Speaker 1: Welcome to tech Stuff, a production from iHeartRadio. Hey there,
Speaker 1: and welcome to tech Stuff. I'm your host Jonathan Strickland.
Speaker 1: I'm an executive producer with iHeart Podcasts. And how the
Speaker 1: tech are you? Now? As we're about to head into
Speaker 1: Thanksgiving here in America, the huge tech news stories just
Speaker 1: won't stop. So earlier this week I talked about what
Speaker 1: happened at open ai and how the board of directors
Speaker 1: fired CEO Sam Altman and how that had massive and
Speaker 1: immediate consequences. There's already another update to that. After being fired,
Speaker 1: Altman reportedly received an offer from Microsoft to become CEO
Speaker 1: of some advanced AI division. But now it is reported
Speaker 1: that he is in line to return as open AI's
Speaker 1: CEO once again. So you know, if you listen to
Speaker 1: the stories, you know that he was fired, the board
Speaker 1: reversed its decision, begged him to come back. He demanded
Speaker 1: that the members of the board stepped down, you know,
Speaker 1: the ones who had voted him out, that they have
Speaker 1: to step down, and they refused, and it went back
Speaker 1: and forth. Well, now it looks like he is on
Speaker 1: track to come back as CEO of open Ai, and
Speaker 1: the board was really kind of forced into this because
Speaker 1: there were a lot of staff members who were ready
Speaker 1: to just walk out if the decision had not been reversed.
Speaker 1: Greg Brockman, the former president of open Ai, who also
Speaker 1: resigned in the wake of that event, is also set
Speaker 1: to return to the company. All of the old board
Speaker 1: of open Ai is now on the outseas, with the
Speaker 1: exception of Adam DiAngelo. He's the sole holdover from the
Speaker 1: board that fired Sam Altman, and he's supposed to be
Speaker 1: there to kind of help with transition this new board
Speaker 1: of directors, which is very small. I think it's like
Speaker 1: three or four people. They're going to be in charge
Speaker 1: of actually creating an expanded board of directors, and I'm
Speaker 1: pretty sure that at least one of those seats will
Speaker 1: be taken by somebody from Microsoft, because, as I mentioned
Speaker 1: in the earlier stories, Microsoft has invested billions into open
Speaker 1: Ai and was mightily miffed that the open Ai board
Speaker 1: made this decision without first talking to its partner. I
Speaker 1: also guess that Emmett Sheer, the former CEO of Twitch
Speaker 1: who was serving as CEO of open Ai, is going
Speaker 1: to count his tenure at the company in hours rather
Speaker 1: than you know, like weeks. Or months or whatever. This
Speaker 1: is a wild story, but that's not what we're here
Speaker 1: to talk about today. We're going to talk about a
Speaker 1: different and equally wild story. We're going to talk about
Speaker 1: a different CEO, one who has played a really important
Speaker 1: part in the crypto community and who yesterday, on November
Speaker 1: twenty first, twenty twenty three, pled guilty to a host
Speaker 1: of charges that include things like money laundering and sanctions
Speaker 1: violations and that sort of stuff, among other things. So
Speaker 1: today we're going to learn a bit about the crypto
Speaker 1: exchange Binance, and it's soon to be former CEO Chong
Speaker 1: Peng Xiao Akacz. In fact, I guess now he really
Speaker 1: is the former CEO. I believe he's already formally stepped down.
Speaker 1: All right, this time last year CZ was coming up
Speaker 1: in the news because of another crypto bro Fond of
Speaker 1: Initialisms SBF aka Sam Bankman freed, and that was when FTX,
Speaker 1: the second largest cryptocurrency exchange in the world, was starting
Speaker 1: to fall apart. Well. CZ's company, Binance was the largest
Speaker 1: cryptocurrency exchange in the world still is, so it was
Speaker 1: number one and FTX was number two. Or a short
Speaker 1: time it looked like Finance was gonna swoop in and
Speaker 1: acquire FTX in an effort to head off catastrophe, but
Speaker 1: then CZ changed his mind, and well, now FTX is gone.
Speaker 1: It's sister company, Alameda Research, is gone. SBF is a
Speaker 1: waiting sentencing after he had been found guilty of multiple
Speaker 1: white collar crimes, and now CZ has pled guilty to
Speaker 1: white collar crimes. It is a wild roller coaster ride,
Speaker 1: and we will touch on all of that a bit
Speaker 1: more as this episode goes on, but first, let's back
Speaker 1: up and just learn a little bit about Finance and
Speaker 1: about CZ himself. His story, in many ways, really exemplifies
Speaker 1: the mythology that perpetuates throughout the tech sphere that, you know,
Speaker 1: a person can come from humble beginnings and then end
Speaker 1: up being one of the richest people in the world.
Speaker 1: You know, at one time, CZ was worth more than
Speaker 1: twenty billion dollars. In order to do that, you might,
Speaker 1: you know, along the way, have to ignore some illegal
Speaker 1: stuff in order to maintain the Disney version of the
Speaker 1: Rags to Richest story, because, as it turns out, a
Speaker 1: lot of billionaires got their billionaire status by doing things
Speaker 1: that you know aren't necessarily legal. So in nineteen seventy seven.
Speaker 1: Cizi was born in the Jiangsu province of China. Both
Speaker 1: his parents were teachers, but China in the nineteen seventies
Speaker 1: and the nineteen eighties was a tumultuous place for people
Speaker 1: who were dedicated to educating others. The Chinese Communist Party
Speaker 1: wanted very much to have a direct hand in how
Speaker 1: China's citizens thought, which meant educators were potentially enemies of
Speaker 1: the state, because it turns out teaching folks how to
Speaker 1: think critically tends to be bad for authoritarian regimes. It
Speaker 1: doesn't work well with their motives oppa, So, according to
Speaker 1: cz his father had been identified as a potentially dangerous
Speaker 1: individual and his family was forced to move to a
Speaker 1: more rural province. On June fourth, nineteen eighty nine, student
Speaker 1: led protests in Tianamen Square in Beijing reached a tipping point.
