Speaker 1: I'm Stacy Marie Ishmael, Managing editor of Crypto for Bloomberg News,
Speaker 1: and this is Bloomberg Crypto, a daily Bloomberg I Heart podcast.
Speaker 1: It's Wednesday, July. There's tension in crypto that I'm fascinated by.
Speaker 1: On the one hand, there's this prevailing belief in the necessity,
Speaker 1: indeed the superiority of decentralization. On the other hand, there's reality.
Speaker 1: When things hit the fan, and they often do, folks
Speaker 1: tend to respond by seeking a bailout, by demanding someone,
Speaker 1: perhaps even a regulator, hold fraudsters accountable. And there's a
Speaker 1: tendency to consolidate around the strongest and biggest players in
Speaker 1: the market. But in an industry so prone to spectacular
Speaker 1: scams and expensive hats, this tension is ever present, and
Speaker 1: it's getting worse. Can you simultaneously reject all forms of
Speaker 1: centralized control role and then demand help from centralized authorities
Speaker 1: in times of trouble? For more on this, I'm joined
Speaker 1: today by Bloomberg reporter Emil Nicole. We're both in London.
Speaker 1: We're going to talk about democracy around the time that
Speaker 1: you know, UK politics are going through some interesting some
Speaker 1: interesting things in the small d democratic tradition. But today
Speaker 1: we're really going to focus on the gap between the
Speaker 1: ideological tenets that underpin certain parts of crypto and how
Speaker 1: those things play out in reality. And specifically, you've written
Speaker 1: a lot for the Bloomberg Crypto Newsletter, to which everyone
Speaker 1: should subscribe, But you've written a lot for the Bloomber
Speaker 1: Crypto Newsletter about the tension between the theory of decentralization
Speaker 1: and the reality of bailouts. You've written about the tension
Speaker 1: between the idea of code is law, which is that
Speaker 1: if you are a developer and you write a smart
Speaker 1: contract and that smart contract has a bug in it,
Speaker 1: and as a result, you lose all your money, tough luck.
Speaker 1: Court is law. Can you talk more about one what's
Speaker 1: so interesting about this and to how it's playing out
Speaker 1: in this particular Crypto winter. The idea that code is
Speaker 1: law just automatically flies in the face of how we
Speaker 1: as humans live our lives and expect things to work.
Speaker 1: And that's kind of the inherent problem with crypto is
Speaker 1: that code is kind of the primacy of everything. It's
Speaker 1: what you rely on, it's how we determine, you know,
Speaker 1: who owns what token, who sent what to wear UM
Speaker 1: And unfortunately, then when it comes to kind of the
Speaker 1: rest of the way that we would interact with money, UM,
Speaker 1: relying on that code to be your source of truth
Speaker 1: or your oracle means that you know, for example, if
Speaker 1: somebody was to hack a major play to earn crypto
Speaker 1: game for six hundred million dollars, like really actually happened
Speaker 1: in real life, attack or stole about six hundred million
Speaker 1: dollars from a blockchain network connected to the popular Axi
Speaker 1: Infinity online game. They targeted what is known as the
Speaker 1: Ronan bridge and drained etheran USDC tokens and two transactions.
Speaker 1: The reach wasn't discovered for six days. Who is to
Speaker 1: say whether that is stolen because all they did really
Speaker 1: in that particular instance was exploit a vulnerability in the network, which,
Speaker 1: if you take code, is the ultimate source of truth,
Speaker 1: is perfectly fine and perfectly legal according to the code,
Speaker 1: and transferred that crypto to themselves. So now according to
Speaker 1: the code, they own that crypto, it is rightfully there's
Speaker 1: they haven't stolen it from anybody. UM. That's obviously if
Speaker 1: you take everything to the extreme level, UM, and nobody
Speaker 1: in crypto probably wants to do that. But if we
Speaker 1: are moving towards a society where everything is based upon
Speaker 1: code and never the way that we interact with all
Speaker 1: of this stuff um is kind of underpinned by that technology.
