Show host Gene Tunny and the World Bank’s Nilima Ramteke delve into the transformative impact of fast payments. They discuss how Project FASTT (Frictionless Affordable Safe Timely Transactions) bridges financial gaps and drives inclusive economic development worldwide. For example, they cover how QR codes and mobile apps make digital payments more accessible for small merchants and rural communities.
Fast payments enable 24/7, low-cost, secure, real-time transactions, making them vital for financial inclusion.
Project FASTT provides a toolkit and support for implementing fast payment systems globally.
Central banks, in collaboration with private sectors, play a key role in designing and implementing fast payment systems.
QR codes and mobile apps make digital payments more accessible for small merchants and rural communities.
Fast payments offer an alternative to cryptocurrencies in emerging markets, significantly where volatility and regulatory risks hinder crypto adoption.
Transcript: Inside Project FASTT: Real-Time Payments for All – EP278
N.B. This is a lightly edited version of a transcript originally created using the AI application otter.ai. It may not be 100 percent accurate, but should be pretty close. If you’d like to quote from it, please check the quoted segment in the recording.
Nilima Chhabilal Ramteke 00:03
So the inherent characteristics of FPS is to receive funds in instantly on a 24 by seven basis for 365 days over the year.
Gene Tunny 00:22
Welcome to the economics explored podcast, a frank and fearless exploration of important economic issues. I’m your host, Gene Tunny. I’m a professional economist and former Australian Treasury official. The aim of this show is to help you better understand the big economic issues affecting all our lives. We do this by considering the theory evidence, and by hearing a wide range of views, I’m delighted that you can join me for this episode. Please check out the show notes for relevant information. Now on to the show. Hello and welcome to the show. In this episode, I’m joined by nalimah Aram Takei, a senior financial sector specialist with the World Bank’s Payment Systems Development Group, nalima brings a wealth of experience from her extensive career, including over two and a half decades at the Reserve Bank of India, where she worked on implementing and overseeing Payment and Settlement Systems. Now at the World Bank, nalima is CO leading efforts to promote fast payment systems worldwide, including project fast FAS Double T, an initiative supported by the Bill and Melinda Gates Foundation. These fast payment systems enable frictionless, affordable, safe and timely transactions, providing critical infrastructure for real time financial inclusivity the World Bank is supporting the implementation of fast payment systems in various countries and regions, including the Gambia Mauritania, Liberia, Sierra Leone, Guinea Somalia, Central African economic and monetary community and Georgia. You can find further details via our link in the show notes. In this episode, we discuss the benefits of fast payments, their transformative potential in both developed and emerging economies, and the challenges of implementation, ensuring access to underserved populations. Before we dive in, I want to thank Lumo coffee for sponsoring this episode, economics explored. Listeners can enjoy a 10% discount on their premium organic coffee from the highlands of Peru. You’ll find the details in the show notes. Now let’s jump into the episode. I hope you enjoy it. Helena, thanks for joining me on the program.
Nilima Chhabilal Ramteke 02:34
Thank you for having me here. Jen, it’s good to be part of this podcast. Thank you so much. Yes,
Gene Tunny 02:40
no problem. I’m keen to learn about Project fast that you’ve been involved in at the World Bank. So project FA s TT, can you tell us a bit about the project, please, what it stands for and what your involvement has been, please. Nalema,
Nilima Chhabilal Ramteke 02:59
thank you, June for the question, and as you spelled out yourself first with the double T stands for missionless, affordable, safe, tangy transaction. This is an initiative support on past payments, supported by the Bill and Melinda Gates Foundation to further accelerate the adoption of past payments worldwide, and this is an ongoing work of the World Bank over the last two and a half decades in the field of payment systems, to basically Where we are supporting jurisdictions, as the developers say, reliable and efficient national payment systems. And this comprises a bit a lot of other things, like the legal and regulatory framework, the large value payment system, security, settlement, foreign exchange. Then we have the retail payments. One of them is the past payment, then the government payments, remittances, and also oversight and cooperation. And with the new developments which are happening, we are also supporting in the FinTech, notably on the crypto, CBDCs and open Banking project fast is a comprehensive knowledge product of the past payment FPS, and it’s organized as a toolkit across four broad thematic areas. One is the flagship reports, which covering the FPS developments framework and which incorporates the lessons learned through the wide number of technical assistance projects around the world, and also the research across all facets of FPS development. And this framework actually aims to provide the holistic tool for policy makers to manage their FPS journey and conceptualize this. Nine and implement the FPS, which again, is a continuous part. Then second is the portfolio of case studies covering a wide area of diverse experiences in terms of geography, Country Profile and the key aspects of FPS developments, such as the ownership models, payment types enabled, among the few things. Then the third point, the third thematic area, is focus notes, which we call technical notes and webinars, providing technical deep dives into topics of high relevance for fast payments, such as interoperability, cross border Overlay Services, then messaging standards. These are certain things which are there. And as part of the fourth one is a global tracker for the FPS, which provides the essentials of the past payments initiatives around the world. Our aim is to use the project fast in providing technical and financial assist support and help our client countries build technical, operational and regulatory capacity to implement the state of the art, safe, efficient and low cost past payments in their jurisdiction. Also the toolkit provides guidance on the aspects that authorities needs to consider when developing a FBA system. Another important objective of this toolkit, that is the project. First toolkit is to act as a catalyst in fostering an international dialog and facilitating a concerted agenda the global FPS development by involving global stakeholders, partners, including the standard setters like the cpmi, the central and regional central banks across the jurisdictions, And also in light of the FSB and the g20 cross border roadmap. This, this helps, and if you see the project Nexus is also referring to the the our FPS tracker, as well as part of their development thing. So these are certain things, and our aim is to keep on updating this and expanding the Toolkit by capturing the latest developments and innovations which are happening in this space. Gotcha.
Gene Tunny 07:28
Okay, so it sounds like your project. This project fast. This is providing the capability, is providing case studies lessons. So the is it typically central banks in in the countries which will be implementing the fast payments. I know in Australia, our reserve bank was involved with the, I think it’s the Osco system. If this is what we’re talking about, we’re talking about the almost real time payments that occur. You transfer money straight away to someone else or another business. And then, whereas years ago, it would have taken a day or two for it to get through, it had to, had to settle who’s implementing this in the different jurisdictions. Can you give us some examples, please? Elena,
Nilima Chhabilal Ramteke 08:13
well, it depends on the jurisdictions how they want to do. VC, the central banks themselves being implementing the system. There could be the collaboration as well between the central banks and the private or it could be a private initiative as well. But definitely the the central banks play a role as the regulator and overseer of this infrastructure. So if you, if you if you see like the, if we can go to the benefits of it as well, we can talk on that, yeah. But normally, it’s not that. It is only the central banks which we implement, like the in in Australia, like you mentioned, the NPP system. It’s like a collaborative effort, and market peers are quite involved in that,
Gene Tunny 09:01
yeah, yeah, yeah, absolutely. Okay. And so what are the what are the benefits to the the fast payments? So why would the World Bank be interested? Why would Bill and Melinda Gates Foundation be interested in this? What do they see as the benefits of it? Yeah.