Speaker 1: After months of demonstrations, the Chinese government deployed troops against
Speaker 1: the protesters and commanded the troops to tell the protesters
Speaker 1: to vacate the square and use force if necessary. Violent
Speaker 1: clashes followed, and a whole bunch of people died in
Speaker 1: the process. To the point where it's often referred to
Speaker 1: as the Tianaman Square massacre. Now, how many people actually
Speaker 1: died is still a matter of conjecture. The Chinese government
Speaker 1: isn't exactly forthcoming with the figures, and in fact has
Speaker 1: tried many different approaches to either dismiss or downplay or
Speaker 1: recontextualize the event. At one point, they even referenced it
Speaker 1: as a vaccination against future political turmoil, which is about
Speaker 1: as chilling a description as I can think of. So
Speaker 1: this environment in China was obviously really dangerous for people
Speaker 1: who were in the education sector. So Cez's family chose
Speaker 1: that to leave China, and a couple of months after
Speaker 1: the massacre, Cz and his mother immigrated to Canada and
Speaker 1: he became a nationalized citizen of Canada. Sez said he
Speaker 1: took several jobs as a teenager to help his mother
Speaker 1: cover family expenses, including working at a McDonald's. So again,
Speaker 1: this plays into sort of that mythology of the tech space,
Speaker 1: where you have people from these pretty humble beginnings reach
Speaker 1: incredible heights. He also dedicated himself to his schoolwork. He
Speaker 1: proved to be adept at mathematics, and he decided to
Speaker 1: enroll in McGill University in Montreal and focus on computer science.
Speaker 1: After he graduated college, Cz took a gig first as
Speaker 1: a subcontractor and he was developing software for the Tokyo
Speaker 1: Stock Exchange. Then he took a job with Bloomberg trade
Speaker 1: Book and was again developing software that was related to
Speaker 1: making trades on stock markets. And in two thousand and five,
Speaker 1: Cz made the decision to head back to China in
Speaker 1: an effort to create tech startups in China itself. So
Speaker 1: for years, China has represented a large and for quite
Speaker 1: some time, largely untapped market. You've got a country that
Speaker 1: has more people than any other country in the world.
Speaker 1: Right there's like one point four billion people in China,
Speaker 1: and so that's an enormous potential market to tap into
Speaker 1: if you can. And it's really tricky, not just because
Speaker 1: the Chinese government is very much an authoritarian presence, but
Speaker 1: also there are international sanctions that you have to deal
Speaker 1: with where other countries have put sanctions upon China, and
Speaker 1: it made it a lot harder to do certain types
Speaker 1: of business. Meanwhile, China went through a phase in which
Speaker 1: the government began to encourage tech companies in particular to
Speaker 1: start business in China, both natively, like encouraging native Chinese
Speaker 1: businesses and to encourage international companies to create a position
Speaker 1: or an office in China, as China was looking to
Speaker 1: not just catch up, but to surpass other countries in
Speaker 1: the tech space. So Cz worked in China for several
Speaker 1: years trying to hit it big with various startups, and
Speaker 1: that's how things went. He built businesses that bridged the
Speaker 1: gap between tech and finance. He continued to focus on
Speaker 1: things like high frequency trading platforms, that sort of stuff.
Speaker 1: And in two thousand and eight, you had a famous
Speaker 1: white paper publish which was called Bitcoin, a peer to
Speaker 1: peer electronic cash system. This introduced the world to concepts
Speaker 1: like blockchain and cryptocurrency. And Cz said he first heard
Speaker 1: about all of this when he was playing in a
Speaker 1: poker game in Shanghai and there was another guy at
Speaker 1: the table, a guy named Bobby Lee, who at that
Speaker 1: time was the CEO of a cryptocurrency exchange company that
Speaker 1: was called BTC China. So Bobby Lee turns to Cz
Speaker 1: in the middle of this poker game and apparently says
Speaker 1: that Cz should really invest like ten percent of his
Speaker 1: wealth into bitcoin because it was going to be the
Speaker 1: next big thing. CZ said that instead of doing the
Speaker 1: ten percent deal. He's like, well, if ten percent is good,
Speaker 1: all of it should be better. So reportedly he then
Speaker 1: sold his apartment and then invested everything he had in bitcoin.
Speaker 1: But at first things did not go so well. The
Speaker 1: value of bitcoin took a hit. Cz saw his personal
Speaker 1: wealth diminish as a result. I want to say that
Speaker 1: that bitcoin's value dropped to just a third of what
Speaker 1: it had been when he made his initial investment, and
Speaker 1: that looked bad. But Cz practiced the old crypto mantra
Speaker 1: of hoddle hodl hold on for dear life and eventually
Speaker 1: saw bitcoin rebound. He also thought that the entire crypto
Speaker 1: community would benefit if it were easier for normal folks
Speaker 1: to get into cryptocurrency, because even in twenty thirteen, which
Speaker 1: is already half a decade after the initial concept of
Speaker 1: bitcoin and blockchain had been unveiled, the folks who were
Speaker 1: into crypto mostly consisted of wealthy folks who were tech nerds,
Speaker 1: or maybe people who had aspirations of being wealthy but
Speaker 1: already were a tech nerd. But outside of that group,
Speaker 1: cryptocurrency was still largely not really understood or known. So
Speaker 1: Cz thought it might make sense to build a more
Speaker 1: accessible platform to allow investors to get into cryptocurrency, and
Speaker 1: that this in turn would benefit the entire crypto community,
Speaker 1: like it becomes a rising tide situation, you have more
Speaker 1: people getting into this and then actually potentially making cryptocurrency
Speaker 1: live up to what it was supposed to be, which
Speaker 1: was a digital means of exchange that would offer up
Speaker 1: opportunities that you just could not realize if you were
Speaker 1: dependent upon stuff like fiat currency. But nor for that
Speaker 1: to work, you got to get people to adopt it.