Speaker 1: That is the reality that a lot of authorities and
Speaker 1: legal play is will face is how do you counteract
Speaker 1: what it says on the blockchain? So, before we get
Speaker 1: into why this is particularly challenging and what we are
Speaker 1: taking to call in crypto winter, when we say code,
Speaker 1: what do we mean? I always like to wonder what
Speaker 1: people picture when they think of blockchain, because well, we'll
Speaker 1: get you know, it's in the name, right blocks? Chains?
Speaker 1: Are you imagining like a room full of servers? Are
Speaker 1: you imagining an actual platform on which things can be
Speaker 1: built upon? A bit like a lego block system. I
Speaker 1: think blockchain if it was real and physical. We thought
Speaker 1: like a tapestry where everyone has their in section and
Speaker 1: everyone can paint or add to their in section, but
Speaker 1: at the end of the days for everyone to see
Speaker 1: and everyone can visualize what's happened and what changes have
Speaker 1: you made? And I picture block chain, I think of
Speaker 1: lots and lots of chains linked to one another, kind
Speaker 1: of like those paper chains we used to make when
Speaker 1: your children, but infinitely long. When I think about blockchain,
Speaker 1: I don't really visualize it as a as a physical thing.
Speaker 1: I'm more just consider as some sort of computer program
Speaker 1: or innovation rather than something physical that you can look
Speaker 1: at or visualize. If you have to open it up
Speaker 1: on your computer, it's a page full of rich text
Speaker 1: and lots of words. And that isn't biggause that don't
Speaker 1: mean anything to you unless you know that language. Yes,
Speaker 1: unless you know that language, which very few of us do. Um.
Speaker 1: But obviously those are the things that actually run the
Speaker 1: way that we live our lives. Right even if we
Speaker 1: go beyond crypto, if you think about the apps that
Speaker 1: you have on your phone or the way you get
Speaker 1: to work in the morning, a lot of stuff runs
Speaker 1: on code. Um. And so when we talk about code,
Speaker 1: that's what we're talking about. It's the it's the parts
Speaker 1: of the technology systems that determine why things happen and
Speaker 1: when they happen. The thing that refuses to set your
Speaker 1: Instagram feed the chronological order and you stop showing you
Speaker 1: suggested from people that you do and follow. For some people,
Speaker 1: they want to put more of how we live now
Speaker 1: on the blockchain and the practical implications of that are
Speaker 1: something like, you know, right, so I I have a
Speaker 1: hyphenated first name. There are times when I'm trying to
Speaker 1: book a flight or do something, I'll get it air
Speaker 1: message is like your name is not valid, and it
Speaker 1: fills me with rage. But it's also a reflection of
Speaker 1: the the tyranny of a circumstance in which what is
Speaker 1: allowed is defined by a software engineer whose name is
Speaker 1: probably John, who does not have a hyphenated first name,
Speaker 1: or whose last name doesn't have more you know, absolutely
Speaker 1: has more than two characters, for example, and you're like, okay, fine,
Speaker 1: that's frustrating. But if my identity were tied to a
Speaker 1: blockchain that also had inscribed in it that hyphens were
Speaker 1: not valid, like what you know, what does that mean?
Speaker 1: And I think sometimes when we talk about crypto, even
Speaker 1: on the show, it can sound like these are purely
Speaker 1: financial considerations, or these are purely abstract things, or these
Speaker 1: are just markets. But what I'm hearing from you is
Speaker 1: there is a potential for some of these concepts to
Speaker 1: start to show up in so called real life. Yeah. So,
Speaker 1: for example, if we think about non fungible tokens and
Speaker 1: n f t s. Right now, most of us know
Speaker 1: n f T s as digital artworks. It's a board ape,
Speaker 1: it's you know, a pudgy penguin um, something that can
Speaker 1: be easily dismissed as a gimmick. But the hopes and
Speaker 1: dreams for n f T s in the crypto industry
Speaker 1: go far beyond that, because the way that they'll make
Speaker 1: n f T is more relevant to the regular person
Speaker 1: on the street is to say, Okay, you would normally
Speaker 1: sign ten different pieces of paper to buy this house,
Speaker 1: but instead we're going to put it all on the
Speaker 1: block chain, and therefore that house will belong to you
Speaker 1: in a verifiable way that everybody can trace. And in
Speaker 1: future that n FT can get past to the next
Speaker 1: owner and the next and there will always be a
Speaker 1: chain of a traceable chain of ownership of that house.
