WEBVTT - Bonus: The Crypto Story by Matt Levine 0:00:03.640 --> 0:00:06.720 This is Bloomberg Crypto, a daily Bloomberg I Heard podcast, 0:00:07.120 --> 0:00:10.119 and I'm Stacy Marie Ishmael, Managing editor of Crypto for 0:00:10.160 --> 0:00:28.440 Bloomberg News. Let me cut to the chase. Matt Levine, 0:00:28.520 --> 0:00:30.560 my colleague on the Bloomberg Opinion side of the house, 0:00:31.160 --> 0:00:34.959 is perhaps the greatest finance blogger ever to do it, 0:00:35.560 --> 0:00:37.640 and in what is both a flex and a service, 0:00:37.960 --> 0:00:40.920 He's just written tens of thousands of words on the 0:00:40.960 --> 0:00:44.640 subject of crypto for a special issue of Bloomberg Business Week. 0:00:45.840 --> 0:00:49.200 Matt's gone deep into the blockchain to break down its origins, 0:00:49.400 --> 0:00:52.640 it's possible, futures, and the current state of a technology 0:00:52.680 --> 0:00:55.960 that's showing up everywhere in industries ranging from finance to 0:00:56.040 --> 0:00:59.600 shipping too, of course video games. And we're going to 0:00:59.680 --> 0:01:03.360 be bringing his exploration to you in audio form thanks 0:01:03.360 --> 0:01:06.120 to the talents of Bloomberg editor and professional voice actor 0:01:06.319 --> 0:01:10.040 Mark Ledoff. You'll get weekly chapters of the special Crypto 0:01:10.120 --> 0:01:14.319 issue of Bloomberg Business Week, written by Matt Levine, narrated 0:01:14.319 --> 0:01:17.679 by Mark Ledorff, coming to you each Sunday through December eight. 0:01:18.680 --> 0:01:21.240 And now here's the first chapter of the special audio 0:01:21.360 --> 0:01:41.679 edition of the Bloomberg Business Week Crypto Issue. The crypto Story, 0:01:42.400 --> 0:01:45.400 Where it came from, what it all means, and why 0:01:45.440 --> 0:01:52.560 it still matters, by Matt Levine. One ledgers, bitcoins, block 0:01:52.640 --> 0:01:59.520 chains part a life in databases. Modern life consists in 0:01:59.640 --> 0:02:03.600 large part of entries in databases. If you have money, 0:02:03.640 --> 0:02:06.120 what you have is an entry in your bank's database 0:02:06.400 --> 0:02:08.880 saying how much money you have. If you have a 0:02:08.919 --> 0:02:11.640 share of stock, what you have is generally an entry 0:02:11.639 --> 0:02:14.680 on a list kept by the company, or more likely 0:02:14.800 --> 0:02:19.040 some central intermediary, of who owns stock. If you own 0:02:19.040 --> 0:02:22.720 a house, things are slightly different. There's a house involved, 0:02:23.200 --> 0:02:25.800 but your ownership of that house is probably written down 0:02:25.840 --> 0:02:29.200 in some database. In the US, this often means there's 0:02:29.200 --> 0:02:32.360 a record of you buying the house, your title in 0:02:32.400 --> 0:02:35.560 a filing cabinet in the basement of some county clerk's office. 0:02:36.240 --> 0:02:39.520 It's not a very good database. In many ways, the 0:02:39.560 --> 0:02:42.320 important thing here is the house. You have a key 0:02:42.360 --> 0:02:45.720 to the front door, your stuff is there. Your neighbors 0:02:45.760 --> 0:02:48.040 will be unsurprised to see you leaving the house in 0:02:48.080 --> 0:02:50.880 the morning, and would be surprised to see someone else 0:02:50.919 --> 0:02:54.160 coming back in. But in many other ways, the important 0:02:54.160 --> 0:02:57.119 thing is the entry in the database. A bank will 0:02:57.160 --> 0:02:59.360 want to make sure you have the title before giving 0:02:59.400 --> 0:03:01.880 you a mortgage. A buyer will want to do the 0:03:01.919 --> 0:03:05.040 proper procedures to that record before paying you for the house. 0:03:05.680 --> 0:03:10.360 The key will not suffice. Plus lots of other stuff, 0:03:10.919 --> 0:03:14.640 Much of modern life occurs online. It's not quite true 0:03:14.680 --> 0:03:17.320 that your social life, and your career and your reputation 0:03:17.440 --> 0:03:20.320 consists of entries in the databases of meta platforms and 0:03:20.400 --> 0:03:25.280 Google and Microsoft. But it's not quite false either. Some 0:03:25.400 --> 0:03:28.359 of this stuff has to do with computers. It's far 0:03:28.400 --> 0:03:30.960 more convenient for the money to be computer entries than 0:03:31.040 --> 0:03:34.760 sacks of gold or even paper bills. Some of it 0:03:34.840 --> 0:03:37.880 is deeper than that, though. What could it mean to 0:03:38.000 --> 0:03:41.440 own a house? One possibility is the state of nature. 