Nilima Chhabilal Ramteke 09:16
So, like the past payments, like the name suggests itself. It’s instant real time for rapid payments and with various name it’s called. It’s basically a reflection of our meeting our end users demand for round the clock availability, and providing, instance, availability of funds for the pay space, in the sense the beneficiaries, and which actually resonates with the time where everything is so instant and is available around the clock. So the inherent characteristics of FPS is to receive funds in instantly on a 24 by seven. Basis for 365, days over the year, and the main characteristics of past payments, like I mentioned, it’s the instant so instance availability. It’s immediate exchange of messages from the payment messages, and immediate availability of funds for the beneficiaries. It also supports, actually, a wider area of use cases as well, like the P to P payment, person to person payments, person to merchant payments, and also supports bill payments as well. And you can the governments have also used for what to say, instant payments, or payments for the benefit in times of emergencies as well, like we have seen during the time of COVID. So many governments have used this infrastructure for transferring funds the beneficiaries as a social benefit transfer as part of this, using this infrastructure, also because of the the service the FPS, not only provides access, but definitely depends on the design as well access to the banks, but also the non bank players. And this expands the coverage and and what you say, availability of infrastructure to the underserved population as well. And this helps in facilitating financial inclusion, and this is one of the objective of the World Bank and for Financial Inclusion. And that’s why, apart from other reforms, which we always do in the payment systems, fast payments is one of the benefits out of that. Yeah, and also with the the the advent of technology, the fast payments also support QR payments aliases, like you have in in in Australia, you can use your corporate ID, your email ID. So similarly, these first payments across the globe also provide a lot of support various type of aliases. Then you have the near field communication. So this gives a good user experience, which actually has helped in expansion of the usage of the past payment one more from the merchant side as well, is the the the use of QR codes which pass payments facilitate a small merchants. Does not need to have a boss terminal. You can just have a QR pasted, printed and pasted. So it’s like an asset light infrastructure which is required, so which has also helped in the onboarding of merchants and merchant accepting digital payments on the far flung areas as well. So what we see is that the fast payments deliver a lot of benefits. It also offers as a gateway to other financial services for the other otherwise excluded population, and enabling them to get access to other financial services, like the credit which they were not otherwise having access to. And also, as I mentioned about allowing small businesses are also getting on board and and it has also helped the government to better deliver their social assistance payments, especially specifically during, especially during the crisis, pandemics or national disasters, as well a good fast payment systems also infrastructure also helps in reducing the cost and times associated with international remittances. So what we have seen is that the FPS has helped in reducing uncertainty, because you get the funds immediately responding to immediacy in a increasingly digital economy, fostering interoperability and competition. That is what we mentioned about access to banks, non banks and everybody can getting a level playing field, and also because of the support of areas. We don’t need to share your credential or bank details, you can just say, share your email ID, and that’s it. So you don’t the security aspects are also taken into account. So in a nutshell, this is where we see one of the drivers for fast payments adoption as well. Yeah,
Gene Tunny 14:36
no, it’s all it’s interesting. I mean, I like that example of the QR code. I can see how that can work. And I’d like to come back to that point you made about the underserved population and how there may be you look at what infrastructure is required, and I think we can talk about that in the challenges, the the of implementation. And okay, so I want to ask now to Lima about, what are the challenges in implementing these fast or instant payments? I think you sort of alluded to some of them before, in terms of, well, what if you have a population that’s underserved? I mean, in many emerging economies, as we know, there’s a large informal economy, still many people live and work on the land. It can be difficult to to reach those, those populations also, I imagine things like, I mean, yeah, just the basic digital infrastructure. Can you tell us a bit about the the challenges of implementing the fast payments, please?
Nilima Chhabilal Ramteke 15:37
Yeah, so I think you yourself had identified a few of that. But before we go to the challenges, probably what is required would help us. Yes, sure, yeah, standing better. What is the challenges? So for implementation, pass payments, like we see for all IT related payment systems development, it actually requires, thorough market consultation and preparation to onboard all type of stakeholders that would be part of it. It also needs to leverage bodies such as the National payments of financial institution inclusion councils. So because this is past payments we are talking about, then you need to look at those aspects as well. A lot happens also on the adaption, on the design choices, because who all will be there, how the system would be, will function, so that goes as part of the design. And because we see that the requirements varies across jurisdiction, so you cannot have one size fits all approach for this. So you have to have your systems designed to meet the needs of the country, and also needs to, because it also needs the countries, needs to, or whoever is implemented, needs to have the technical capability and the conducive legal and regulatory environment and framework for supporting that. So establishing a sound and efficient governance framework is also key, which involves that you have all your stakeholders on board. And this will also include that whatever system you design should give a good experience to the users as well. The other enabling environment which is required is the adoption of the smartphones also, if the if the smartphones are not there the country, mobile feature phones also, then you need to have the channels to support those type of transactions as well. So there is a cost cutting legal provision. So to tackle that is also key to that, and such as the cyber security aspects, because you are looking at infrastructure which is totally digital, so you need to have those aspects as well as consumer protection, because you are looking at serving population which was earlier and served they may not be financially literate. So that brings us to the challenges which are there, and some of the key challenges, typically, what you mentioned about the emerging markets is about the lack of infrastructure, both the payment infrastructure as well as the enabling IT infrastructure, also the internet penetration, specifically for the rural areas, the emerging and means markets also face issues and constraints because of the private player may not be wanting to so some of these areas also, as I mentioned about the smartphone or mobile phone penetration. So that’s an important key aspect, because we are looking at the first payments, which is more mobile based access channel. Then also, one needs to look at the financial literacy aspects, which is because we are trying to see population which was earlier, not financially included so and also because the trust the system should provide, and because so far, the economy was more cash driven, so now you’re moving from cash to a digital aspect, so you need to have all this enabling infrastructure and to overcome these challenges, we see that the Developing countries need to have a multi pronged approach that addresses all aspects of digital payments ecosystem, and not only implementing the technology but also creating and enabling regulatory environment and investing in initiatives to educate the end users, this is something which. We think is there, and towards this, we see that most of the championing role is of the central banks, which is very crucial to steer these initiatives, promote the ongoing commitment of all stakeholders. If they have also taken initiative, then there needs to be a commitment and align the interest of all private as well as public, so that these are certain things. And keeping this in mind, we also have one of our focus notes, the on this championing role played by some of the Select central banks in the same
Gene Tunny 20:39
okay, we’ll take a short break here for a word from our sponsor.
