05:20.960 --> 0:05:24.560 you can't use it as a competitor to all the 0:05:24.680 --> 0:05:32.359 other actual digital currency systems we have, like oh, PayPal, Impassa's, 0:05:32.680 --> 0:05:37.719 l Asa. All of these payment systems are vastly more 0:05:37.760 --> 0:05:43.520 efficient than the cryptocurrencies, unless you're interested in criminal activity. 0:05:44.000 --> 0:05:48.320 So walk us through the technical aspects of why you 0:05:48.400 --> 0:05:51.560 think bitcoin doesn't work as a currency or as a 0:05:51.600 --> 0:05:57.719 payment system. Okay, so let's start with the three things 0:05:57.720 --> 0:05:59.400 you need to be able to do with the currency. 0:05:59.560 --> 0:06:01.960 Need to be will acquire it, you need to be 0:06:02.000 --> 0:06:04.240 able to hold onto it, and you need to be 0:06:04.279 --> 0:06:09.559 able to spend it. Now, actually acquiring cryptocurrency is a 0:06:09.640 --> 0:06:15.160 hard problem because cryptocurrency the one property it has that 0:06:15.240 --> 0:06:20.520 the other payment systems don't is it's designed to be irreversible. 0:06:20.560 --> 0:06:24.360 There's no go back or undo button, which means in 0:06:24.440 --> 0:06:27.480 order to buy cryptocurrency, you have to do one of 0:06:27.600 --> 0:06:32.039 three things. You either have to bring cash, so the 0:06:32.080 --> 0:06:34.520 bitcoin a t m S don't take your ATAM card, 0:06:34.600 --> 0:06:39.320 they take cash. Or you have to be given credit 0:06:39.720 --> 0:06:42.880 by the seller of the cryptocurrency, so you transfer your 0:06:42.880 --> 0:06:47.200 money electronically and are given credit. Or you have to wait, 0:06:47.400 --> 0:06:51.599 so you transfer your money your to the exchange. The 0:06:51.640 --> 0:06:55.760 exchange then sits on it for several days. Anyone who 0:06:55.880 --> 0:06:59.719 doesn't follow these three rules when selling you cryptocurrency is 0:07:00.040 --> 0:07:04.320 able to be defrauded because the rest of the financial 0:07:04.400 --> 0:07:09.200 system is all designed with an undue button to mitigate fraud, 0:07:09.360 --> 0:07:12.680 and so for example, one of the early bitcoin exchanges 0:07:12.960 --> 0:07:20.120 used a PayPal clow that promise no chargebacks, and then 0:07:20.320 --> 0:07:23.880 there were chargebacks and they went out of business. Likewise, 0:07:24.240 --> 0:07:28.320 Steve Wozniaks sold seventy thousand dollars worth of bitcoin to 0:07:28.440 --> 0:07:31.760 somebody who paid with PayPal, only to find out that 0:07:31.840 --> 0:07:35.360 it was a fraudulent transaction. The PayPal was reversed and 0:07:35.440 --> 0:07:39.120 he was out the bitcoin. Fortunately, I think the laws 0:07:39.240 --> 0:07:43.560 can afford the loss. So they're hard to buy, they're 0:07:43.560 --> 0:07:48.680 harder to hold onto. So if you store your cryptocurrency 0:07:48.920 --> 0:07:53.200 on a third party exchange, you are on the hook 0:07:53.280 --> 0:07:57.560 if they are hacked, and that has been billions of 0:07:57.680 --> 0:08:01.480 dollars of notional value lost for the years as the 0:08:01.520 --> 0:08:05.840 exchanges are hacked, and apparently North Korea is now one 0:08:05.880 --> 0:08:10.000 of the big hackers on this. So you store your 0:08:10.000 --> 0:08:13.559 cryptocurrency on your own computer, Well you can't do that either, 0:08:13.760 --> 0:08:18.080 because if your computer is hacked, your cryptocurrency gets stolen. 0:08:18.160 --> 0:08:21.520 And in fact, we used this one time to detect 0:08:21.640 --> 0:08:29.360 a break in when the stole the monitored bitcoin from 0:08:29.440 --> 0:08:33.840 a wallet that had a copy on a graduate student's account. 