Speaker 1: If it's just this one small, insular group using the technology,
Speaker 1: it doesn't really go anywhere. So he started to build
Speaker 1: up resources that he would need to launch his own
Speaker 1: cryptocurrency exchange, which he would call Binance. He named it
Speaker 1: after a portmanteau. Essentially he was combining the words binary
Speaker 1: and finance, and he would essentially launch Binance out of
Speaker 1: China in July twenty seventeen. So I guess we need
Speaker 1: to actually talk about what a cryptocurrency exchange is. Essentially,
Speaker 1: it does what it says on the ten. So these
Speaker 1: are businesses that facilitate the exchange of money from one
Speaker 1: form of currency into another. I'll explain more about how
Speaker 1: this happens. But first we need to take a quick
Speaker 1: break to thank our sponsors. Okay, so how does a
Speaker 1: cryptocurrency exchange work? Well, in some ways, it's similar to
Speaker 1: how an establishment, like a currency exchange in a country works,
Speaker 1: except those are offshoots of like nationalized financial systems. But
Speaker 1: you know, you would walk up to one of these
Speaker 1: places and you would exchange your home currency for whatever
Speaker 1: the native currency was. So if I were going to
Speaker 1: the UK, I would be exchanging US dollars for British
Speaker 1: pounds sterling. But in the process, I would also be
Speaker 1: paying a small fee to the institution itself on top
Speaker 1: of this, so I'm not getting a one to one
Speaker 1: value exchange here. I'm losing some because I'm paying the
Speaker 1: institution for the process. Cryptocurrency exchanges are similar, except what
Speaker 1: they're really doing is they're matching up buyers and sellers.
Speaker 1: So let's say that you want to get into bitcoin
Speaker 1: and you're doing it for the first time. You would
Speaker 1: use a cryptocurrency exchange. You would open up an account there,
Speaker 1: create a digital wallet, transfer some of your money into
Speaker 1: this digital wallet. Then you would use the exchange to
Speaker 1: purchase bitcoin from somebody who already holds some and it
Speaker 1: would be at an agreed upon price. Typically the exchange
Speaker 1: handles all of this for you, so you don't have
Speaker 1: to like go through negotiations or anything, and then you
Speaker 1: purchase your bitcoin by quote unquote exchanging your US dollars
Speaker 1: for the bitcoin, and the crypto exchange takes a cut
Speaker 1: of that transaction. There's a transaction fee that goes to
Speaker 1: the exchange itself. Now, these exchanges can and often do,
Speaker 1: have their own cryptocurrency or token associated with the exchange.
Speaker 1: For example, the now defunct ft X exchange had its
Speaker 1: token called FTT. Binance has a unit that is shortened
Speaker 1: down to B and B, but it is called the
Speaker 1: binance coin. There are a few reasons that cryptocurrency exchanges
Speaker 1: could mint their own crypto coins their own tokens. One
Speaker 1: big one is just to raise money. You attract investors
Speaker 1: to your platform and you tell the investors, in return
Speaker 1: for your investment, you will get x number of native tokens,
Speaker 1: and those tokens will be useful in different ways. So
Speaker 1: one of those ways is that can reward those investors,
Speaker 1: obviously just to give them a return on their initial investment.
Speaker 1: But this is somewhat tricky, right, because if you're an
Speaker 1: early backer of a crypto exchange like Binance and you
Speaker 1: get this huge number of binance coins in return for
Speaker 1: your investment, really all you have is a whole bunch
Speaker 1: of right. It's not magically worth anything. I mean, it's
Speaker 1: worth whatever the initial coin offering or ICO says it's worth,
Speaker 1: but it's not pegged to that value. The value can
Speaker 1: actually drop below that ICO. So let's say that bidance
Speaker 1: coin launches with a value of one US dollar per
Speaker 1: binance coin. There's nothing that magically ties those values together
Speaker 1: on their own, So it could be that the binance
Speaker 1: coin falls to seventy cents instead of a dollar. That
Speaker 1: could happen, or it could go up. It could be
Speaker 1: that it suddenly is worth five hundred dollars. So at first,
Speaker 1: it feels like you're being handed a big old pile
Speaker 1: of monopoly money, right, because the bills say they're worth
Speaker 1: certain amounts, But you can't actually spend monopoly money anywhere
Speaker 1: other than in a game of monopoly. But as people
Speaker 1: join the exchange and they put some money into the
Speaker 1: exchange's own currency, either to facilitate trades for other currencies
Speaker 1: or just as an investment, the crypto coin starts to
Speaker 1: take on a value that's determined by the market. So
Speaker 1: let's say that you are an early investor in finance.
Speaker 1: As a result, Binance gives you like a million Binance coins,
Speaker 1: and then after a while your Binance coins are worth
Speaker 1: two hundred bucks apiece. You've now got two hundred million
Speaker 1: dollars worth of Binance coins. That's kind of like how
Speaker 1: these cryptocurrency exchanges get off the ground is just through
Speaker 1: this group hallucination that the token is going to be
Speaker 1: worth something, and maybe it will and maybe it won't.
Speaker 1: It's a gamble. Now. On top of all that, often
Speaker 1: in exchange will also extend certain benefits to people who
Speaker 1: are holding and using the native tokens for that exchange. So,
Speaker 1: for example, if you're using binance coins on Binance, you
Speaker 1: might get a discount on those transaction fees, so you'll
Speaker 1: still have to pay a transaction fee, but it won't
Speaker 1: be as much, so you'll be able to keep more
Speaker 1: of the value associated with that currency change. So in
Speaker 1: a way, it almost becomes something like a loyalty program.