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Gene Tunny 21:14
now back to the show. I mean, I guess it’d be good to talk about the central banks, because the central banks obviously play a critical role in a payment system, because the well, at least in Australia, the banks bank with the central bank, they have accounts there. They’re exchange settlement accounts. And so when there’s a when there’s a deficit from one bank to another, or when one bank has to at the end of each day. Because of the flow of funds between customers at different banks, one bank may have to transfer some money to another bank, so there’s the settlement of accounts at the end of the day, so the banks have to trust each other. So the this is what I find really interesting about this. How did the how do the banks know that, like, if someone I’m I’m a farmer, say, and I’m going to buy seed or what, some, you know, some consumables or equipment from from a merchant in town, and I make the the fast payment on my mobile phone, and I’m at a different bank from the merchant how does the Yeah, how does the Merchants Bank know that I will have the funds in my account to that so that that merchant bank will get the funds from the the buyer’s bank. So how do they know that, in real time? Is that That’s all about the it? Technology? Is it?
Nilima Chhabilal Ramteke 22:39
So this is a good question, actually, and that is the i i said, one of the benefits and trust is that the beneficiary gets the funds real time I’m making a payment, I scan the QR and I make the payment that you as a merchant would receive it immediately, and it depends on how the banks are communicating with it, but normally, most of the jurisdictions, they have gone for the immediate response to the beneficiary as well that the funds have come to your account. So this has helped in bringing the trust. But then that is on the design side as well, because on alerting, both whose account is debited, but also the account the person whose account is credited. Yes. So that alert needs to go across, but with mobile apps and all, it automatically gets updated immediately. If you are your bank is providing that service to you. So on your app, you’ll always you’ll be able to get the response of the transactions which are there. So if you see many countries, like the India’s ups as well, you are able to make payment for online purchase of airline tickets, and you can do that using your first payments. So once you give your what you say, BPA, what’s your address that is either your areas, no, like we said about corporate or email ID. Once you give that and the payment is made by the beneficiary, it immediately gives time, and it responds back to the bank that this payment has been received, and you get your airline tickets immediately issued, because of this infrastructure, which is integrated, but then that depends On the various message that flow through the system. So the merchant should be able to get the response from his bank with whom he’s banking, because once I scan the QR, I’m making a payment to the merchant. My my transaction, my account is debited, and that transaction flow this to this channel which is there, and the the merch. And receives the funds immediately, right?
Gene Tunny 25:02
So does it go from one bank to the other at the same time? Does it right? Okay?
Nilima Chhabilal Ramteke 25:11
The the, the the and that is the beauty of the system payment, real time credit on your real time credit to the beneficiary, the settlement between the banks could happen on real time, or we call at a defer net basis, depend on the design of the system so it could the settlement between the banks could happen real time, yeah, or at a designate point of time, yes. But in the end users, it’s immediate field. Gotcha,
Gene Tunny 25:39
okay, yeah, yeah. It’s all fascinating, trying to, yeah, I was just trying to figure out in my head how it must, how it must work. So, yeah, that’s great, okay, and the issue of, I find this issue of the internet and availability of that, I mean, that’s, that’s a critical part of it. I mean, mobile phones. I mean, there has been extensive mobile phone penetration through even in emerging economies, I’ve seen that. But what about the internet? I mean, does the program, I know some of this is confidential, but does project fast? Does it actually provide funding or support for connecting people to the Internet, whether it’s via actually, is it satellites or Starlink technology like that? Can you talk about that at all?
Nilima Chhabilal Ramteke 26:27
So the funding, financing of the product, a project, is for implementation of the system, but also the bank supports fraud social causes as well. So that goes as part of that social benefit, and all as part of that in some of the projects, the bank has supported the client countries as part of the not part of the project pass, but as part of the other projects where in the client countries have provided mobile instruments to the beneficiaries, so, but that that is a different channel. Totally
Gene Tunny 27:11
Gotcha. Okay, that’s fine, right? Oh, okay. And finally, I’m wondering, does does this help reduce the appeal of crypto currencies? I’m just wondering to what extent, you know, there’s a lot of buzz about crypto, and to what extent is there appeal of crypto in emerging economies, and is this something that is, this is something that is a substitute for that, or something that is will reduce the appeal of cryptocurrencies. Can you talk about that please? Yeah,
Nilima Chhabilal Ramteke 27:46
this is the good area, I think so. And yes, a lot of countries are looking at it, and the World Bank has actually published a technical note. What does digital money mean for emerging markets and developing economies. I share that link probably you can share with the and the note categorizes new digital money proposals, which includes crypto assets, and cryptocurrency is one of them, so stable coins and central bank digital currencies, the note also assesses the supply and demand factors that may determine in which countries these innovations are more likely to be adopted, and it compares actually the digital innovations such as mobile money, retail, fast payment systems, new products By incumbent financial institutions and new entrants, such as specialized cross border transport operators as well. So when we talk about crypto assets, actually, they suffer from various impediments, including high price volatility and scalability challenges, which actually prevents them from being adopted as a mechanism, as a mainstream means of payments or store of value, and much less unit of account. And this is, as per the BIS paper, 2018 I can share that link as well. And many jurisdictions have also banned the use of crypto, also due to these, these issues, but also from the angle of AMS, CFD aspects as well the other now we’ll hear more about stable coins, which has entered the free and more stable coins actually attempt to maintain a stable value relative to the fiat currency, or the basket of fiat currencies, which which they identify and but stable coins also face various challenges and post news new type of risk, particularly in the emerging and developing economies, though some of the countries have begun to accelerate. Their investigations, we see that some of the countries have started investigation into cbdc for consumers, central bank digital currency for consumers, but however, a new digital equivalent of cash, which is cbdc, also raises various challenges for the emerging markets and developing economies. We see that the research is ongoing, but it’s not yet clear whether cbdc are necessary or desirable for all jurisdictions. And when we look at this in a holistic manner with see it is it is seen that fast payments serve the payments needs of the people, and the other argument in favor of FPS is that it’s key to the needs of the bulk of the end users, because it also supports different type of use cases and the ease of with which it can be used, and also because of the cost consideration and convenience it provides, also fast payments have sort of put in place. Many jurisdiction have put in place fraud mitigation measures, consumer redressal measures as well, which could be a point in placing FPS over crypto and reducing the appeal of crypto, while we know that crypto caters to a different user base then so although and the appeal is still there for a different reason For the different
Gene Tunny 31:39
Yep, fair points. Okay, very good. Well. Nalima, thanks so much for this overview of project fast. I think, yeah, I’ve learned a lot, actually, about what’s going on and the issues with these fast or instant payments. I think that’s been that’s been really great. Is there anything you think we missed? Anything that’s worth reiterating before we wrap up, please.
Nilima Chhabilal Ramteke 32:02
Yeah, I would, I would like to, once again say about thanks for having us. And I would like to share the link of the fast payments as well, probably because this has a good publication on the past payments, on the focus notes, as well as the research which has gone into that. And people who are interested in the subject would also benefit out of this. So yeah, absolutely.