0:03:41.960 --> 0:03:45.120 Owning a house means one you're in the house, and 0:03:45.280 --> 0:03:48.000 two if someone else tries to move in, you're bigger 0:03:48.040 --> 0:03:50.360 than them, so you can kick them out. But if 0:03:50.400 --> 0:03:54.360 they're bigger than you, now they own the house. Another 0:03:54.400 --> 0:03:57.200 possibility is what you might think of as a village. 0:03:57.360 --> 0:03:59.840 Owning a house means you live there, and your neighbors 0:03:59.880 --> 0:04:02.280 all know you live there, and if someone else tries 0:04:02.320 --> 0:04:05.080 to move in, then you and your neighbors combined are 0:04:05.120 --> 0:04:08.760 bigger than them. Home Ownership is mediated socially by a 0:04:08.880 --> 0:04:13.160 high trust network of peers. A third possibility is what 0:04:13.240 --> 0:04:16.000 you might think of as a government. Owning a house 0:04:16.080 --> 0:04:18.800 means the government thinks you own the house, and if 0:04:18.800 --> 0:04:21.159 someone else tries to move in, then the government will 0:04:21.240 --> 0:04:24.240 kick them out. You don't need to live there, because 0:04:24.240 --> 0:04:27.760 the government's knowledge is sufficient. You can rent out the house. 0:04:28.120 --> 0:04:31.000 Someone else can move in with your permission. If you 0:04:31.080 --> 0:04:33.320 revoke the permission, you can go to the government and 0:04:33.360 --> 0:04:37.359 it will subject to landlord, tenant law, etcetera. Kick the 0:04:37.400 --> 0:04:41.680 person out. Home Ownership is mediated socially by a government. 0:04:42.240 --> 0:04:44.520 The database is a way for the government to keep track. 0:04:45.040 --> 0:04:48.320 You don't have to trust any particular person. You have 0:04:48.440 --> 0:04:52.080 to trust the rule of law. Money is a bit 0:04:52.120 --> 0:04:55.960 like that too. Sacks of gold are a fairly straightforward 0:04:56.040 --> 0:04:59.640 form of it, but they're heavy. A system in which 0:04:59.680 --> 0:05:03.440 your trusted banker holds onto your sacks for you and 0:05:03.520 --> 0:05:06.039 writes you letters of credit, and you can draw on 0:05:06.080 --> 0:05:08.440 those letters at branches of the bank run by your 0:05:08.440 --> 0:05:12.480 bankers cousin. That's pretty good, though it relies on trust 0:05:12.520 --> 0:05:15.200 between you and the banker. As well as the banker 0:05:15.279 --> 0:05:19.039 and the banker's cousin. A system of impersonal banking in 0:05:19.080 --> 0:05:22.240 which the tellers are strangers and you probably use an 0:05:22.240 --> 0:05:25.839 a t M anyway, requires trust in the system, trust 0:05:25.920 --> 0:05:29.440 that the banks are constrained by government regulation, or reputation 0:05:29.839 --> 0:05:34.240 or market forces, and so will behave properly. Saying that 0:05:34.360 --> 0:05:37.479 modern life has lived in databases means most of all, 0:05:37.839 --> 0:05:42.680 that modern life involves a lot of trust. We trust 0:05:42.839 --> 0:05:46.440 the keepers of the databases. Sometimes this is because we 0:05:46.480 --> 0:05:50.119 know them and consider them to be trustworthy. More often 0:05:50.120 --> 0:05:52.440 it means we have an abstract sense of trust in 0:05:52.480 --> 0:05:55.800 the broader system, the system of laws and databases and 0:05:55.920 --> 0:05:59.560 trust itself. We assume that we can trust the systems 0:05:59.560 --> 0:06:02.600 we use because doing so makes life much easier than 0:06:02.680 --> 0:06:06.120 not trusting them, and because that assumption mostly works out. 0:06:06.720 --> 0:06:10.479 It's a towering and underappreciated achievement of modernity that we 0:06:10.600 --> 0:06:14.719 mostly do trust the database keepers and that they mostly 0:06:14.839 --> 0:06:22.080 are trustworthy. Part B, What if you don't like it? 0:06:22.960 --> 0:06:28.680 Section one Distrust. We don't always trust them, and they're 0:06:28.720 --> 0:06:32.920 not always trustworthy. Sometimes they just aren't. There are banks 0:06:32.960 --> 0:06:35.520 you can't trust to hold your money for you, and 0:06:35.600 --> 0:06:37.800 places where you can't trust the rule of law to 0:06:37.880 --> 0:06:41.200 regulate them. There are governments you can't trust not to 0:06:41.240 --> 0:06:44.839 seize your money from the banks, or falsify election results, 0:06:45.120 --> 0:06:48.200 or change the property registry and take your house. There 0:06:48.200 --> 0:06:51.159 are social media companies you can't trust not to freeze 0:06:51.160 --> 0:06:55.560 your account arbitrarily. Most people in the US most days 0:06:55.720 --> 0:06:58.520 live in a high trust world, where it's easy and 0:06:58.560 --> 0:07:01.080 reasonable to trust that the or mediaries who run the 0:07:01.160 --> 0:07:04.840 databases that shape our lives will behave properly. But not 0:07:04.960 --> 0:07:09.040 everyone everywhere lives like that. Even in the US, trust 0:07:09.120 --> 0:07:12.440 can be fragile. The two thousand and eight financial crisis 0:07:12.480 --> 0:07:15.520 caused huge and lasting damage to a lot of people's 0:07:15.520 --> 0:07:19.760 trust in the banking system. People trusted banks to do nice, safe, 0:07:19.840 --> 0:07:23.200 socially productive things, and it turned out they were doing wild, 0:07:23.560 --> 0:07:27.760 risky things that caused an economic crisis. After that, it 0:07:27.840 --> 0:07:30.440 became harder for many people to trust banks to hold 0:07:30.440 --> 0:07:35.440 their savings. Also, though you might have a philosophical objection 0:07:35.560 --> 0:07:39.520 to trust, even if your bank has an absolutely unblemished 0:07:39.520 --> 0:07:42.080 record of keeping track of your money, that might not 0:07:42.160 --> 0:07:44.840 be good enough for you. Your bank is to you 0:07:45.240 --> 0:07:47.960 a black box. How do I know you'll give me 0:07:48.000 --> 0:07:50.600 my money back. You could ask the bank, and the 0:07:50.600 --> 0:07:54.040 bank will say things like, here are your audited financial statements, 0:07:54.080 --> 0:07:57.520 and we are regulated by the Federal Reserve and ensured 0:07:57.520 --> 0:08:01.280 by the Federal Deposit Insurance Corps. And we have never 0:08:01.320 --> 0:08:04.840 not given back anyone's money. And you'll say, yes, yes, 0:08:04.880 --> 0:08:08.600 that's all fine, But how do I know you don't? 0:08:08.800 --> 0:08:13.280 Trust is built into the system a prerequisite. You might 0:08:13.360 --> 0:08:17.360 want proof. This is probably a modern desire, or at 0:08:17.440 --> 0:08:20.320 least a desire that's more intense and easier to satisfy 0:08:20.440 --> 0:08:25.680 in modern times. In a world without the Internet, without Wikipedia, 0:08:25.800 --> 0:08:29.480 without links, without open source software, et cetera, you had 0:08:29.520 --> 0:08:32.920 to take a million facts on faith every day. What 0:08:32.960 --> 0:08:37.800 were you going to do? Look them all up? Section 0:08:37.920 --> 0:08:44.120 two compose ability. Even if you're generally cool with trusting 0:08:44.120 --> 0:08:47.080 the keepers of modern databases, you might have a more 0:08:47.080 --> 0:08:52.480 technical objection. These databases are not always very good. Lots 0:08:52.520 --> 0:08:54.800 of the banking system is written in a very old 0:08:54.840 --> 0:08:59.080 computer language called cobal. In the US, people still frequently 0:08:59.120 --> 0:09:03.760 make payments electronic transfers between electronic databases of money by 0:09:03.760 --> 0:09:06.920 writing paper checks and putting them in the mail. The 0:09:07.080 --> 0:09:10.600 US stock trades take two business days to settle. If 0:09:10.640 --> 0:09:13.120 I buy stock from you on a Monday, you deliver 0:09:13.200 --> 0:09:17.000 the stock, and I pay you on Wednesday. This isn't 0:09:17.000 --> 0:09:19.520 because your broker has to put stock certificates in a 0:09:19.559 --> 0:09:22.320 sack and bring them over to my broker's office, while 0:09:22.400 --> 0:09:24.920 my broker puts dollar bills in a sack and brings 0:09:24.960 --> 0:09:28.120 them over to your broker's office. But because the actual 0:09:28.200 --> 0:09:32.480 process is a descendant of that, it's slow and manual 0:09:32.600 --> 0:09:36.280 and sometimes gets messed up. Lots of stock trades fail. 0:09:37.360 --> 0:09:40.439 Don't even get me started on the property registry. If 0:09:40.480 --> 0:09:42.840 you buy a house, you have to go to a ceremony, 0:09:43.000 --> 0:09:45.840 a closing, where a bunch of people with jobs like 0:09:46.040 --> 0:09:49.760 title company, lawyer mutter incantations that let you own the house. 