0:08:34.559 --> 0:08:38.720 So you use a dedicated device, say like an iPhone 0:08:38.800 --> 0:08:43.040 is a really strong device an iPhone, however, you're dependent 0:08:43.120 --> 0:08:47.319 on the cryptocurrency software, and that cryptocurrency software may be 0:08:47.520 --> 0:08:51.800 dependent on open source modules on GitHub that can be 0:08:51.960 --> 0:08:55.760 bought by somebody else, taken over and include stealing code, 0:08:55.800 --> 0:09:00.000 and this happened, so they're really hard to hold onto. 0:09:00.520 --> 0:09:07.040 And finally you can't actually spend them because the dirty 0:09:07.040 --> 0:09:12.600 little secret is the merchants who say they accept cryptocurrency, Well, 0:09:12.679 --> 0:09:17.079 first of all, the volume hasn't increased in five years, 0:09:17.120 --> 0:09:22.880 but they aren't actually accepting cryptocurrency because the cryptocurrency prices 0:09:22.920 --> 0:09:26.240 bounced up and down. They use a service like bit pay, 0:09:26.400 --> 0:09:32.120 which allows them to price in dollars and it immediately 0:09:32.160 --> 0:09:36.440 converts the cryptocurrency into actual money. Even over Stock up 0:09:36.520 --> 0:09:41.240 until a year ago, basically did not hold any cryptocurrency. 0:09:41.320 --> 0:09:45.679 They just converted it all right away. Um well, they 0:09:45.920 --> 0:09:51.280 held a teen amount um And so in order for 0:09:51.320 --> 0:09:56.440 the system to balance, as somebody buying something with cryptocurrency, 0:09:56.520 --> 0:10:00.360 because of that volatility risk the price bouncing up down, 0:10:00.720 --> 0:10:05.760 you want to immediately transfer your dollars into cryptocurrency then 0:10:05.880 --> 0:10:10.560 spend it, which means a real world cryptocurrency transaction costs 0:10:10.679 --> 0:10:14.720 vastly more than the alternatives when you include those two 0:10:14.760 --> 0:10:19.280 currency conversion steps, and one of which buying the cryptocurrency 0:10:19.480 --> 0:10:25.920 is inherently expensive. So the only people who can avoid 0:10:26.000 --> 0:10:29.120 that expensive buying cryptocurrency is the people who have been 0:10:29.520 --> 0:10:33.240 holding onto it a long time because they're a believer. Now, 0:10:33.600 --> 0:10:37.040 if you don't believe in cryptocurrency, there's no point. If 0:10:37.040 --> 0:10:41.280 you do believe in cryptocurrencies, the one rule of them 0:10:41.400 --> 0:10:46.160 is never actually spend them, because these are designed on 0:10:46.440 --> 0:10:50.120 a gold standard type model. And as we remember our 0:10:50.160 --> 0:10:53.839 economic history from the Great Depression, the only thing worse 0:10:53.840 --> 0:10:58.080 than inflation is deflation that is the notion that your 0:10:58.080 --> 0:11:01.599 currency is going to be worth more to borrow then today. 0:11:01.679 --> 0:11:07.079 And these cryptocurrencies are supposed to be deflationary, which means 0:11:07.120 --> 0:11:12.400 if you say, buy a pizza back in two thousand eleven, um, 0:11:12.520 --> 0:11:15.560 you end up dining on regret when it looks like 0:11:15.600 --> 0:11:19.600 a massive ten million a hundred million dollar pile of 0:11:19.640 --> 0:11:24.480 money in So, if you don't believe in it, they 0:11:24.520 --> 0:11:27.080 don't work for payments, and if you do believe it, 0:11:27.679 --> 0:11:32.360 they don't work for payments. All right, So everything you 0:11:32.400 --> 0:11:35.480 say makes a lot of sense in terms of Bitcoin 0:11:35.600 --> 0:11:40.000 or any other cryptocurrencies not being not making any sense 0:11:40.040 --> 0:11:44.240 whatsoever for what we would call conventional commerce. And um, 0:11:44.280 --> 0:11:48.680 obviously the pro bitcoin rhetoric has changed a lot over time. 0:11:49.000 --> 0:11:52.400 But something that strikes me listening to you and watching 0:11:52.440 --> 0:11:57.320 your presentations and also talking to bitcoin believers is there 0:11:57.480 --> 0:12:00.640 is a point of