Speaker 1: You can maximize your profits by investing in and trading
Speaker 1: with the native tokens of the exchange. All right, So
Speaker 1: back to binances in particular. So Caz holds this initial
Speaker 1: coin offering, he attracts investors to pour money into supporting
Speaker 1: finance by essentially buying up these tokens, and he launches
Speaker 1: it in the summer of twenty seventeen. However, that was
Speaker 1: around the same time that the Chinese government was starting
Speaker 1: to grow really leery of cryptocurrency. Now you could argue
Speaker 1: this was China being stereotypically suspicious of any entity that
Speaker 1: the government did not have direct control over, and so
Speaker 1: they treated it like it was a potential threat to
Speaker 1: their authority. If the Chinese government can't control it, then
Speaker 1: there's always the possibility it could grow to a point
Speaker 1: that means it could defy the Chinese government. Now, you
Speaker 1: could also say that the Chinese government saw the potent
Speaker 1: for cryptocurrency to be the funding mechanisms for all sorts
Speaker 1: of illegal activities, and that could include things like money laundering,
Speaker 1: funding terrorist organizations, all this kind of stuff, And there's
Speaker 1: a legitimate argument for that. In fact, that's part of
Speaker 1: what the Binance has pled guilty to have done. But
Speaker 1: however you want to frame it, China began to pass
Speaker 1: more and more restrictive laws that essentially were muscling crypto
Speaker 1: companies out of the country. It was becoming harder and
Speaker 1: harder for them to do business in China, particularly with
Speaker 1: the level of freedom that they needed to operate in
Speaker 1: if they wanted to grow. So Cz chose to have
Speaker 1: a change of venue and he relocated the headquarters for Binance,
Speaker 1: and what would follow was a kind of global game
Speaker 1: of hopscotch. Cz would pull up roots and relocate Binance's
Speaker 1: headquarters to a different country. Then he would do it
Speaker 1: all over again once that new country became and to
Speaker 1: pass more regulations around cryptocurrency. So he went from China
Speaker 1: to Japan, then he went from Japan to Malta. Then
Speaker 1: he went from Malta to the Cayman Islands. You'll often
Speaker 1: hear that Binance's headquarters are quote unquote offshore here in
Speaker 1: the United States, because there is a US branch of Binance,
Speaker 1: but the actual main company of Binance is always referenced
Speaker 1: as being offshore, and that's partly because the company has
Speaker 1: been rather fleet footed when it comes to making tracks
Speaker 1: when regulations start to pop up. Well within a year,
Speaker 1: Binance became the largest cryptocurrency exchange as far as trading
Speaker 1: volume is concerned. So twenty eighteen, it already had made
Speaker 1: a name for itself. In twenty nineteen, Binance launched a
Speaker 1: stable coin backed by the US dollar called Binance USD. Originally,
Speaker 1: the Binance coin was trading on the Ethereum blockchain, but
Speaker 1: in twenty nineteen, Binance migrated all of its tokens onto
Speaker 1: its own blockchain, called the Binance Chain. That year also
Speaker 1: saw a big problem. Binance was the target of hackers,
Speaker 1: so some hacker or hackers were able to siphon a
Speaker 1: way around seven thousand bitcoin from the exchange as a whole. Now,
Speaker 1: in twenty nineteen, that amount of bitcoin had a value
Speaker 1: of somewhere in the neighborhood of forty million US dollars.
Speaker 1: That's a pretty big bank heist. Binance ultimately covered all
Speaker 1: the losses. The company had already established a fund specifically
Speaker 1: for those kinds of emergencies. Cz had that foresight. He
Speaker 1: knew that there needed to be a safety net there
Speaker 1: because cryptocurrency is inherently risky for various reasons. This was
Speaker 1: a reminder, in fact, that cryptocurrency is not inherently safer
Speaker 1: than other forms of currency. It's different, but it's not
Speaker 1: necessarily better, at least not when it comes to things
Speaker 1: like risk. Then Binance launched its own smart chain or
Speaker 1: smart blockchain if you prefer so. The initial Binance chain
Speaker 1: was a pretty straightforward and simple blockchain, so it allowed
Speaker 1: for stuff like transaction validations and overall governance of the blockchain.
Speaker 1: But the smart chain that Binance launched carried the capabilities
Speaker 1: of supporting smart contracts. Now, smart contracts are a technology
Speaker 1: that allows for all sorts of different implementations on the
Speaker 1: blockchain that have really yet to be realized in a
Speaker 1: way that has been seen as practical, but it allows
Speaker 1: for stuff like NFTs. NFTs are built on top of
Speaker 1: smart contracts, and they can only exist on blockchains that
Speaker 1: have that support for them. So Binance launches its own
Speaker 1: smart blockchain technology. This also allowed Binance to provide an
Speaker 1: alternative to Ethereum, which was really the premiere smart blockchain solution. Like,
Speaker 1: when you say smart blockchain, you don't necessarily just mean Ethereum,
Speaker 1: but practically that's what a lot of people did mean
Speaker 1: when they talked about smart blockchains. They were talking specifically
Speaker 1: about the Ethereum blockchain. Because it supported those kinds of transactions.
Speaker 1: It also complicates matters when it comes to things like
Speaker 1: discussing NFTs in a way that is genuine and meaningful
Speaker 1: and accurate, because one of the arguments about NFTs is
Speaker 1: that you can move them to other blockchains and they
Speaker 1: will remain relevant. And that's only true if the blockchain
Speaker 1: supports smart contracts in the first place, and even then
Speaker 1: it gets tricky to migrate stuff, but that's for another
Speaker 1: podcast entirely. Binance also offered lower transaction fees and faster
Speaker 1: transaction speeds than you could find on ethereum, so you
Speaker 1: could say that Binance was trying to drink Ethereum's milkshake
Speaker 1: in some ways. Now this leads up to a point
Speaker 1: where the US government begins to pay a bit more
Speaker 1: attention to cryptocurrency in general and Binance in particular. For
Speaker 1: a few years, the crypto world was operating kind of
Speaker 1: like the wild West. There were very few laws and
Speaker 1: regulations that could get in the way, and there were
Speaker 1: lots of opportunities to make money and to grow, and
Speaker 1: even more opportunities if you weren't terribly picky about, you know,
Speaker 1: operating in a legal way and that kind of stuff.