0:09:50.240 --> 0:09:54.079 It can take hours. If your model of how a 0:09:54.160 --> 0:09:57.720 database should work comes from modern computers, the hours of 0:09:57.760 --> 0:10:01.520 incantations seem insane. There should be an ap I. You 0:10:01.600 --> 0:10:05.480 might think. There should be an application programming interface allowing 0:10:05.520 --> 0:10:08.640 each of these databases to interact with the others. If 0:10:08.679 --> 0:10:11.160 your bank is thinking about giving you a mortgage, it 0:10:11.200 --> 0:10:14.000 should be able to query the property database automatically and 0:10:14.040 --> 0:10:16.680 find out that you own your house, rather than send 0:10:16.679 --> 0:10:19.520 a lawyer to the county Clerk's office, and it should 0:10:19.520 --> 0:10:22.120 be able to query the Department of Motor Vehicles registry 0:10:22.160 --> 0:10:26.280 automatically and get your driver's license for identification purposes, and 0:10:26.400 --> 0:10:31.120 query your brokerage account automatically and examine your assets. Modern 0:10:31.280 --> 0:10:36.640 life consists of entries in databases. What if we updated them? 0:10:36.679 --> 0:10:39.560 What if we rewrote all the databases from scratch in 0:10:39.679 --> 0:10:43.680 modern computer languages, using modern software engineering principles, with the 0:10:43.720 --> 0:10:47.840 goal of making them interact with one another seamlessly. If 0:10:47.920 --> 0:10:51.439 you did that, it would be almost like having one database, 0:10:51.800 --> 0:10:54.880 the database of life. I could send you money in 0:10:54.960 --> 0:10:57.880 exchange for your house, or you could send me social 0:10:57.920 --> 0:11:00.960 reputation in exchange for my participate patient in an online 0:11:01.000 --> 0:11:06.080 class or whatever, all in the same computer system. That 0:11:06.120 --> 0:11:09.960 would be convenient and powerful, but it would also be scary. 0:11:10.720 --> 0:11:14.320 It would put even more pressure on trust. Whoever runs 0:11:14.360 --> 0:11:17.319 that one database would in a sense, run the world. 0:11:18.000 --> 0:11:22.360 Whom could you trust to do that. We'll be right 0:11:22.400 --> 0:11:25.320 back with more from Bloomberg Business Week Special Crypto issue 0:11:25.520 --> 0:11:40.520 written by Matt Levine a narrated by Mark Ledoff, partsy 0:11:41.240 --> 0:11:46.760 Digital Cash. What if there was one database and everyone 0:11:47.040 --> 0:11:51.559 ran it? In two thousand and eight, Satoshi Nakamoto published 0:11:51.559 --> 0:11:57.559 a method for everyone to run a database, thus inventing crypto. Well, 0:11:57.800 --> 0:12:00.160 I'm not sure that's what Satoshi thought he was due ing. 0:12:00.559 --> 0:12:04.760 Most immediately, he was inventing bitcoin appear to peer electronic 0:12:04.800 --> 0:12:08.280 cash system, which is the title of his famous white paper. 0:12:08.960 --> 0:12:11.960 What Satoshi said he'd invented was a sort of cash 0:12:12.080 --> 0:12:16.880 for Internet transactions, an electronic payment system based on cryptographic 0:12:16.920 --> 0:12:20.560 proof instead of trust, allowing any two willing parties to 0:12:20.600 --> 0:12:23.560 transact directly with each other without the need for a 0:12:23.600 --> 0:12:26.839 trusted third party. If I want to buy something from 0:12:26.880 --> 0:12:30.720 you for digital cash bitcoin, I just send you the 0:12:30.720 --> 0:12:33.960 bitcoin and you send me the thing. No trusted third 0:12:34.000 --> 0:12:36.920 party such as a bank, is involved. When I put 0:12:36.960 --> 0:12:39.840 it like that, it sounds as if Satoshi invented a 0:12:39.840 --> 0:12:42.400 system in which I can send you bitcoin and nobody 0:12:42.440 --> 0:12:46.240 else is involved. What he actually invented was a system 0:12:46.240 --> 0:12:51.440 in which lots of other people are involved. Section one, 0:12:52.120 --> 0:12:56.680 Before we continue a digression, What are you even reading? 