convergence. So they would say, yeah, 0:12:00.760 --> 0:12:05.719 bitcoin isn't for buying, Bitcoin isn't for coffee, Bitcoin is 0:12:05.760 --> 0:12:08.520 for uh, mostly for holding onto I would never spend 0:12:08.520 --> 0:12:11.440 my bitcoin. The point of convergence, which you say in 0:12:11.440 --> 0:12:15.560 your own presentation, the Tracy reference, is this idea of okay, 0:12:15.559 --> 0:12:18.560 there is one thing that bitcoin is good for that 0:12:18.679 --> 0:12:22.560 is censorship free transactions. So even with all the costs 0:12:22.600 --> 0:12:26.160 that you describe the cost of acquiring, the risk of 0:12:26.760 --> 0:12:29.679 losing your bitcoin, which is a calculable cost in theory, 0:12:29.720 --> 0:12:32.959 and then the volatility cost that for a certain class 0:12:33.000 --> 0:12:37.640 of transactions, um some of them outright crimes, some of 0:12:37.679 --> 0:12:41.080 them gray areas, some of them more privacy related, that 0:12:41.280 --> 0:12:45.640 cost might still be worth it. Yes, the one thing 0:12:45.760 --> 0:12:49.520 that cryptocurrencies do that all the other payment systems don't 0:12:50.160 --> 0:12:55.120 is by having no supposed central authority. We'll get to 0:12:55.200 --> 0:12:59.960 why that's false. But they're designed to be censorship resisted. 0:13:00.160 --> 0:13:03.800 There's nobody as a third party who is willing to 0:13:03.840 --> 0:13:09.760 say no, you can't do forbidden activity. The problem is, 0:13:10.040 --> 0:13:13.680 and this is why I've gotten much more sour over 0:13:13.720 --> 0:13:17.480 the past five years, is I've come to the conclusion 0:13:17.720 --> 0:13:23.280 that that is actually a bad thing. Bitcoin actually has 0:13:23.320 --> 0:13:26.200 committed a crime against me. It has made me believe 0:13:26.440 --> 0:13:30.600 in the need for rigorous enforcement of money laundering laws. 0:13:30.640 --> 0:13:34.400 And I've got I'm a Silicon Valley quasi libertarian, and 0:13:34.440 --> 0:13:38.680 I believe in the jack boot of justice on money laundry. 0:13:39.320 --> 0:13:43.440 So what has happened with the cryptocurrencies, well, they get 0:13:43.559 --> 0:13:48.520 used for drug deals yonn. But more importantly, they get 0:13:48.600 --> 0:13:53.120 used for extortion. So give us cryptocurrency or your data 0:13:53.200 --> 0:13:56.240 get Give us cryptocurrency, or we're going to keep sending 0:13:56.400 --> 0:14:00.720 bomb threats. Um, how long before an airport is blackmailed 0:14:00.720 --> 0:14:03.760 with give us cryptocurrency or you're going to get drones 0:14:03.880 --> 0:14:08.959 flying over Um. It just ends up reaching out and 0:14:09.280 --> 0:14:13.000 touching people in a very bad way. Then there's the theft, 0:14:13.280 --> 0:14:18.200 that billions of dollars worth of theft, and then there's 0:14:18.240 --> 0:14:25.240 the environment of what's left is pure speculation based on 0:14:26.000 --> 0:14:30.280 somebody else being willing to pay more. But those markets 0:14:30.360 --> 0:14:37.280 are so blatantly manipulated and fraudulent. So I consider every 0:14:37.400 --> 0:14:42.400 I c O that was open to non accredited investors. 0:14:43.240 --> 0:14:48.560 It is securities fraud. And that's just what we have 0:14:48.760 --> 0:14:54.320 left is just basically um civil fraud, criminal fraud, and 0:14:54.960 --> 0:15:09.200 rampant speculation and market manipulation. Yeah. So I want to 0:15:09.720 --> 0:15:13.280 uh just pin down and uh not move on from 0:15:13.320 --> 0:15:16.000 something that you said. You know, you say, Okay, the 0:15:16.080 --> 0:15:19.040 only thing that it's really good for things like drug deals, 0:15:19.280 --> 0:15:22.480 and it's given rise to a new model of extortion. 