Gene Tunny 32:25
I’ll share that in the show notes. Okay, malema, thanks so much for for joining me this episode. I’ve I’ve really enjoyed the conversation. I’ve learned a lot. So thanks again. Thank you so much for having me. Thank you, righto. Thanks for listening to this episode of economics explored. If you have any questions, comments or suggestions, please get in touch. I’d love to hear from you. You can send me an email via contact at economics explored.com or a voicemail via SpeakPipe. You can find the link in the show notes. If you’ve enjoyed the show, I’d be grateful if you could tell anyone you think would be interested about it. Word of mouth is one of the main ways that people learn about the show. Finally, if your podcasting app lets you, then please write a review and leave a rating. Thanks for listening. I hope you can join me again next week. You
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Credits
Thanks to the show’s sponsor, Gene’s consultancy business, www.adepteconomics.com.au. Full transcripts are available a few days after the episode is first published at www.economicsexplored.com. Economics Explored is available via Apple Podcasts and other podcasting platforms.
Ben Simpson, founder of Collective Shift, a crypto education and research company, shares valuable insights into the volatile world of cryptocurrency. Because the crypto field is filled with misinformation and scams, Ben emphasises the need for comprehensive education and reliable research before making investment decisions. He emphasises the importance of understanding the risks and potential of Bitcoin and other digital assets. He also discusses the regulatory landscape in Australia and the disruptive potential of decentralised finance (DeFi). NB This podcast episode contains general information only and should not be considered financial or investment advice.
Crypto market volatility and how to navigate it. (1:40)
Bitcoin as a digital gold with potential for long-term growth. (6:54)
Crypto regulation, tax treatment, and education. (12:21)
Investing in cryptocurrency, avoiding scams, and seeking professional help. (16:44)
Bitcoin ETFs and investment options in Australia. (21:06)
Crypto market volatility, correlation with the stock market, and investment strategies. (25:20)
Crypto investing and decentralised finance with Ben Simpson. (31:03)
Takeaways
Understanding Crypto Volatility: Cryptocurrency markets, especially Bitcoin, are highly volatile. Investors must be prepared for significant price swings and understand the underlying factors driving these fluctuations.
Importance of Education: The crypto space is filled with misinformation and scams. Ben emphasises the need for comprehensive education and reliable research before making investment decisions.
Regulatory Landscape: The regulatory environment for cryptocurrencies, particularly in Australia, is still evolving. While Bitcoin and Ethereum are generally considered safe from a regulatory standpoint, many other cryptocurrencies could face challenges.
Decentralised Finance (DeFi): DeFi has the potential to disrupt traditional banking by offering financial services without intermediaries. This space is growing and may offer exciting opportunities for investors.
Safe Investing Strategies: Ben advises new investors to start with Bitcoin and be cautious of lesser-known cryptocurrencies, many of which may lack real value and be risky investments.
N.B. This is a lightly edited version of a transcript originally created using the AI application otter.ai. It may not be 100 percent accurate, but should be pretty close. If you’d like to quote from it, please check the quoted segment in the recording.
Gene Tunny 00:00
Welcome to the economics explored podcast, a frank and fearless exploration of important economic issues. I’m your host, Gene, Tunny, I’m a professional economist and former Australian Treasury official. The aim of this show is to help you better understand the big economic issues affecting all our lives. We do this by considering the theory evidence and by hearing a wide range of views. I’m delighted that you can join me for this episode. Please check out the show notes for relevant information. Now on to the show. Hello. Thanks for tuning in to the show. In this episode, we sit down with Ben Simpson, the founder of collective shift, a leading crypto education and research company in Australia, Ben shares his wealth of experience in navigating the volatile and often chaotic world of cryptocurrency investing. One of the key takeaways from our conversation is the importance of understanding the inherent volatility of the crypto market. Ben discusses the volatility of crypto markets, explaining why assets like Bitcoin can see dramatic price swings. He also touches on the regulatory landscape in Australia and the importance of having clear guidelines to protect investors. Ben emphasizes the need for comprehensive education and guidance as the crypto space is rife with misinformation and scams that can easily trap unwary investors. Finally, Ben shares his insights on the disruptive potential of decentralized finance. Defi, righto, let’s get into the episode. I hope you enjoy it. Ben Simpson from collective shift, welcome to the program.
Ben Simpson 01:39
Thanks so much, so much for having me. It’s good to be here.
Gene Tunny 01:41
Yes, it’s excellent. Ben, so you’ve been doing some fascinating things with collective shift. Could you tell us a bit about which you’re the founder of? Could you tell us a bit about collective shift, please? What is it that you’re that you’re offering?
Ben Simpson 01:55
Yes, I’ve been full time investing into the crypto space for seven or eight years, and it’s a very messy, chaotic industry, lot of misinformation, lot of bad people in the space. It’s just very difficult to get clarity on what’s going on actually when you invest in crypto. So when I first started out, I personally didn’t really know what what was going on. Took me a lot of time to figure out blockchain and Bitcoin and Ethereum and just all these terminologies and what it all meant. And I started working with someone in the education space to help people with crypto and eventually, I started my own thing about four years ago. And you know what we built now is we’re the largest independent education and research company in Australia. We have over 1000 paying clients around the world that pay us for crypto investment research and sort of advice. And then also we provide research and content to the crypto exchanges here in Australia. So those coin spot, Swift X, those are buy and sell cryptocurrency for like for retail customers, we provide them with some of their content research as well. So yeah, we’ve got a team about 10 full time now here in Australia. And yeah, we’ve been around for about four years. And my my mission is just to help people try and navigate their way through crypto the right way. Because I know I’ve been burned in the past in a space it’s very easy to lose money and be led down the wrong path. So we’re trying to just help people the right way, right?