Speaker 1: If you weren't if you didn't mind getting your hands dirty,
Speaker 1: you could grow real fast in the crypto world. But
Speaker 1: in twenty twenty, Forbes published an article that essentially implicated
Speaker 1: cz As building a business that was specifically structured to
Speaker 1: deceive US regulators while still profiting from US based investors. Essentially,
Speaker 1: they were saying cz was designing Binance to confound US
Speaker 1: regulators and keep the business from being restricted by regulations
Speaker 1: and laws. The US government moved to investigate Binance, specifically
Speaker 1: looking into the possibility that finance was guilty of things
Speaker 1: like tax avoidance as well as money laundering. A lot
Speaker 1: of this came down to the differences between Binance dot Us,
Speaker 1: the United States face of Binance, which was supposed to
Speaker 1: operate within the laws and regulations of the United States,
Speaker 1: and Binance overall right like so, Binance Overall operated with
Speaker 1: far fewer restrictions, but investors in the United States were
Speaker 1: supposed to be interfacing with Binance dot Us, which was
Speaker 1: supposed to be the more tame and legal version of Binance.
Speaker 1: The investigation uncovered information that implicated Binance as allowing certain
Speaker 1: US investors to engage with the more untame, wild and
Speaker 1: wooly version of Binance, in other words, to operate without
Speaker 1: obeying those regulations and laws, which was a huge no no.
Speaker 1: Cz at the time maintained that the investigation was unwarranted.
Speaker 1: He said, this is all totally baseless, and we will
Speaker 1: come out proving that Binance hasn't done anything illegal and
Speaker 1: we've been operating within the law. So that investigation starts
Speaker 1: and it continues for a couple of years. And while
Speaker 1: that was going on, there was also massive drama happening
Speaker 1: within the crypto community at large, and to go into
Speaker 1: all of it would actually require a mini series of
Speaker 1: episodes to really dive into what happened in twenty twenty
Speaker 1: two in the crypto community, it's very complicated. Part of
Speaker 1: it is precipitated by stuff that happened years earlier, right
Speaker 1: because in twenty twenty the crypto community saw a big boost.
Speaker 1: The pandemic had lots of effects throughout all of culture
Speaker 1: and the economy. One of those effects was that a
Speaker 1: lot of people, once confined to their own home, started
Speaker 1: to look into things like, huh, I wonder if it
Speaker 1: would make sense to invest in cryptocurrency, and a ton
Speaker 1: of people who had never really been involved in cryptocurrency
Speaker 1: at that point, started to get involved, and this began
Speaker 1: a series of events that would start to drive the
Speaker 1: value of various crypto coins higher and higher, sometimes too
Speaker 1: unsupportable amounts. Like look at doge coin, a coin that
Speaker 1: was made as a joke and essentially was made in
Speaker 1: a way to flaunt how ridiculous the cryptocurrency world could be.
Speaker 1: Even dosee coin, the joke coin, the trash coin, became
Speaker 1: very valuable compared to what it had started out as,
Speaker 1: but only for a short while before it collapsed in
Speaker 1: on itself when the perception could no longer support itself.
Speaker 1: Things like that were happening leading up to twenty twenty
Speaker 1: two that would allow for an enormous rug pull, not
Speaker 1: necessarily an intentional one, but one that just kind of
Speaker 1: happened because of a confluence of events. I'll explain more,
Speaker 1: but first we're going to take another quick break to
Speaker 1: thank our sponsors. In twenty twenty one, cryptocurrency was having
Speaker 1: a banner year, right like, driven by the increase in
Speaker 1: interest in twenty twenty twenty twenty one was huge. In
Speaker 1: November of twenty twenty one, just two years ago, the
Speaker 1: value of bitcoin hit a high of around sixty nine
Speaker 1: thousand dollars per bitcoin, a value it has not hit since,
Speaker 1: although while it took a massive dive over the course
Speaker 1: of the next year, it has recovered significantly since then. However,
Speaker 1: after this huge high, investors started to back off of cryptocurrency.
Speaker 1: This was due to a lot of different reasons. Part
Speaker 1: of it was that the traditional financial systems around the
Speaker 1: world saw interest rates growing. Right, so like the regular
Speaker 1: banking industry, you start to see interest rates go up,
Speaker 1: which means it becomes more expensive to take out a loan. Now,
Speaker 1: this was something that kind of shocked me because I
Speaker 1: don't know, I just take a much more conservative approach
Speaker 1: when it comes to investment. I don't believe in investing
Speaker 1: money I don't have. But as it turns out, I
Speaker 1: am in the minority. A lot of people believe in
Speaker 1: investing money they do not have in an effort to
Speaker 1: make way more money, and that will involve things like
Speaker 1: taking out a loan in order to make massive investments
Speaker 1: and stuff. But when you take out a loan, you
Speaker 1: have to pay the loan back, plus you have to
Speaker 1: pay back the interest well. As the interest rates go up,
Speaker 1: it becomes an inhibiting factor on investing. Right, Investors are
Speaker 1: less likely to pour money into stuff because now they're
Speaker 1: going to have to pay much higher interest rates on
Speaker 1: the loans they take out in order to make those
Speaker 1: investments in the first place. Whereas I was of the
Speaker 1: naive opinion that you take the money you actually have,
Speaker 1: not money that you have taken a you know, not
Speaker 1: a loan you've taken out the rather money you actually have,
Speaker 1: and then you invest that I'm a sucker. That's not
Speaker 1: how you're supposed to do it, apparently, But that explains
Speaker 1: why I'm not a financial genius or anything. But anyway,
Speaker 1: the point being that because of these higher interest rates,
Speaker 1: there was a slowdown in investing in cryptocurrency. That was
Speaker 1: just one of the factors that was having an impact
Speaker 1: on the crypto community. In twenty twenty two. Another happened.