0:12:57.280 --> 0:13:00.600 Why are you reading it? And why am I writing it? Hi? 0:13:01.120 --> 0:13:04.080 I'm Matt. I'm a former lawyer and investment banker. Now 0:13:04.120 --> 0:13:07.320 I'm a columnist at Bloomberg Opinion. In my day job, 0:13:07.400 --> 0:13:10.480 I write about finance. I like finance. It's fun to 0:13:10.480 --> 0:13:13.360 write about. It's a peculiar way of looking at the world, 0:13:13.559 --> 0:13:16.240 a series of puzzles, a set of structures that people 0:13:16.240 --> 0:13:19.920 have imposed on economic reality. Often those structures are arcane 0:13:19.920 --> 0:13:22.520 and off putting, and it's satisfying to understand what they're 0:13:22.559 --> 0:13:25.480 up to. Everything in finance is a created on top 0:13:25.520 --> 0:13:28.199 of a lot of other things. In finance, everything is 0:13:28.320 --> 0:13:31.320 weird and counterintuitive, and you often have to have a 0:13:31.360 --> 0:13:34.640 sense of financial history and market practice to understand why 0:13:34.640 --> 0:13:36.560 anyone is doing any of the things that they're doing. 0:13:37.280 --> 0:13:40.360 Now back to Mark Lidorff, a professional actor who, lucky 0:13:40.440 --> 0:13:42.480 for us, also happens to be an editor here at 0:13:42.480 --> 0:13:46.680 Business Week. Thanks Matt. For the past few years, the 0:13:46.720 --> 0:13:51.000 most polarizing thing in finance has been crypto. Crypto is 0:13:51.000 --> 0:13:54.040 a set of ideas and products and technologies that grew 0:13:54.080 --> 0:13:57.560 out of the Bitcoin white paper. But it's also, let's 0:13:57.600 --> 0:14:00.840 be clear, a set of lines on arts that went 0:14:00.960 --> 0:14:06.200 up when Satoshi invented bitcoin. One bitcoin was worth zero dollars. 0:14:06.760 --> 0:14:09.720 It was just an idea he made up. At its 0:14:09.720 --> 0:14:13.200 peak last November, one bitcoin was worth more than sixty 0:14:13.280 --> 0:14:16.560 seven thousand dollars, and the total value of all the 0:14:16.600 --> 0:14:21.600 crypto in circulation was something like three trillion dollars. Many 0:14:21.680 --> 0:14:25.400 people who got into crypto early got very rich, very fast, 0:14:25.680 --> 0:14:30.160 and were very annoying about it. They bought Lamborghinis and islands. 0:14:30.640 --> 0:14:34.360 They were pleased with themselves. They thought crypto was the future, 0:14:34.640 --> 0:14:37.840 and they were building the future and being properly and 0:14:37.880 --> 0:14:41.400 amply rewarded for it. They said things like have fun 0:14:41.520 --> 0:14:45.640 staying poor, and in g M, I not gonna make 0:14:45.680 --> 0:14:49.440 it to people who didn't own crypto. They were right 0:14:49.680 --> 0:14:53.520 and rich and wanted you to know it. Many other 0:14:53.640 --> 0:14:57.880 people weren't into crypto. They got the not entirely unjustified 0:14:57.880 --> 0:15:00.760 impression that it was mostly useful for time or for 0:15:00.920 --> 0:15:05.120 Ponzi schemes. They asked questions like, what is this for? 0:15:05.840 --> 0:15:09.600 Or where did all this money come from? Or if 0:15:09.600 --> 0:15:12.560 you're building the future, what is the actual work you're doing, 0:15:13.360 --> 0:15:16.080 Or if you're building the future, why does it seem 0:15:16.120 --> 0:15:20.040 so grim and awful? And the crypto people often replied, 0:15:20.560 --> 0:15:25.360 have fun staying poor. And then this year those lines 0:15:25.440 --> 0:15:28.960 on charts went down. The price of one bitcoin fell 0:15:28.960 --> 0:15:33.040 below twenty dollars. The total value of crypto fell from 0:15:33.120 --> 0:15:37.880 three trillion to one trillion dollars. Some big crypto companies failed. 0:15:38.440 --> 0:15:42.000 If you're a crypto skeptic, this was very satisfying, not 0:15:42.120 --> 0:15:45.200 just as a matter of schadenfreude, but also because maybe 0:15:45.240 --> 0:15:48.200 now everyone will shut up about crypto and you can 0:15:48.240 --> 0:15:52.160 go back to not paying attention to it. For crypto enthusiasts, 0:15:52.200 --> 0:15:54.920 this was just a reason to double down on grinding. 