0:15:23.480 --> 0:15:27.720 It only works because in theory the censorship resistance and 0:15:27.760 --> 0:15:30.920 the decentralization so that no one can say this transaction 0:15:31.240 --> 0:15:33.880 isn't allowed. But you threw in there and said we're 0:15:33.880 --> 0:15:36.320 going to get back to it. But even that is 0:15:36.320 --> 0:15:38.520 a false promise. And I really think this is the 0:15:38.600 --> 0:15:43.720 sort of central question of do you think the censorship 0:15:43.760 --> 0:15:48.400 resistant slash decentralization case for bitcoin? Why is that also 0:15:48.960 --> 0:15:53.880 not actually live up to the hype. So it lives 0:15:53.960 --> 0:15:58.000 up to the hype on censorship resistance, it does provide that, 0:15:58.520 --> 0:16:03.360 but the notion of the centralization, So decentralization the idea is, 0:16:04.120 --> 0:16:06.920 let's make it so that you don't have to trust 0:16:07.040 --> 0:16:11.160 any individual or small group of entities, but only the 0:16:11.200 --> 0:16:16.520 system as a whole. Now, the benefits of decentralization, apart 0:16:16.760 --> 0:16:22.320 from censorship resistance, are never clearly articulated. It's basically an 0:16:22.440 --> 0:16:28.680 article of beliefs. But assuming that that is good for something, 0:16:29.280 --> 0:16:34.280 the results has been dismal. They cost a huge amount 0:16:34.320 --> 0:16:38.240 to run, but they don't end up being decentralized. So 0:16:38.680 --> 0:16:43.800 cryptocurrency mining for bitcoin is controlled by basically four entities. 0:16:44.160 --> 0:16:50.320 Four entities can conspire together and completely control what transactions 0:16:50.360 --> 0:16:56.840 get approved or not likewise, so there's no actual decentralization, 0:16:56.920 --> 0:17:02.240 there's just a veneer of decentralization. Likewise, the code developers 0:17:02.320 --> 0:17:08.160 themselves are central authorities as well. So take Etherium for example. 0:17:08.160 --> 0:17:12.480 Ethereum is all code is law and no central authorities. 0:17:12.920 --> 0:17:17.320 But when seven percent of all Ethereum got invested in 0:17:17.680 --> 0:17:22.320 basically a self creating ponzi scheme that had a bug 0:17:22.359 --> 0:17:25.199 in it that allowed the money to get stolen, the 0:17:25.280 --> 0:17:29.840 developers went, oh, you know that whole code is law business. Um, Yeah, 0:17:29.880 --> 0:17:33.679 that's a lie. We're changing the code, undo the theft 0:17:33.800 --> 0:17:37.679 because it was our money you stole. Yeah. I've wondered 0:17:37.680 --> 0:17:40.800 about this at various times, especially with the forks that 0:17:40.840 --> 0:17:44.679 we've seen in well, notably in in bitcoin, where we 0:17:44.800 --> 0:17:48.560 do seem to have the overall direction of bitcoin being 0:17:48.640 --> 0:17:53.640 determined by consensus and by users. So like, how how 0:17:53.720 --> 0:17:59.680 much of a problem are those forks? Well, they are 0:18:00.040 --> 0:18:05.359 and they aren't. They are if you actually believe that 0:18:05.440 --> 0:18:09.280 decentralization is supposed to mean something, because these forks are 0:18:09.400 --> 0:18:15.600 not some large community thing but just a few individuals, 0:18:15.680 --> 0:18:21.840 the the cartels on the mining and or the coders. Um. 0:18:22.240 --> 0:18:27.000 So if you actually believe that decentralization is important somehow 0:18:27.400 --> 0:18:30.640 these forks are problematic. Otherwise for the rest of us, 0:18:30.760 --> 0:18:36.840 it's just basically popcorn. It's entertaining to watch the interesting 0:18:37.080 --> 0:18:42.439 conflicts between various camps and the big block versus small block. 