Speaker 1: In May of that year. There was a cryptotoken called
Speaker 1: tara USD that was supposed to be pegged to the
Speaker 1: US dollar. Now, pegged means that the value of the
Speaker 1: cryptotoken is tied to the value of something else, in
Speaker 1: this case, the US dollar. But in May of twenty
Speaker 1: twenty two, because of some pretty complex issues. Tara USD
Speaker 1: became unpegged to the US dollar and its value collapsed,
Speaker 1: and that collapse became kind of like the first domino
Speaker 1: to fall in a chain, so it's like a chain
Speaker 1: reaction was initiated. The collapse undermined the security of several
Speaker 1: other crypto organizations that held units of this digital currency
Speaker 1: that suddenly had become worthless. So it was like if
Speaker 1: the dollar or whatever your native currency is suddenly became
Speaker 1: worth nothing, it wouldn't matter how much of it you had,
Speaker 1: it's still worth nothing. You would just have a whole
Speaker 1: lot of nothing if you were you know, if you
Speaker 1: had a bank account filled with millions of dollars or
Speaker 1: pounds or euro or whatever it might be, but the
Speaker 1: value of each individual euro or dollar or whatever fell
Speaker 1: to zero, you're still penniless, effectively. So this happened to
Speaker 1: a lot of cryptocurrency companies, whether they were crypto lenders
Speaker 1: or crypto exchanges or whatever, and you started to see
Speaker 1: a lot of these crypto companies go under FTX, which
Speaker 1: at this point in twenty twenty two was not yet
Speaker 1: known to just be a house of cards, at least
Speaker 1: not from anyone who wasn't already inside the company, FDx
Speaker 1: moved to help cover some of these companies that were
Speaker 1: affected by the collapse of tara USD, So FTX was
Speaker 1: doing this in an effort to try and stabilize the
Speaker 1: overall crypto community. However, this also meant that FTX itself
Speaker 1: was over extended. And remember at this point, FTX was
Speaker 1: the second largest crypto exchange in the world behind Binance. Now,
Speaker 1: when you get to November of twenty twenty two, FTX
Speaker 1: itself is in major trouble. So at first, before the
Speaker 1: full extent of what was going on at FTX was known,
Speaker 1: CZ indicated that Binance was going to essentially cover for
Speaker 1: FTX again in an effort to ensure the stability of
Speaker 1: the overall market. Then, as more information came out about
Speaker 1: ftx's questionable practices, CZ reversed course and said that Binance
Speaker 1: would instead liquidate all of its holdings in FTT tokens.
Speaker 1: So remember FTT was the native token of the FTX exchange.
Speaker 1: So Binance is saying, you know what, we're cashing out,
Speaker 1: We're getting out of it entirely. Instead of rescuing them,
Speaker 1: we're walking away, and that signaled a mass sell off
Speaker 1: of FTT, and meanwhile it became clear that FTX didn't
Speaker 1: actually have the money to cover all of that. See,
Speaker 1: these exchanges are supposed to have the resources to cover
Speaker 1: a mass withdrawal of the native token. If they don't
Speaker 1: have that, then you have a run on the bank.
Speaker 1: And then suddenly the bank reveals it doesn't have the
Speaker 1: ability to cover all the withdrawals, and you get a
Speaker 1: scene like the one from It's a Wonderful Life where
Speaker 1: you find out, oh, no, no, no, no, your money's
Speaker 1: not here. It's a it's an old Wilson's barn and
Speaker 1: it's in, you know, like that sort of thing. That's
Speaker 1: terrible Jimmy Stewart, But I did that for my friend Shay,
Speaker 1: who loves Jimmy Stewart and hates my impression. So FTX,
Speaker 1: it turns out, had been secretly funneling customer holdings FTX
Speaker 1: customer's money to cover bad investments that were made by
Speaker 1: its sister company, Animator Research. That was why FTX could
Speaker 1: not handle the situation that found itself in. It was
Speaker 1: already not just overextended, but it was hollow because of
Speaker 1: this issue of funneling billions of dollars worth of funds
Speaker 1: of FTX customer money to a different sister company. Now,
Speaker 1: you could make the argument that CZ's move of saying
Speaker 1: he would first support FTX and then withdrew that support
Speaker 1: made the situation even worse. You could say, Okay, CZ
Speaker 1: kicked SBF while he was already down. And in fact
Speaker 1: CZ and SBF definitely do not like each other. They
Speaker 1: have feuded a in public throughout things like Twitter posts
Speaker 1: and stuff, you know, the way mature people do, and
Speaker 1: there has been a long history of the two of
Speaker 1: them sniping at each other. So you could say that
Speaker 1: what CZ did was he saw that SBF and FTX
Speaker 1: were in a bad position and he just decided to
Speaker 1: kind of twist the knife and make it worse. I
Speaker 1: would say that, in the wake of all the information
Speaker 1: we learned through the various trials involving FTX executives, that
Speaker 1: the company was doomed. Whether CZ got involved or not,
Speaker 1: CZ's involvement was salt on the wound, but the wound
Speaker 1: was already deadly. Whether CZ said anything or didn't say anything,
Speaker 1: FTX had sealed its own fate with some truly terrible decisions. Meanwhile,
Speaker 1: Binance itself still was in the crosshairs of the US government.
Speaker 1: It's not like it was free and clear of its
Speaker 1: own investigation. And during the course of that investigation, US
Speaker 1: authorities determined that Binance was failing to comply with various
Speaker 1: US laws, like the Bank Secrecy Act, which the Bank
Speaker 1: Secrecy Act requires financial institutions to investigate and to reveal
Speaker 1: suspicious transactions. So if a series of transactions indicate that
Speaker 1: perhaps someone is trying to launder huge amounts of money,
Speaker 1: maybe because of the drug trade or some other illegal activity,
Speaker 1: they are required by law to report that. And so
Speaker 1: the investigation was saying Binance was failing to do this,
Speaker 1: even though the Bank Secrecy Act would cover Binance's activities
Speaker 1: within the United States, because again, Binance is a global company.