Gene Tunny 03:19
Okay, and you mentioned that you were concerned about some of the misinformation in the in crypto, what, what type of things we we are you thinking of? It’s just
Ben Simpson 03:29
a lot. So in cryptocurrency, there’s 1000s and 1000s of different cryptocurrencies right now. So like, if you think about the stock market, there’s basically that equivalent in crypto, but a an endless amount of cryptocurrency projects you could buy, and my opinion is 95 to 98% of them are worthless, like they’re just built on, you know, community and, you know, FOMO, and you know, they don’t have a lot of underlying real value. And a lot of people get sucked into these projects, buying them with the hope of making a lot of money because they provide these crazy marketing guarantees and returns and all these sorts of things that people get sucked into and ultimately lose money. So that’s really where we’re trying to help guide people, from an education standpoint, where to invest. And then ultimately, cryptocurrency is extremely volatile, and it can be hard for someone to stomach the risk that comes along with crypto, Bitcoin on its journey from, you know, a few $100 to today, 55, 60,000 US dollars has gone up and down hundreds of times, you know, more than 10% and sometimes it goes down 4050, 60% in a period of days or weeks, which can be very concerning for a lot of people, because you don’t get that in the stock market right. If two or 3% in a day is kind of big in crypto, you could see 1020, 30% moves in a day. So we try and just help people understand why that happens, how to have the mindset and understanding of where the market’s going and not panic and and ultimately, try and, you know, not lose money. Yeah,
Gene Tunny 05:00
gotcha. Okay, there’s a few things I wouldn’t mind following up there. Ben, so, I mean, there’s the issue of, I mean, why does this happen? Why is crypto subject to such wild swings? Why is it so volatile? For one, could we start there, please? Yeah, let’s
Ben Simpson 05:18
start there. So one common thing that some people don’t know is that cryptocurrency trades 24/7 right when the stock market opened, has opened, open and closed times at Monday to Friday, cryptocurrency trades 24/7 and what we saw, you know, in the last few days in Japan, you know, Japan saw one of his worst days since the 1980s in the stock market. Recently, I think it dropped seven or 10% in a day, they hold to trading. You they literally just withdrew the sell button. You can’t sell anymore, right? In cryptocurrency, that that’s not, that’s not a thing. You can’t just hold trading in crypto, right? This is a free market. There’s no one, there’s no intermediary to stop what you’re doing. So it’s a free market. And ultimately, people you know, have emotions they fear, and if they’re going to sell, they’re going to sell. And in cryptocurrency, because the market caps of these projects are relatively small, you get these liquidation events, and what happens is basically these cascading effects of traders get liquidated, whales get liquidated, retail investors then panic, and then you get these huge fluctuations. So there’s a lot of different variables, but ultimately, it’s a free market. No one’s manipulating it from a, you know, intermediary perspective, and if people are scared, they’re going to sell. And it happens pretty quickly, right?
Gene Tunny 06:27
Okay, now, if you’re getting into this market, I mean, if you’re interested in crypto, do you, do you provide some guiding principles, or do you identify red flags. Can you tell us a bit about what new investors should be looking out for?
Ben Simpson 06:45
Yeah, so if I have a new investor that comes to me and wants to figure out how to create an investment portfolio, I really, I really try and recommend that they start off with just Bitcoin. It’s really important to understand that Bitcoin is the biggest, most leading cryptocurrency. It’s the most well known. Then there’s 1000s of other cryptocurrencies after that, right? So it’s important to differentiate Bitcoin from cryptocurrency, because Bitcoin is a cryptocurrency, but bitcoin is its own separate thing, and that’s the way I look at it. So I usually start off by just looking at Bitcoin, and Bitcoin, ultimately, for me, should, or for others, should be looked at as a hedge against, you know, your overall investment portfolio, right? It’s not correlated to stocks or the property market or bonds. It’s ultimately a completely separate asset that is in its own area. And I would probably think even only 1% of your entire net wealth into Bitcoin, I think is a pretty good good idea, just in terms of its risk to reward ratio. So the reward being potentially, if it pulls off what it’s trying to achieve. In terms of the global monetary asset, the price returns are quite or the projections are quite large, where the risk is quite minimal, in a sense of it’s been around for 10 or 12 years. It’s now got its own ETF, which was the one of the largest ETF launches in history. It’s owned by a lot of NASDAQ listed companies. You know, it’s owned by governments on their balance sheet. So, like, the risk of Bitcoin now is far, far, far less than what it has been in the past and where we think it could go. I think everyone should consider it in terms of just, even only a little
Gene Tunny 08:21
bit. Right? Okay, so in terms of where you think it can go. I mean, you, are you thinking Bitcoin to a million? I think was that? Was that Kathy Wood, did she have that prediction? I mean, is that? Is that serious or credible?
Ben Simpson 08:35
I mean, look, you know, who knows is really the answer gene like, you know, who knows where this could go? The biggest thing that I think is the most important thing to understand with Bitcoin is it’s a limited supply asset. There’s only 21 million Bitcoin that ever be created. And the supply and demand economics, as we’ve seen recently, there’s more demand for Bitcoin that there is supply, right? And just basic supply and demand economics is showing us that if you get a lot of people wanting an asset, and there’s very few, there’s very few of it, you know, the price, you know, goes up over time. Do I think you get to a million dollars? I do think you can get there at some stage. Maybe, you know, it’s probably gonna take 1020, 30 years to get there. But for me, Bitcoin compound has been compounding at 60% year over year for the last 10 years. It’s up 75% of the last 12 months. It’s one of the best performing assets on the planet. For me, I think it’s one of the best investments you can own.
Gene Tunny 09:29
Right? Okay, and what’s your what’s your theory or like, Why do you think that there is this underlying value? Because there is a lot of skepticism about cryptocurrency, particularly from economists, and there’s all sorts of concerns about regulatory risk. I mean, you pointed to the fact that, okay, it’s been held. You know, certainly people are investing in it at the moment. But, yeah, I just wonder what’s the story regarding the actual. Use case for it? Is there a use case outside of some illegal transactions? Yeah.