0:18:42.560 --> 0:18:47.800 It's like big Indian versus little endian Um. And so 0:18:48.000 --> 0:18:55.600 it's entertainment, but it's not anything really fundamental from a 0:18:55.840 --> 0:19:01.760 systemic viewpoint, because they're all just only worth something because 0:19:01.800 --> 0:19:05.760 somebody else will pay for it. So well, it's a 0:19:05.800 --> 0:19:09.080 good example that the notion of limited supply is. It's 0:19:09.119 --> 0:19:11.960 true because you can just create more of these out 0:19:11.960 --> 0:19:17.120 of the air, but other than that, it's just amusement value. So, Nick, 0:19:17.160 --> 0:19:18.840 I wanted to go back to something you were saying 0:19:18.880 --> 0:19:22.560 earlier about the regulatory response, and this is something that 0:19:22.640 --> 0:19:27.080 I've I've wondered at various times myself, probably on Twitter 0:19:27.200 --> 0:19:32.800 at some point, But if regulators are sort of missing 0:19:32.880 --> 0:19:34.679 a trick because they're going to get a bunch of 0:19:34.680 --> 0:19:38.919 burned investors, either via crypto investments or I c O s, 0:19:39.680 --> 0:19:43.040 why aren't they acting and why? The other thing that 0:19:43.040 --> 0:19:45.400 I often wonder is if if you think that crypto 0:19:45.640 --> 0:19:49.160 is going to be a legitimate currency sometime in the future, 0:19:49.600 --> 0:19:52.840 then surely that would undermine you know, various regulators and 0:19:52.880 --> 0:19:56.480 monetary authorities as well, so they should be acting. So like, 0:19:56.680 --> 0:19:59.520 either way, either it's a fraud or either it's going 0:19:59.560 --> 0:20:02.440 to be six tessful, you would think there should be 0:20:02.520 --> 0:20:07.200 some sort of regulatory response. I would have hoped so, 0:20:07.720 --> 0:20:12.080 But I think what it comes down to is regulators 0:20:12.119 --> 0:20:17.280 these days are afraid of being claimed to stifle innovation. 0:20:18.320 --> 0:20:23.440 And the cryptocurrency believers have talked a very good story 0:20:23.680 --> 0:20:28.280 about how they're being innovative and new um even if 0:20:28.359 --> 0:20:32.359 in reality they're basically speed running five years of economic 0:20:32.440 --> 0:20:36.119 failures over and over and over again. But so the 0:20:36.200 --> 0:20:39.760 result is the regulators have in the past been very 0:20:39.880 --> 0:20:43.560 hands off, so like you had all these I c 0:20:43.720 --> 0:20:48.240 O s and it just you just look at it 0:20:48.400 --> 0:20:51.879 and it fails. The how he tests that, the test 0:20:52.000 --> 0:20:56.440 for is this a security? And what I think has 0:20:56.480 --> 0:21:01.000 happened is now that things are collapsing, the regulators are 0:21:01.040 --> 0:21:07.560 finally starting to pay attention, and so the regulators are reactive. 0:21:07.680 --> 0:21:11.080 They are not proactive, and so as a consequence that 0:21:11.560 --> 0:21:17.520 they sat back during the boom did nothing, and now 0:21:17.560 --> 0:21:21.119 that it's a bus they're going to go and probably 0:21:22.800 --> 0:21:26.240 drop a lot of lawsuits and probably invite some people 0:21:26.400 --> 0:21:29.639 because now that the tide is rushing out, you're seeing 0:21:29.680 --> 0:21:35.960 that everyone is naked. Um, they're actually doing something, and 0:21:36.240 --> 0:21:41.080 I think it really is. Regulators are afraid of regulating 0:21:43.080 --> 0:21:47.760 new or old wine in new bottles. They think it's new, 0:21:48.440 --> 0:21:51.760 they don't know what to do yet, and so as 0:21:51.760 --> 0:21:59.040 a consequence, they just basically did nothing during the and well, 0:21:59.160 --> 0:22:01.479 now they get the joys of picking up the pieces. 