0:15:55.600 --> 0:15:58.560 The crash would shake out the casual fans and leave 0:15:58.640 --> 0:16:02.680 the true believers to build future together. In a sense, 0:16:02.800 --> 0:16:05.920 it's a dumb time to be talking about crypto because 0:16:05.920 --> 0:16:09.360 the lines went down, but really it's a good time 0:16:09.440 --> 0:16:13.680 to be talking about crypto. There's a pause, there's some repose. 0:16:14.320 --> 0:16:17.440 Whatever is left in crypto is not just speculation and 0:16:17.480 --> 0:16:21.240 get rich quick schemes. We can think about what crypto means, 0:16:21.520 --> 0:16:25.120 divorced a little bit from the lines going up. I 0:16:25.120 --> 0:16:28.880 don't have strong feelings either way about the value of crypto. 0:16:29.160 --> 0:16:32.520 I like finance. I think it's interesting, and if you 0:16:32.560 --> 0:16:35.800 like finance, if you like understanding the structures that people 0:16:35.800 --> 0:16:40.480 build to organize economic reality, crypto is amazing. It's a 0:16:40.560 --> 0:16:45.320 laboratory for financial intuitions. In the past fourteen years, Crypto 0:16:45.400 --> 0:16:49.800 has built a whole financial system from scratch. Crypto constantly 0:16:49.880 --> 0:16:53.600 reinvented or rediscovered things that finance had been doing for centuries. 0:16:54.080 --> 0:16:57.440 Sometimes it found new and better ways to do things. 0:16:58.600 --> 0:17:02.240 Often it found word sways heading down dead ends that 0:17:02.280 --> 0:17:07.480 traditional finance tried decades ago with hilarious results. Often it 0:17:07.600 --> 0:17:10.200 hit on more or less the same solutions that traditional 0:17:10.200 --> 0:17:14.200 finance figured out, but with new names and new explanations. 0:17:14.920 --> 0:17:17.440 You can look at some crypto thing and figure out 0:17:17.440 --> 0:17:21.160 which traditional finance thing it replicates. If you do that, 0:17:21.440 --> 0:17:24.880 you can learn something about the crypto financial system. You can, 0:17:24.960 --> 0:17:27.840 for instance, make an informed guess about how the crypto 0:17:27.920 --> 0:17:31.040 thing might go wrong. But you can also learn something 0:17:31.040 --> 0:17:35.080 about the traditional financial system. The crypto replication gives you 0:17:35.119 --> 0:17:39.480 a new insight into the financial original. Also, I have 0:17:39.680 --> 0:17:42.560 to say, as someone who writes about finance, I have 0:17:42.640 --> 0:17:46.000 a soft spot for stories of fraud and market manipulation 0:17:46.359 --> 0:17:49.720 and smart people putting one over on slightly less smart people. 0:17:50.480 --> 0:17:55.080 Often those stories are interesting and illuminating and especially funny. 0:17:55.520 --> 0:17:59.000 Crypto has a very high density of stories like that, 0:18:00.040 --> 0:18:04.400 and so now I write a lot about crypto, including 0:18:04.480 --> 0:18:07.159 quite a lot right here. I need to give you 0:18:07.200 --> 0:18:10.320 some warnings. First, I don't write about crypto as a 0:18:10.400 --> 0:18:15.159 deeply embedded crypto expert. I'm not a true believer. I 0:18:15.200 --> 0:18:18.560 didn't own any crypto until I started working on this article. 0:18:19.160 --> 0:18:22.440 Now I own roughly a hundred dollars worth. I write 0:18:22.480 --> 0:18:25.439 about crypto as a person who enjoys human ingenuity and 0:18:25.520 --> 0:18:30.760 human folly, and who finds a lot of both in crypto. Conversely, 0:18:31.000 --> 0:18:33.720 I didn't sit down and write forty words to tell 0:18:33.760 --> 0:18:36.359 you that crypto is dumb and worthless and will now 0:18:36.480 --> 0:18:39.320 vanish without a trace. That would be an odd use 0:18:39.359 --> 0:18:42.320 of time. My goal here is not to convince you 0:18:42.359 --> 0:18:44.720 that crypto is building the future and that if you 0:18:44.760 --> 0:18:47.840 don't get on board, you'll stay poor. My goal is 0:18:47.880 --> 0:18:50.679 to convince you that crypto is interesting, that it has 0:18:50.720 --> 0:18:53.240 found some new things to say about some old problems, 0:18:53.520 --> 0:18:56.080 and that even when those things are wrong, they're wrong 0:18:56.160 --> 0:19:00.840 in illuminating ways. Also, I'm a finance person. It seems 0:19:00.880 --> 0:19:03.720 to me that fourteen years on, crypto has a pretty 0:19:03.720 --> 0:19:06.680 well developed financial system, and I'm going to talk about 0:19:06.720 --> 0:19:09.439 it a fair bit because it's pretty well developed and 0:19:09.520 --> 0:19:13.679 because I like finance, but no one should care that 0:19:13.800 --> 0:19:18.480 much about a financial system. A financial system is well 0:19:18.760 --> 0:19:21.879 a series of databases. It's a way to shovel around 0:19:21.880 --> 0:19:25.880 claims on tangible stuff. It's an adjunct to the real world. 