Speaker 1: UM whether or not there will be authorities that recognize
Speaker 1: UM that verifiable ownership. Yes, is I think one of
Speaker 1: the biggest questions at the moment around that that I
Speaker 1: think is actually one of the more interesting parts about code.
Speaker 1: It is law because at the moment it's not just
Speaker 1: about you know whether or not you and I agree
Speaker 1: to accept that the n f T you have given
Speaker 1: me that piece of code dictates that the ownership has transferred.
Speaker 1: And if we think about what progress is being made
Speaker 1: to determine that there's some stuff going on in the
Speaker 1: UK at the moment with the Law Commission trying to
Speaker 1: look into the how, um, how blockchain can assist in
Speaker 1: terms of rights of ownership or de facto companies that
Speaker 1: spring up around crypto projects, how those can be respected
Speaker 1: as legal entities while not really being based anywhere at all.
Speaker 1: Um And that's a bit of a headache. Let's go
Speaker 1: back to the idea of crypto winter and what's happening now.
Speaker 1: We had, as you've said, you know, hacks, we've had scams,
Speaker 1: we've had odds, and I would say in general, even
Speaker 1: the most like die Hard, we believe in the sanctity
Speaker 1: of the software person. If they're at risk of losing
Speaker 1: five hundred million dollars, they're going to excuse me, police,
Speaker 1: or you know, some investor, please please come bail me out.
Speaker 1: And that that is absolutely one of the circumstances that
Speaker 1: we've seen. But we're also starting to see bankruptcies. We're
Speaker 1: also starting to see companies in distress. We're starting to
Speaker 1: see people worrying about the fact that they handed their
Speaker 1: tokens over to these you know, entities or in some cases,
Speaker 1: these protocols having consequences that they weren't necessarily thinking about.
Speaker 1: When all the prices were going up. What are you
Speaker 1: observing there in your in your reporting and your conversations
Speaker 1: with folks. One thing that has popped up a lot
Speaker 1: from investors, especially online, is saying, you know, I was
Speaker 1: prepared for my crypticurrency to go up or down in value.
Speaker 1: I was prepared to potentially lose all of the money
Speaker 1: that I've put in. What I was not prepared for
Speaker 1: was not being able to access my money. Because a
Speaker 1: lot of this the appeal of crypto is that it's decentralized, right,
Speaker 1: It's all on you. There's no middleman, there's no big
Speaker 1: brother telling you you can't do x, y and z
Speaker 1: with your dollars um. But when crypto lenders suspend withdrawals
Speaker 1: and say, actually, we're really in trouble, so we can't
Speaker 1: handle giving your money back right now, We're going to
Speaker 1: keep hold of it, and you have to just sit
Speaker 1: there and watches the price of bitcoin goes down and
Speaker 1: you can't cash out or do anything with it um.
Speaker 1: That's that therein lies the rub like that's where people
Speaker 1: are starting to now feel very uncomfortable about the way
Speaker 1: the industry is going and actually shows that something that
Speaker 1: previously was thought to be decentralized is pretty centralized in reality.