0:22:02.320 --> 0:22:04.760 I wanna go back to where you say this whole 0:22:04.800 --> 0:22:11.560 cryptocurrency uh phase has sort of damaged your natural libertarian 0:22:11.640 --> 0:22:15.240 instincts because now you have this appreciation for this money 0:22:15.320 --> 0:22:19.439 laundering regulation. I'm like struck on this point that in 0:22:19.440 --> 0:22:23.040 this sense, your your view on cryptocurrencies is not all 0:22:23.119 --> 0:22:25.639 that different from a lot of believers, which is that 0:22:25.960 --> 0:22:29.320 it really comes down to censorship resistance. You point out 0:22:29.440 --> 0:22:32.080 that that's mostly used for drug dealers and all kinds 0:22:32.080 --> 0:22:34.399 of things that are awful. They would say, yes, that 0:22:34.560 --> 0:22:36.919 is a byproduct of what happens when you have freedom, 0:22:36.960 --> 0:22:38.679 and that you know there are good things that can 0:22:38.720 --> 0:22:41.919 come out of censorship resistance, that there are people in 0:22:42.119 --> 0:22:44.920 areas of the world, or people in lines of work 0:22:45.040 --> 0:22:47.119 for whatever reason they don't want their bank to know, 0:22:47.520 --> 0:22:49.520 or maybe their bank cracks down on their line of 0:22:49.560 --> 0:22:52.160 work if their say a sex work or something like that. 0:22:52.600 --> 0:22:55.880 And they would say that, yes, there's money laundering and crime, 0:22:55.920 --> 0:22:57.800 but that is the price that you pay for also 0:22:57.840 --> 0:23:02.240 having this freedom. And they would also say say that, um, 0:23:02.280 --> 0:23:05.920 this debate has happened before in cryptography and the sort 0:23:05.920 --> 0:23:09.520 of export of you know, a strong cryptography where people say, oh, 0:23:09.560 --> 0:23:13.320 if cryptography exists, and that's going to be good only 0:23:13.359 --> 0:23:15.920 for terrorists, but that also is what enabled the web 0:23:15.960 --> 0:23:18.159 to work. So how much is this really like a 0:23:18.240 --> 0:23:24.000 technical fight versus essentially a values fight? I think at 0:23:24.119 --> 0:23:30.119 this point it is a values fight. And I really 0:23:30.200 --> 0:23:36.040 don't like that cryptography analogy because cryptography we've always seen 0:23:36.960 --> 0:23:40.360 good uses for it right from the start. But with 0:23:40.480 --> 0:23:46.159 the cryptocurrencies, the problem is is people can't point to 0:23:47.600 --> 0:23:54.719 legit payment system. So what has censorship resistance allowed you 0:23:54.800 --> 0:24:00.320 to do that? Um, that the others happen. Well, okay, 0:24:00.760 --> 0:24:04.320 if you need censorship resistance, you always still have cash. 0:24:04.840 --> 0:24:09.000 It's just that cash has both the need for physical 0:24:09.080 --> 0:24:17.520 proximity and significant mass. So scaling cash. Moving a thousand 0:24:17.600 --> 0:24:20.920 bucks is easy, moving a million bucks is hard. So 0:24:21.040 --> 0:24:28.480 cryptocurrencies want to um enable that moving large quantities. And 0:24:28.560 --> 0:24:32.520 the other thing is is I've just seen the damage 0:24:32.560 --> 0:24:37.639 that is done. So people point to cryptocurrency being used 0:24:37.640 --> 0:24:43.000 in two good situations to get around censorship. The first 0:24:43.200 --> 0:24:46.120 was payments to Wiki leaks. So Wiki leaks was cut 0:24:46.119 --> 0:24:49.840 off from the banking system back around when Assange first 0:24:49.840 --> 0:24:53.400 fled to the embassy to avoid the sex assault charges. 0:24:54.280 --> 0:24:58.600 So when that happened, um, you could use cryptocurrency if 0:24:58.640 --> 0:25:01.879 you wanted to support Wiki weeks, and that's all fine 0:25:01.880 --> 0:25:05.760 and good, but Wiki Leaks decided that it's actually better 0:25:05.920 --> 0:25:10.760 just to arrange with a US nonprofit to act as 0:25:10.800 --> 0:25:17.320 an intermediary and basically launder contributions. And then we had Backpage. 