0:19:26.480 --> 0:19:29.160 A financial system is good if it makes it easier 0:19:29.200 --> 0:19:32.280 for farmers to grow food, and families to own houses, 0:19:32.480 --> 0:19:35.880 and businesses to make awesome computer games. If it helps 0:19:35.920 --> 0:19:39.480 to create and distribute abundance in real life. A financial 0:19:39.520 --> 0:19:42.639 system is bad if it trades abstract claims in ways 0:19:42.680 --> 0:19:45.160 that enrich the people doing the trading but don't help 0:19:45.200 --> 0:19:52.120 anyone else. I yeh uh. A salient question in crypto 0:19:52.200 --> 0:19:54.840 for the past fourteen years has been what is it 0:19:54.880 --> 0:19:57.720 good for? If you ask for an example of a 0:19:57.760 --> 0:20:01.400 business that actually uses crypto, answers you'll get are mostly 0:20:01.640 --> 0:20:05.480 financial businesses. Well, we built a really great exchange for 0:20:05.560 --> 0:20:11.359 trading crypto. Cool, Okay. Sometimes these answers are plausibly about 0:20:11.400 --> 0:20:15.720 creating or distributing abundance. Crypto lets emigrants send ribittance as 0:20:15.840 --> 0:20:20.640 cheaply and quickly. That's good. Often they're about efficient gambling. 0:20:21.119 --> 0:20:24.399 Gambling is fun. Nothing against it, But a financial system 0:20:24.440 --> 0:20:28.520 that was purely about gambling would be kind of limited. Meanwhile, 0:20:28.640 --> 0:20:32.040 crypto's most ardent boosters say, crypto is about building real 0:20:32.359 --> 0:20:38.400 useful things. Crypto will redefine social relationships and gaming and computers. 0:20:38.880 --> 0:20:42.320 It will build the metaverse. Crypto is the vital component 0:20:42.359 --> 0:20:45.320 of the next leap in the Internet. Crypto will build 0:20:45.520 --> 0:20:51.040 Web three to replace our current Web two. Maybe if 0:20:51.040 --> 0:20:53.280 you ask for an example of a business that actually 0:20:53.400 --> 0:20:57.320 uses crypto, you'll get a ton of real lucrative financial businesses. 0:20:57.680 --> 0:21:01.040 Then some vague theoretical musings like, well, maybe we could 0:21:01.080 --> 0:21:05.439 build a social media network on Web three. It's still early. 0:21:06.000 --> 0:21:09.000 Maybe someone will build a really good social media network 0:21:09.080 --> 0:21:12.919 on Web three. Maybe in ten years, crypto and blockchains 0:21:12.920 --> 0:21:15.320 and tokens will be central to everything that's done on 0:21:15.359 --> 0:21:18.399 the Internet, and the Internet will be even more than 0:21:18.440 --> 0:21:21.639 it is now central to everything that's done in human life, 0:21:22.119 --> 0:21:25.400 and the crypto early adopters will all be right and rich, 0:21:25.680 --> 0:21:27.960 while the rest of us will have fun staying poor, 0:21:28.640 --> 0:21:31.720 and school children will say, I can't believe anyone ever 0:21:31.800 --> 0:21:35.479 doubted the importance of doge coin. I don't want to 0:21:35.520 --> 0:21:38.760 discount that possibility, and I do want to speculate about 0:21:38.800 --> 0:21:41.119 it a little bit maybe sketch a picture of what 0:21:41.200 --> 0:21:43.439 that might mean. I'm not going to give you a 0:21:43.520 --> 0:21:46.320 roadmap for how we'll get there. I'm not a tech 0:21:46.359 --> 0:21:49.600 person and I'm not a true believer, but it is 0:21:49.640 --> 0:21:52.359 worth trying to understand what crypto could mean for the 0:21:52.400 --> 0:21:56.160 future of the Internet, because the implications are sometimes utopian 0:21:56.480 --> 0:22:00.520 and sometimes dystopian, and sometimes just a modestly more efficient 0:22:00.560 --> 0:22:04.679 based layer for stuff you do anyway. Plus the finances 