Speaker 1: It's not like the United States has jurisdiction over the
Speaker 1: entire world, although sometimes our country behaves that way. It
Speaker 1: is still, however, operating within the United States, and at
Speaker 1: least for those operations it is meant to comply with
Speaker 1: the US law. But as I mentioned earlier, the investigators
Speaker 1: had already determined that at least some US customers were
Speaker 1: making use not of the US based version of finance,
Speaker 1: but by the global less regulated version of finance. So
Speaker 1: the authority said Finance failed to put in even rudimentary
Speaker 1: systems to do things like check on suspicious transactions or
Speaker 1: to even be able to detect them in the first place,
Speaker 1: Like not only was Binance not investigating transactions that could
Speaker 1: lead to criminal activity, but didn't even have the system
Speaker 1: in place to do it, despite the fact that it
Speaker 1: was legally obligated to do that. As such, the authorities
Speaker 1: argue that Binance had become a haven for money laundering.
Speaker 1: The illegal drug trade could lean on Binance to launder
Speaker 1: funds and hide the financials for massive illegal operations, and
Speaker 1: not just the drug trade. There were lots of other accusations,
Speaker 1: including things like funding of terrorist organizations or people trading
Speaker 1: in child abuse material. We're talking terrible grim stuff. And
Speaker 1: according to the investigation, even Binance's own staff had commented
Speaker 1: and joked about this problem. Within Binance, there was one
Speaker 1: joke being referenced about how Binance should put up web
Speaker 1: banner ads across the web, telling drug dealers that if
Speaker 1: they're having trouble laundering their money, they should come to
Speaker 1: Binance because you can do it there and you'll get cake.
Speaker 1: So like arguing that Binance not only allowed for money laundering,
Speaker 1: but welcomed it and profited mightily from it. So, just yesterday,
Speaker 1: which again was November twenty first, twenty twenty three, for
Speaker 1: all of those who are listening from the future, Binance
Speaker 1: pled guilty to several charges relating to money laundering and
Speaker 1: similar crimes. CZ himself also pled guilty as part of this,
Speaker 1: And it's kind of like a settlement, you know, it's
Speaker 1: a or a plea bargain deal. CZ will be forced
Speaker 1: to pay a fine of fifty million dollars. Now, fifty
Speaker 1: million dollars is a princely song, Don't get me wrong.
Speaker 1: Fifty million is a lot of money. If someone gifted
Speaker 1: me fifty fifty million dollars, I would essentially retire and
Speaker 1: run off to the woods to live a quiet life
Speaker 1: of isolation and video games. So fifty million is a
Speaker 1: huge amount of money. However, you have to remember CZ
Speaker 1: is a billionaire. In fact, his current net worth is
Speaker 1: somewhere in the neighborhood of ten billion dollars, so fifty
Speaker 1: million is a fine that he can certainly afford to pay.
Speaker 1: He has also been forced to resign as CEO of Binance,
Speaker 1: his part of the agreement means that he will never
Speaker 1: be allowed to hold an executive position with a cryptocurrency
Speaker 1: exchange again. However, he is allowed to remain an advisor
Speaker 1: to Binance and a shareholder the majority shareholder in the company,
Speaker 1: So while he can't be the CEO, he can be
Speaker 1: the shareholder. And you know, we know major shareholders often
Speaker 1: in fact always direct where a company goes because they're
Speaker 1: the ones who hold the money. Technically, he could also
Speaker 1: face jail time. The Bank Secrecy Act holds a maximum
Speaker 1: sentence of five years for people who are found guilty
Speaker 1: of violating the law, so he technically could face five
Speaker 1: years for that, as well as other prison sentences for
Speaker 1: the other crimes he admitted to, but that's probably not
Speaker 1: going to happen. Since he pled guilty, chances are he's
Speaker 1: going to avoid any significant prison time. In fact, I
Speaker 1: would guess I would bet that he doesn't spend any
Speaker 1: time behind bars. At most, he might have house arrest
Speaker 1: for a while or probation or something, but I don't
Speaker 1: think he's going to see any jail time. Unlike his
Speaker 1: colleague SBF. SBF is looking at potentially some very serious
Speaker 1: jail time, So that's an interesting contrast there. But then again,
Speaker 1: SBF pled not guilty and put up a big fight
Speaker 1: to suggest that he was not at fault for the
Speaker 1: crimes he committed, So there are lots of differences there. Binance, meanwhile,
Speaker 1: is on the hook to pay a whopping four point
Speaker 1: three billion with a B dollars in fines collectively. It's
Speaker 1: actually a couple of different fines that the company will
Speaker 1: be paying, but when you add it up, it's four
Speaker 1: point three billion dollars. In addition, the company has agreed
Speaker 1: to a monitorship, so essentially that means that representatives of
Speaker 1: US authority will watch over Binance to make sure that
Speaker 1: Binance is following the law. It's not that the US
Speaker 1: is going to have control of finance, but they are
Speaker 1: supposed to get full transparency into Binance's operations to make
Speaker 1: sure that you know, it's not still engaged in money
Speaker 1: launtering and such. This case is huge. It follows in
Speaker 1: the wake of other instances in which US authorities have
Speaker 1: gone after various crypto companies for playing fast and loose
Speaker 1: with the law, or, as US Attorney General Merrick Garland
Speaker 1: has put it, quote, using new technology to break the law.
Speaker 1: Does not make you a disruptor, It makes you a criminal.