Ben Simpson 10:05
And I think, I think the hardest thing for most people to wrap their head around is that, you know, you can’t touch it, you can’t feel it, you can’t smell it like it’s a completely digital asset, and it doesn’t have free cash flow, right? Warren Buffett hates it. He calls a rat poison square, right? There’s a lot of people that don’t like it, because it’s not, not similar to what’s been around in previous times. If we look at a country like, you know, Venezuela, right? Or, you know Mexico, some of these places, not, maybe not Mexico, but Venezuela, right? We look at some of these places where they’re fiat currency, Argentina, sorry, who was I was looking for their local local currency has inflated so much that it’s basically worthless, right? It just continues to inflate. Because of the government has printed more and more money. So holding something that isn’t controlled by government, something that is inherently deflationary, in a sense that it doesn’t increase its supply. In fact, the circulating supply slows down. People are looking at Bitcoin now as a new digital gold, you know, not to say it’s going to replace gold. Gold is, you know, one of the safest assets on the planet, but this is a new version of gold. I use Bitcoin to pay my employees. If I go and try and pay my overseas staff with my bank account, it gets shut down. Many phone calls from their frauds team. They want to know where it’s going, why it’s going. They take huge conversion rate fees. It takes two weeks to arrive. It’s horrendous. Where I can send bitcoin instantly to anyone in the world with no middleman, and they can receive it, you know, within seconds. And that’s being utilized more and more, from from from businesses in different countries, as well, from a payments level. But ultimately, the the use case for me is it’s a digital gold. It’s an asset that, you know, continues to perform, you know, over time. And I think the best way to look at it is, is that digital gold, you know, analogy, and we’re seeing, you know, companies like micro strategy and NASDAQ, listed company, you know, holding hundreds of 1000s of Bitcoin now in the balance sheet, because if you continue to hold cash, just the the purchasing power of your dollar is doing to devalue. Like, where do you park your cash? What? What asset can you hold that’s going to be a hedge against inflation? You know, a gold has an outbeat. Hasn’t out beaten inflation in the last five years. Like, where do you put your money? And Bitcoin starting to be seen as something that you can park your capital in,
Gene Tunny 12:19
right? Okay. And what do you see is that, are there regulatory risks with Bitcoin and other cryptocurrencies? Central banks are looking at CBDCs, the central bank digital currencies. Is there a risk that there could be a regulatory crackdown on Bitcoin and other cryptocurrencies? Yeah, I
Ben Simpson 12:41
definitely think there’s a risk for some cryptocurrencies. You know, again, important to differentiate Bitcoin different to other cryptocurrencies. The SEC in the US has clearly defined Bitcoin as a commodity, and now they have their own Bitcoin spot ETF, now the Ethereum spot ETF. So the government has approved, and the SEC has approved these financial instruments to buy bitcoin and Ethereum in the US and Australia tends to follow. There’s a Bitcoin ETF in Australia, so it’s from a regulatory framework. Bitcoin and Ethereum really is in a safe category now, but there is a lot of other crypto assets that could, could potentially look like securities, and that sort of plays a bit into some of these exchanges not being able to sell it. But no, the direction we’re going in and what, what we’re seeing now from the US and Australia is that, you know, even Donald Trump, right? Donald Trump, the other day, spoke at the Bitcoin 2024 conference, and wants us to be the hub of crypto. He wants the US to be the center of, you know, cryptocurrency sort of development in the world. So, yeah, I think it’s actually moving towards politically pandering or not politically a good thing for these, these candidates, to be pro crypto, because the reality is, a lot of people own it,
Gene Tunny 13:58
right? Okay, and what’s, what’s the regulatory environment like here in Australia, been seeing some of Senator Andrew Bragg’s commentary, and like he he’s been grilling Treasury public servants at estimates hearings, and it looks like that they’ve been rather slow in in setting up a regulatory environment, would you know what the issues are there? I mean, is what needs to happen with regulation in Australia for crypto? Yeah, I
Ben Simpson 14:29
think that then we’re actually asking for more regulation. Really like, because there’s really not much clarity. Like, and as an educator and someone that wants to help consumers, there is very little regulation. It’s very much in a gray area. You go and talk to lawyers and they give they give you a roundabout answer, but you know, I think the reality is gene that this asset class is so new and so few people truly understand it, that the existing regulation of securities and stocks and assets just doesn’t fit well with crypto, because it’s so unique and it’s so different. But. Many loopholes and so many unknowns and variables. I know there was a paper drawn up about recommendations recently, but, you know, these things move relatively slowly, and it goes through a lot of hands, so I’d love more regulatory clarity. You know, we saw some pretty poor things that happened in the US over the last few years, like FTX, you know, Celsius, these crypto exchanges that were doing nefarious things, you know, ultimately, that had nothing to do with the underlying asset. That wasn’t bitcoins fault, that was people running these exchanges that wanted to defraud customers. That was their fault. And if we had better regulation and overview, perhaps that wouldn’t have happened. So we’re welcoming that. It’s just yeah, these things take time with the politics and government. Unfortunately, yeah. And
Gene Tunny 15:41
what does it mean for the the tax treatment of crypto? So if you make a gain or a profit on your or a capital gain on your crypto, you’re liable for for tax for that. Are you?
Ben Simpson 15:51
Yeah, yeah, just like normal capital gains, like, if you sell Telstra shares for BHB shares, it’s a taxable event. Um, you pay your capital gains. You know, some investors may think that they can get away with it, but reality is, cryptocurrencies are built on a blockchain, and a blockchain is an immutable ledger that anyone can see, yeah, and we’ve seen the ATO now develop software to actually go and track these, these accounts that aren’t paying their tax. All the Australian exchanges have to report on all their users, so, you know, they’re having a real crackdown on that. And as they should, people thinking they get away with it is not, it’s not the right way to think about it. You know, people are paying their capital gains. And, yeah, there’s, there’s a lot of oversight now in that tax space as well. So, yeah, very much similar to the stock stocks. How would you how you pay your tax?
Gene Tunny 16:36
Yeah, gotcha. Okay, interesting with the just going back to the crypto education. I mean, I think that’s so important. Because the concern I have is that the, you know, everyone thinks crypto is a the next big thing. And, I mean, you know, possibly it is and yet, but you have a lot of dumb money go in, and you’ve got or a lot of people who probably shouldn’t be putting all their hard earned savings into into a speculative asset. I mean, maybe, I mean, you’re steering people toward the more established ones, but they’re also, you know, there are 1000s of other crypto currencies out there. So, yeah, if you did, if you did come across a proposal or a new what is it? Is it an ICR initial coin offering? Or, if you’re looking at investing in crypto, what are the sort of things that you should be that that would be a red flag that would set off alarm bells that, because I know I’ve heard this term rug pull. How would you how would you know if you could be a victim of that look?
Ben Simpson 17:40
Unfortunately, it’s very common in the cryptocurrency space. You know, I tend to direct people in only investing into older coins that have been around for a little while, like these. ICOs, initial coin offerings were a big thing back in the day, and unfortunately, a lot of people get sucked into these because they promise return, like anything that promises returns, guarantees percentage returns over a period of time. Has crazy lock up periods where you have to basically give your cryptocurrency and lock it up for a period of time to earn rewards, anything that pays you to bring on other people, like a Ponzi scheme, anything that has crazy marketing on social media. None of these good projects do any of that. And ultimately, a lot of those are probably scams, if any of the projects you’ve invested in does that. So ultimately, focus in the top assets. You know, the top 10, top 20, Bitcoin, Ethereum. Solana, start there before working your way down. The further down the market capitalist you go, the more risky the investments are. And unless you really tapped in to know what you’re doing, it can be very difficult to navigate. You know those investments and rug pulls are common the further you go down. Rug pulls are basically, you know, if you think of standing on a rug and someone pulls a rug underneath you, that’s just really when the founder or the owner, or there’s a there’s a hack of the project, and you lose all your money. So you really do need to be careful.
Gene Tunny 18:56
Gotcha. So if someone comes to you, so would they go to the collective shift side? And then there’s a online course you can do,
Ben Simpson 19:04
yeah. So we there’s basically two tiers. So one is, we just have our platform where you sign up, you log in, you can see all of our token ratings. So we do, you know, token things like morning staff for crypto, that’s what we’re trying to build, token ratings research community. We do live group sessions. They can jump on a live session with me, and I go through the market and how I’m investing. And then we have a higher tier. For those that are a bit more have a bit more capital at play. Usually they’re wanting to invest a quarter of a million plus, or they already have that invest in crypto. That’s where you can work one on one with me. We have private events. We do online sessions, you know, private sort of WhatsApp group, where we can kind of help you out and deliver you more support. And that’s really where we have our team of analysts by your side to give you independent information. And that’s really what people pay us for, because you can go online, you can listen to YouTubers, you can try and figure it all out yourself, but it’s going to take you a heap of time. You won’t know who to trust. Most likely, the person is giving you an information doesn’t really know what they’re talking about, and you can lose a lot of money if you’re not sure what you’re doing. So that’s really where we can come and help.