Speaker 1: We'll be right back with more from Emily Nicole. This
Speaker 1: is where we get into an interesting nuance, which is
Speaker 1: you've got the coda's law elements, but then you've also
Speaker 1: got not your keys not your coins. Can you talk
Speaker 1: more about that? So not your key is not your
Speaker 1: coins is a phrase within the crypto industry that basically
Speaker 1: is exactly what I just described. It is that if
Speaker 1: you are not hosting your coins yourself in a cold
Speaker 1: wallet normally, but just something that is not stored within
Speaker 1: another entities treasury, then you don't have control over those
Speaker 1: and that's not something that everybody in crypto is aware of,
Speaker 1: particularly as we have like a massive retail investor market.
Speaker 1: Now you probably didn't think, okay, well, if I buy
Speaker 1: some bitcoin with x y Z exchange um and I
Speaker 1: just like, you know, leave it in on that platform,
Speaker 1: that's not my bitcoin. It's so funny because when we
Speaker 1: talk about real life parallels, it's like when you buy
Speaker 1: a kindle book from Amazon, that you can actually take
Speaker 1: that book back at any time. Right, So we we
Speaker 1: do have in tech at least the idea of what
Speaker 1: you think of his ownership is really leasing. But I
Speaker 1: think a lot of people to your point, didn't think
Speaker 1: that they were leasing their crypto from these exchanges. It's
Speaker 1: like if we if we think about the decentralization of
Speaker 1: social media, a lot of the appeal there if you
Speaker 1: listen to any of the vcs investing in these projects,
Speaker 1: is that Okay, so you have a follow a list
Speaker 1: in one place, and you want to be able to
Speaker 1: take that follow a list to another platform and it
Speaker 1: should automatically follow you if all these things are sold
Speaker 1: on blockchain and everything's interoperable, etcetera. And you know, we're
Speaker 1: used to thinking that way a little bit more in
Speaker 1: something like you just described with books or with music
Speaker 1: like these. Yeah, if you have a Spotify account, you've
Speaker 1: spent years building up a library of playlists that are
Speaker 1: painstakingly curated. But you know that if you stop being
Speaker 1: a Spotify user, you can't take that with you. And
Speaker 1: that's what vcs are trying to change. That's what they
Speaker 1: that's what they say they're trying, Yes, exactly, that's what
Speaker 1: they That's what they think is the major appeal here,
Speaker 1: because that's a bugbear of ale of us. Right. Whether
Speaker 1: or not they can change that is another matter, And
Speaker 1: to be honest, it goes against most of the usual
Speaker 1: ways that business work. If you were to allow people
Speaker 1: just to move things around and stop being a customer
Speaker 1: if they wanted to um and so. But I think,
Speaker 1: as you as to your point, nobody thought that would
Speaker 1: be then the case for their cryptocurrencies as well. They
Speaker 1: didn't think that. You know, if I hold all my
Speaker 1: coins on coin base, I won't be able to take
Speaker 1: them to crack. And those are just two examples, and
Speaker 1: neither of them are suspended withdrawals. But there are now
Speaker 1: a few players that have suspended access to tokens and
Speaker 1: people can't move them anywhere. Do you think that this
Speaker 1: current crypto winter is going to encourage more people to
Speaker 1: go like self host called wallet there like even though
Speaker 1: it's a pain, it's worth it. Or do you think
Speaker 1: people are just going to be like, none of this
Speaker 1: makes sense. I can't get my coins out if I
Speaker 1: put it on in exchange. The self hosting thing is
Speaker 1: too annoying. I'm going to put my money in a
Speaker 1: see things account on a high street bank, I'd be
Speaker 1: slightly more skeptical. I guess in the present um, most
Speaker 1: of the players that have suspended withdrawals are still relative
Speaker 1: the niche within crypto as a whole. So the investors
Speaker 1: that would have been putting their money into platforms like
Speaker 1: Celsius or platforms like block Fire, which also suspended with
Speaker 1: drules previously, um, they would have been kind of a
Speaker 1: little bit more aware, a little bit more um discerning,
Speaker 1: as you know, how they might go about storing their
Speaker 1: crypto in future. But as it hasn't happened to a
Speaker 1: major crypto exchange yet, most people who buy crypto are
Speaker 1: going to think, well, that looks really sucky for them,
Speaker 1: but I'm doing okay and I'll take the risk. They
Speaker 1: may not even be paying attention to the statements that
Speaker 1: they very clear that this exactly could happen to them
Speaker 1: on on major exchange. Is if if the situation arose
Speaker 1: for the folks who have been burned by, as you
Speaker 1: rightly point out, the more esoteric parts of defy are you,
Speaker 1: are you getting any sense that there's still true believers
Speaker 1: in the court is low idea like that sort of fundamentally,
Speaker 1: even though they're like, but I also want my money back.