Speaker 1: End quote. Considering that SBF was found guilty of several crimes,
Speaker 1: that CZ has now pled guilty to other crimes and
Speaker 1: has agreed to no longer hold an executive position with Finance,
Speaker 1: and that numerous other cryptocurrencies or crypto companies rather have
Speaker 1: found themselves in similar situations, including one called Kraken that
Speaker 1: is currently part of a massive investigation. This really could
Speaker 1: just be part of a very nasty and painful growing
Speaker 1: process for the crypto world in general, because it turns out,
Speaker 1: unlike what the ideals suggested back when it was first
Speaker 1: announced back in two thousand and eight, cryptocurrency is not
Speaker 1: able to operate wholly separate from established financial practices and institutions.
Speaker 1: It just can't. That's not how the world works, and
Speaker 1: that means that ultimately it will be held accountable, at
Speaker 1: least in some part, when those crypto companies fail to
Speaker 1: follow the rules. How or if these specific criminal cases
Speaker 1: are going to impact cryptocurrencies as a whole remains to
Speaker 1: be seen. I imagine we might see some short term volatility,
Speaker 1: I mean more volatile than what we already see in
Speaker 1: cryptocurrency but I'm not convinced that it's like the death now.
Speaker 1: I've long been a critic of cryptocurrencies. I mean even
Speaker 1: in the early days. I remember I said I objected
Speaker 1: to the being called cryptocurrencies because they weren't being treated
Speaker 1: as currency. They were being treated like commodities or securities.
Speaker 1: They weren't being treated like a currency. You wouldn't dare
Speaker 1: spend it because the value of the currency was so
Speaker 1: volatile and the transaction time was so long that the
Speaker 1: value that you spent at the beginning of transaction could
Speaker 1: be very different than the value at the end of it.
Speaker 1: Like imagine going up and buying a stick of gum
Speaker 1: for like five cents, but then by the time the
Speaker 1: transaction's over, that five cents has the equivalent value of
Speaker 1: what used to be one hundred dollars. You're like, well,
Speaker 1: that was the most expensive state of gum I've ever
Speaker 1: bought in my whole life. That's a ridiculous example, except
Speaker 1: that's how it really works with stuff like bitcoin, Like
Speaker 1: it can really vary that much from the beginning of
Speaker 1: a transaction to when it's validated. So I've always been
Speaker 1: a critic of cryptocurrencies that doesn't even get into things
Speaker 1: like the environmental impact and how it has engendered a
Speaker 1: lot of really unfair systems, and it has created a
Speaker 1: whole class of crypto bro evangelists who are desperate to
Speaker 1: get more people into cryptocurrency because that means that they
Speaker 1: can get a payout, and it starts to look more
Speaker 1: and more like a pyramid scheme. I still have all
Speaker 1: these criticisms of cryptocurrencies. However, I do not think this
Speaker 1: is the beginning of the end of cryptocurrency. I don't
Speaker 1: think it's going to find the foundations crumbling and come
Speaker 1: crashing down. I don't think that's happening. There's no shortage
Speaker 1: of other crypto exchanges out there that are looking at
Speaker 1: this as an opportunity to maybe make a bigger move
Speaker 1: in the space. Binance is still the largest cryptocurrency exchange
Speaker 1: in the world. It's not even close by orders of
Speaker 1: magnitude larger than the second largest cryptocurrency exchange out there.
Speaker 1: That's kind of like how Google holds a dominant position
Speaker 1: in web search, like it's undeniable. They have almost a
Speaker 1: monopoly on that. Well. Binance is not quite at a
Speaker 1: monopoly level in cryptocurrency exchanges, but they're certainly the biggest
Speaker 1: player in town, but I bet a lot of other
Speaker 1: cryptocurrency exchanges right now are saying this is our chance
Speaker 1: to get a larger slice of the pie. It's just
Speaker 1: that a lot of them are still operating in areas
Speaker 1: that got Binance into trouble in the first place. So
Speaker 1: I think we're just through a very tumultuous phase in cryptocurrency,
Speaker 1: and that we're not close to the end of that
Speaker 1: phase yet, where there's going to be this reckoning between
Speaker 1: the cryptocurrency community and various legal establishments around the world
Speaker 1: that are trying to make sure that crypto currency doesn't
Speaker 1: become a tool for criminals to use to get around
Speaker 1: the law. I think that's just going to be the
Speaker 1: continuing story for the next few years. And I don't
Speaker 1: want cryptocurrency to just collapse because I don't want people
Speaker 1: to lose all their savings. I would much rather see
Speaker 1: people extricate themselves from cryptocurrencies and perhaps find other ways
Speaker 1: to invest their money, and then maybe once everyone is safe,
Speaker 1: then I wouldn't mind seeing cryptocurrency collapse because I really
Speaker 1: do think ultimately it's more harmful than helpful. I think
Speaker 1: it has created a very toxic kind of environment, but
Speaker 1: I don't want to see it go away and also
Speaker 1: bankrupt lots of people who were desperately hoping that this
Speaker 1: was their ticket to real stability. That I don't want
Speaker 1: to see that happen. All Right, that was another very
Speaker 1: long episode about a very crazy sequence of events that
Speaker 1: happened this week. Who knows what will happen tomorrow. I don't,
Speaker 1: and I also won't be talking about it because I'll
Speaker 1: be busy stuffing myself with turkey and lots of side dishes.
Speaker 1: For those of you in the United States who are
Speaker 1: celebrating Thanksgiving, I wish you a safe and happy and
Speaker 1: healthy holiday. For everyone else out there, I wish you
Speaker 1: an absolutely wonderful week. We will have a rerun tomorrow,
Speaker 1: and of course Friday is the day for classic episodes,
Speaker 1: but we'll be back next week with all new episodes
Speaker 1: before I go on holiday again, because the end of
Speaker 1: the year is crazy like that. I wish you all
Speaker 1: the best, and I'll talk to you again really soon.
Speaker 1: Tech Stuff is an iHeartRadio production. For more podcasts from iHeartRadio,
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