Gene Tunny 20:10
Yeah. So what takes a heap of time doing the research or getting set up or getting the wallet? I mean, what? What actually takes the time probably
Ben Simpson 20:20
initially, just even researching the space, what coins to buy, when to buy, when to sell, how to store it? Where do you store it? How do you you know? How do you not stuff it up? What are the scams look like this like? As you go further down the rabbit hole, there just becomes this infinite amount of information, and you Google crypto, and you just get a million different opinions and a million different people saying different things. And I think really where the time gets sucked in is the information overload. Did you start reading it like this? Says something? This is something else. Everyone has their own opinions, which right or wrong is, Can? Can just send you down a path of confusion? Yeah, and that’s why we work with a lot of people that come to me and go, Ben, I’ve done this, or I made this mistake. Or, you know, I just need help. I don’t know what to do. Can you help me? That’s kind of where we sort of step in. And can guide you. Okay?
Gene Tunny 21:06
And so this, what would this be? Why a Bitcoin ETF is a is an attractive proposition relative to actually owning Bitcoin yourself. Or,
Ben Simpson 21:17
yeah,
Gene Tunny 21:18
am I thinking, how is that right or yeah,
Ben Simpson 21:21
there’s your two options, right? If you want to go, Yeah, Ben, I want to go buy bitcoin tomorrow. What are my options? Well, number one is, you go, you sign up to a cryptocurrency exchange, you buy bitcoin, so you deposit Australian dollars, you buy bitcoin, and then you need to store it somewhere. You either store it with the cryptocurrency Exchange, or you get a wallet and you store it yourself, right? Yeah, that’s what I do. That’s what I recommend most people do. But that is, ultimately, you have to have some sort of knowledge, right? The other option is, you go to your brokerage account and you go and buy a Bitcoin ETF, and that’s what’s been so big in the US recently. You know, there’s a about 9% of the entire Bitcoin supply is now owned by ETFs. And basically the ETF is where you buy a share and that sits in your portfolio, and then the ETF provider is buying that Bitcoin and storing it on your behalf. So you have to worry about all the storage and custody. Yeah, gotcha.
Gene Tunny 22:13
And did you say there was a there’s a Bitcoin ETF here in Australia,
Ben Simpson 22:17
there is, there is, there’s a couple. I’m not actually sure what the ticker is. I’ll have to maybe send that to you later. Gene, that’s okay, just interested, yeah, but there is one launch recently in Australia. I think it might be ebtc. I don’t know. I have to double check, but, yeah, mono, actually, monochrome. Ibtc, monochrome is one of the first Bitcoin ETF, so you should be able to get that in your brokerage account. Yeah,
Gene Tunny 22:44
but the people you’re who come to you, it sounds like you’re helping them get set up on their own. And it sounds like you’ve got, I mean, you’ve got people who are really, you know, keen to learn, keen to keen to get into crypto. What’s the demographic? I mean, can you Yeah, for
Ben Simpson 23:03
sure, it’s really two types of customers we work with. One is, you know, 50 to 65 that maybe are investing in their SMSF, or they have a large amount of funds that they’ve invested into crypto, and they really want to, wanting to set themselves up for retirement. They need some help just figuring out how to do it. And the other demographic is, you know, 3540 years old, have have a have a family, have a business, have large amounts of investments elsewhere, and they might have 500,000 a million dollars. You know, we’ve got guys right up to 25 million in crypto that have their own businesses and stuff going on, and they need our help and our research and our frameworks to help guide them through the market. Think about exit strategy, risk profile, storage, you know, asset selection, you know, it’s like in it’s your own investment. You know, family office for some people, so they need some independent guidance to help Sure. You know, they don’t stuff it up,
Gene Tunny 24:01
right? And are you, as part of that? Are you providing advice on other investments, on their whole investment portfolio?
Ben Simpson 24:10
No, no, just, just, just cryptocurrency. So we give, we give sort of general frameworks and insights and research and data to help them make they still need to make the decision themselves. You know, we’re again, back to the regulatory piece. You know, we’re going to be first in line to get a cryptocurrency financial license when we can that. That doesn’t exist right now, because crypto isn’t, it isn’t seen as a financial product in Australia. You know, well, commodities aren’t. So, you know, once that becomes available, you know, we’re going to be first in line to get that, but for now, we just give general sort of information, and then people make up their mind from
Gene Tunny 24:46
there. Okay, and so do you have the what is it? The Australian Financial Services licensed, AFSL,
Ben Simpson 24:54
yeah, yeah, that’s what. I mean, we actually can’t get one for crypto, right? Okay, yeah, because it doesn’t fall. Like, cryptocurrencies don’t fall under that framework. So we had a, we had a meeting with, you know, ASIC, a private ruling, you know, while back, and it was just, unfortunately, they can’t provide one, because cryptocurrencies don’t fall under that and that’s where that regulatory discussion is going on. At some stage it should fall under something, yeah, and they will be able to be able to go and get that, yeah,
Gene Tunny 25:20
yeah. Well, it just looks like a real dereliction of duty on the part of our regulators, because you’ve got a lot of people interested in it and investing a lot of money, it sounds like it in it. I mean, if you’ve got people with what was it? 25 million in crypto? Yeah,
Ben Simpson 25:38
wow. And, and, and we, you know, from our business model, Gene, like we, we’re purely independent, right? We charge subscription fees for our information, and that’s it, right? You’ve got others that are charging fees, taking commission on investments, selling investments, getting paid to promote tokens. Like it is the Wild West, what some of these people are doing, right? And that’s completely just unregulated. People just go and do what they want. We don’t do any of that because we’re genuinely trying to help people. But yeah, we’re wanting this to come to the space so people can, you know, be, be more trusting in the information that’s out there? Yeah,
Gene Tunny 26:14
yeah, absolutely. I think that’s, that’s a good, a good strategy. And, yeah, I mean, it sounds like you need some type of license like that. That’d be good if they can develop that, and then, particularly if advice can be provided to people about how this sits within the whole portfolio and what other investment opportunities there are out there for people. Yeah, very good. I’d like to go on before we wrap up, just to you know what’s happened. What’s the state of the market recently? So you mentioned, well, there’s no, I mean, you said there’s no correlation between crypto and other assets. I’d like to talk about that and just understand what you mean there. I mean, because big there was a bit of a sell off, wasn’t there when we had the recent sell off in, you know, the S, P and all that, yep. So, like, how do you think about that? That correlation,
Ben Simpson 27:11
declare, to clarify the price is, is definitely still correlated right now, like, in terms of, like, when the stock market sell offs. You know, there’s definitely correlation with Bitcoin. To clarify in terms of, like, where I think it’ll be in five or 10 years time, I definitely see Bitcoin as a as not being correlated with the stock market. But yeah, what we saw over the last few days with, you know, the recession fears, and then Japan selling off and you know that that that carry trade idea that’s been going on, where people are borrowing money in Japan for zero interest, and, you know, buying assets in the in in in the States, and then Japan increase the interest rates, and all of a sudden everyone gets sort of margin called that found its way into crypto. And then, you know, one of the, one of the fascinating things gene is what happened on the weekend was that if you’ve got a margin call on a weekend where you can’t go and just withdraw hundreds of 1000s of dollars from your account. It takes 123, days from your banking. Yeah, you know, just position, right? Crypto is liquid. 24/7, so people need money, and they’ve got liquidity in crypto. You can go, just pull that out tomorrow, right? You need ten million tomorrow. You can get that within a second, right? If you have those that those assets, if you want to withdraw 10 million out of your brokerage account, oh my goodness, right, you gotta call someone out. They’re going to want to know where it’s going. Why is, why are you doing that? It’s going to take multiple days to to get approval. So what we saw was, people need liquidity. They go to crypto. Crypto sold off. There’s a lot of margin calls. Then what happens is the long, the long, traders in crypto got liquidated. The price just dumped. And then that was on our Monday, and by Tuesday, Japan had sort of in the futures market had corrected. Looks like they’re starting to get the money printers going again. And then crypto sort of bounced. I think bitcoins up 10 or 12% Ethereum is up six or 7% you know, overnight. So it was one of those real technical sell off events. Fundamentally, you know, nothing, nothing wrong with the asset class. But that’s, that’s what I mean with the volatility of crypto, things can happen. You know, you’re down 20% one day and up 10% the next day. Like, it’s pretty, pretty wild.