0:25:17.440 --> 0:25:22.000 So Backpage was a Craigslist clone that did a lot 0:25:22.040 --> 0:25:26.640 of support for sex workers, and I actually think, yeah, 0:25:26.800 --> 0:25:31.520 that probably was good overall, or at least been less 0:25:31.560 --> 0:25:34.480 damaging than the alternatives. But they were cut off from 0:25:34.520 --> 0:25:37.880 the banking system, and so to pay with them, you'd 0:25:37.920 --> 0:25:41.720 either have to pay with cryptocurrency or you send them 0:25:42.240 --> 0:25:45.720 a check in the mail. UM, and I suspect most 0:25:45.760 --> 0:25:50.600 of their payments became checks in the mail. Now the 0:25:50.680 --> 0:25:54.040 problem is is, let's face it, Backpage turned out to 0:25:54.119 --> 0:25:59.600 be a criminal conspiracy, and so we're left with very 0:26:00.040 --> 0:26:06.800 you non criminal usages because it is so expensive. So 0:26:07.960 --> 0:26:12.520 it's actually a lot more expensive than the other anonymous 0:26:12.520 --> 0:26:15.320 electronic payments you want. So if you want to buy 0:26:15.359 --> 0:26:19.879 your porn anonymously, you go into Target, pay a hundred 0:26:19.880 --> 0:26:23.120 and four dollars for a Visa gift card, and now 0:26:23.200 --> 0:26:25.879 you can use that Visa gift card to buy your porn. 0:26:26.040 --> 0:26:30.960 So the cost of privacy on electronic transactions is actually 0:26:31.359 --> 0:26:36.280 a lot less than the cryptocurrencies offer because you you 0:26:36.400 --> 0:26:39.199 have this huge problem of you can't hold onto the 0:26:39.200 --> 0:26:43.000 cryptocurrencies you can hold onto a Visa gift card. Never 0:26:43.080 --> 0:26:46.280 say odd lots doesn't bring us a useful day to 0:26:46.359 --> 0:26:50.160 day information and life tips um nick. On a serious note, 0:26:50.480 --> 0:26:55.679 if this is all about differences and values or value systems, 0:26:55.800 --> 0:27:02.159 and given that cryptocurrency supporters seemed to be so invested 0:27:02.280 --> 0:27:06.679 in the belief system around crypto and everything that comes 0:27:06.760 --> 0:27:10.840 with it, what ultimately is going to be the thing 0:27:11.520 --> 0:27:15.280 that destroys cryptocurrencies. As you put it in your presentation, 0:27:15.320 --> 0:27:18.600 that ends up burning them with fire in some way. 0:27:19.240 --> 0:27:22.919 There's two things that can really burn the system with fire. 0:27:23.760 --> 0:27:29.000 The first is the federal government UM getting their act 0:27:29.040 --> 0:27:35.040 together and going after this cryptocurrency called tether. So tether 0:27:35.359 --> 0:27:39.520 is effectively a digital banknote. It's supposedly tied one to 0:27:39.640 --> 0:27:44.640 one with the dollar, but it's not. It's a basically 0:27:44.920 --> 0:27:50.760 it's reinventing eighteenth century banking combined with Liberty Reserve, which 0:27:50.800 --> 0:27:54.160 was a criminal enterprise the Feds shut down a few 0:27:54.240 --> 0:27:59.399 years back, and so it's a rife target for disruption. 0:28:00.320 --> 0:28:06.920 But if the uh tether is removed, that actually destroys 0:28:06.960 --> 0:28:13.240 almost the entire bitcoin exchange ecology. So eight of the 0:28:13.240 --> 0:28:17.440 cryptocurrency volume on the exchanges are on exchanges that are 0:28:17.520 --> 0:28:21.200 already cut off from the banking system because they're viewed 0:28:21.200 --> 0:28:25.400 by the banks. Is basically too high risk fraudulent enterprises 0:28:25.560 --> 0:28:28.960 with a huge amount of wash trading and painting the 0:28:29.080 --> 0:28:34.280 tape and such blatant market manipulation that the price graphs 0:28:34.320 --> 0:28:39.400 look like Bart Simpson's haircuts. UM. So if you remove 0:28:39.520 --> 0:28:46.120 tether basically removed the entire exchange ecology except for a 0:28:46.240 --> 0:28:50.920 few and so that alone would have a huge negative impact, 0:28:51.040 --> 0:28:56.480 and tether is such latently a crime under money laundering 0:28:56.600 --> 0:29:00.600