0:22:04.760 --> 0:22:09.880 cool and it's cool now. Coming up next, you'll hear 0:22:09.920 --> 0:22:13.520 more from Matt Levine's special Crypto issue of Bloomberg Business Week, 0:22:13.880 --> 0:22:28.879 narrated by Mark Leadoff. Section two a second diggression, Names 0:22:28.960 --> 0:22:32.199 and people. Before we go on, let me say some 0:22:32.280 --> 0:22:37.000 things about some names. First, crypto, this thing I'm writing 0:22:37.040 --> 0:22:40.280 about here, there's not a great name for it. The 0:22:40.320 --> 0:22:43.400 standard name, which I'll use a lot is crypto, which 0:22:43.400 --> 0:22:46.720 I guess is short for cryptocurrency. This is not a 0:22:46.720 --> 0:22:50.199 great name because one, it emphasizes currency, and a lot 0:22:50.240 --> 0:22:54.000 of crypto is not particularly about currency. And two it 0:22:54.040 --> 0:22:58.320 emphasizes cryptography. And while crypto is in some deep sense 0:22:58.359 --> 0:23:01.879 about cryptography, more people in crypto or not doing a 0:23:01.920 --> 0:23:05.280 ton of cryptography. You can be a crypto expert or 0:23:05.320 --> 0:23:08.680 a crypto billionaire, or a leading figure in crypto without 0:23:08.760 --> 0:23:12.840 knowing much about cryptography, and people who are cryptography experts 0:23:13.000 --> 0:23:16.040 sometimes get a bit snippy about the crypto people stealing 0:23:16.080 --> 0:23:20.560 their prefix. There are other names for various topics in crypto. 0:23:20.720 --> 0:23:26.840 Blockchain tokens, web three defy the metaverse, and they're sometimes 0:23:26.920 --> 0:23:29.280 used broadly to refer to a lot of what's going 0:23:29.280 --> 0:23:32.200 on in crypto. But it's not like they're great either, 0:23:32.760 --> 0:23:36.920 so I'll mostly stick with crypto as the general term. Second, 0:23:37.240 --> 0:23:41.199 sa Toshi Nakamoto. That's a pseudonym, and whoever wrote his 0:23:41.240 --> 0:23:44.040 white paper has done a reasonably good job of keeping 0:23:44.119 --> 0:23:48.520 himself herself for themselves pseudonymous. Ever, since there's a lot 0:23:48.520 --> 0:23:51.600 of speculation about who the author might be, some of 0:23:51.600 --> 0:23:55.359 the funnier suggestions include Elon Musk and a random computer 0:23:55.440 --> 0:23:59.920 engineer named um So Toshi Nakamoto. I'm going to call 0:24:00.000 --> 0:24:04.520 Satoshi Nakamoto Satoshi and use he him pronouns because most 0:24:04.520 --> 0:24:10.760 people do a related point other than maybe Satoshi. Basically, 0:24:10.800 --> 0:24:15.920 everyone involved in cryptocurrency is a hilariously outsized personality. It's 0:24:15.920 --> 0:24:18.160 a good bet that if you read an article about crypto. 0:24:18.359 --> 0:24:22.600 It will feature wild characters. One story in Bloomberg Business 0:24:22.600 --> 0:24:26.000 Week last year mentioned sending billions of perfectly good U 0:24:26.080 --> 0:24:29.320 S dollars to the inspector Gadget Co creators Bahamian Bank 0:24:29.640 --> 0:24:32.440 in exchange for digital tokens conjured by the mighty ducks 0:24:32.480 --> 0:24:35.080 guy and run by executives who are targets of a 0:24:35.160 --> 0:24:39.600 US criminal investigation. Except this one, there won't be a 0:24:39.640 --> 0:24:43.280 single exciting person in this whole story. My goal here 0:24:43.400 --> 0:24:46.000 is to explain crypto so that when you read about 0:24:46.000 --> 0:24:48.520 a duck guy doing crypto, you can understand what it 0:24:48.600 --> 0:24:53.640 is that he's doing. Thank you Matt Levine, and thank 0:24:53.640 --> 0:24:56.879 you Mark Ledoff. As a reminder, if you're looking for 0:24:56.920 --> 0:24:59.240 these episodes in the Crypto Feed, will be publishing them 0:24:59.240 --> 0:25:03.719 every Sunday through December. If you'd like to read this 0:25:03.800 --> 0:25:06.240 issue in print form, you can head on over to 0:25:06.240 --> 0:25:13.920 Bloomberg dot com slash the Crypto Story. This is Bloomberg Crypto, 0:25:14.119 --> 0:25:17.399 a daily podcast from Bloomberg and I Heart Radio. For 0:25:17.480 --> 0:25:19.760 more shows from I Heart Radio, visit the i heart 0:25:19.800 --> 0:25:23.520 Radio app, Apple podcasts, or wherever you get your podcasts. 0:25:24.320 --> 0:25:26.880