Speaker 1: The libertarian instinct to not be regulated, to not be
Speaker 1: told what to do. Is that persisting. I think it's
Speaker 1: definitely persisting, at least even even if we look outside
Speaker 1: off even if you look straight at the most mainstream
Speaker 1: part of crypto, that is bitcoin, you're still seeing people
Speaker 1: shout about how bitcoin is the only monetary system that's
Speaker 1: going to work and not be you know, under the
Speaker 1: oversight of central banks and governments, the only thing that
Speaker 1: will give you true and free liberty in your monetary system. Um.
Speaker 1: And if you then think about defy, there are still
Speaker 1: players that are offering insanely how yields without really explaining
Speaker 1: where that yield is coming from. UM. And obviously we
Speaker 1: don't yet have like real customer data on you know,
Speaker 1: has there been demand drop offs, Has there been you know,
Speaker 1: businesses having to wind down certain parts of their activities
Speaker 1: in different jurisdictions. But what we do know is that
Speaker 1: the market is still struggling, UM and whether it will recover.
Speaker 1: I think there has been a significant knocking confidence as
Speaker 1: to whether people will continue to buy the idea that
Speaker 1: fields can be magiced out of thin air. And if
Speaker 1: you put money in the box and say this worth something,
Speaker 1: it'll it'll come out with even more wife on the
Speaker 1: other side the boxes magic. Thank you very much. Always
Speaker 1: a pleasure to have you on the pod. Thanks for
Speaker 1: having me. You can find more of Emily's reporting on
Speaker 1: the Bloomberg Terminal, on Bloomberg dot com and on Twitter.
Speaker 1: She's at Emily J. Nicole. That's n I C O
Speaker 1: L L E. On the next episode of Bloomberg Crypto.
Speaker 1: Earlier this year, the pop music duo known as The
Speaker 1: Chain Smokers released five thousand non fungible tokens for free.
Speaker 1: These n f t s gave fans a one percent
Speaker 1: cut of the streaming royalties from their latest album, as
Speaker 1: well as priority access to concert tickets and free merchandise.
Speaker 1: What are artists and musicians like The Chain Smokers hoping
Speaker 1: to achieve with these moves and how are fans responding?
Speaker 1: Could the decentralization of the music industry actually be upon us?
Speaker 1: For more on these questions, I'll be joined by Bloomberg
Speaker 1: reporter Ana Miller and by Justin blou CEO of Royal
Speaker 1: a decentralized music Stato. I'm Stacy Marie Ishmael and this
Speaker 1: is Bloomberg Crypto, a daily podcast from Bloomberg and I
Speaker 1: Heart Radio. For more shows from I Heart Radio, visit
Speaker 1: the I Heart Radio app, Apple Podcasts, or wherever you
Speaker 1: get your podcasts. Email your questions, comments, or suggestions for
Speaker 1: the show to Crypto at Bloomberg dot net and you'll
Speaker 1: find us on Twitter at Crypto. The supervising producer of
Speaker 1: Bloomberg Crypto is Vicky very Galina. Our producer is Mohammed Farup.
Speaker 1: Our associate producers Ozanam Siddiki and Moses and m Desta
Speaker 1: wonder At is our engineer. Original music by Leo Sidron