Gene Tunny 29:15
Yeah, yeah. So you’ve got to be prepared for that, and that’s part of what your your education is. So it’s the Yeah. I should note, we’re recording this on the seventh of August in Australia. And yeah, I’m always loath to talk. I’m always reluctant to talk too much about, you know, what’s happening in the market at the moment, because things can, things can change, and by the time you put about the podcast episode out, things can be completely different. But I thought I’d ask you about that. Yeah, that sounds like, it sounds like you’ve got a good, little, good little business there, and you’re, you’re helping people, because there’s certainly a an interest in in crypto, and I think you’re, it sounds like you’re coming from the you. Right place. Is there anything else? I mean, what sort of what are you focused on at the moment in the crypto market? What, what exciting things are you seeing? Ben,
Ben Simpson 30:10
yeah, that’s good question. Gene, I mean, I primarily focus on just building my portfolio of those, those more blue, blue chip, quote, unquote, Bluetooth assets, Bitcoin, Ethereum. I’m a very big believer in decentralized finance, or Defy. You know the idea where you can take out loans, earn interest on your money without the need of a bank, and then you can buy those underlying tokens that that that support that project, and you can earn the fees and interest from the lenders and the people putting up their capital. So defi is a big place for me. I’m pretty heavily invested into that. A lot of that defi activity is built on Ethereum. I’m a very big believer in Ethereum. And then you’ve got other, you know, different things going on, whether it be web three, gaming, whether it be, you know, different blockchains. There’s a lot going on in the crypto space. Yeah, sometimes I think that, you know, and I talk about this a lot, there’s, there’s a million solutions fighting for about five problems that you know, that actually need to be sold. And I think for a lot of people, you know that follow my content online, it’s a bit of a breath of fresh air, because you listen to a lot of crypto people, and it’s just, you it’s just, it’s up only right? It’s never going down. Everything’s amazing. Well, reality is it’s not. And there’s a lot of crap in the crypto space, and I’m really pretty honest about that and calling it out. So yeah, lots going on. But for me, Bitcoin is just Bitcoin and property. For me, the two assets that really I think are going to be the best performers over the next few
Gene Tunny 31:44
years. You’re talking in Australia or Yeah, but I mean Bitcoin internationally. Oh, sorry,
Ben Simpson 31:49
yeah, Australia for property and then Bitcoin internationally. Yeah, gotcha.
Gene Tunny 31:53
Okay. So where can people follow you? Is the best place to follow you? On YouTube?
Ben Simpson 32:00
Yeah, YouTube, if you like video content, just go to Ben Simpson on YouTube. If you’re on Instagram, I put up in like, shorter form content. I put content up on Instagram. I always have my own crypto podcast called called Ben and Berg’s. If you like podcast, yeah. And then we also do a newsletter as well. So if you like email, you can head over to collective shift. There’s a newsletter button at the top, and we send, like, a weekly, weekly digest of what’s going on. So depending on the medium I’m pretty much on all them, I better
Gene Tunny 32:25
make sure I’ve subscribed to that. I don’t think I have. Sorry about that. That’s it. That sounds like the sort of sort of thing I should subscribe to. And was it Ben and Berg? Did you say Ben and
Ben Simpson 32:35
Berg’s? Yeah, B, E, R, G, s, okay. So we do two episodes a week on crypto and again, it’s really no, no nonsense, no no, no bullshit. Is we’d like to call it just sort of giving you what you need
Gene Tunny 32:49
to know. Oh, that’s good. I like that. Your final question that just occurred to me with this defy with the decentralized finance, how disruptive could that be to the traditional banks. So the big four banks in Australia here, for example. I mean, is this something that they should be they should be concerned about?
Ben Simpson 33:08
Yeah, I don’t think it will ever take over the bank stream like I think the reality is that, you know, you look at the big four banks that are probably the biggest companies in Australia, right? You know, I don’t think a lot of people are going to turn away from this, because you need some level of of skill set with defi, but I believe it’s a it’s a better model where you’re not paying the middle person. You know, look how much money Comm, bank and ANZ are making. Like it’s obscene, right? They make all these fees, and it goes to shareholders. And, you know, I understand business as business, but, you know, with a decentralized model, there is no middleman. You don’t have to pay some person in the middle just because they were there. All that money and value can stay within, you know, a peer to peer environment. And, you know, those things already existing. I can take out a loan tomorrow. I can basically take my bitcoin, and I can go and take a collateralized loan out. So I can go and put up, let’s say, $10,000 a Bitcoin, and I can, I can lend out against that Bitcoin as a collateralized loan, so I don’t have to sell my bitcoin, and I can cash flow it without selling it. And that idea, I think, is only going to continue to grow, where people can stay within the crypto ecosystem and not have to go to banks, to go and to finance different activities, you know, loans, mortgages, whatever it might be. So, yeah, I think it’s very disruptive. How long is it going to take to disrupt? Who knows? But yeah, I like that space
Gene Tunny 34:27
right? And now there’s some good companies here in Australia, or are they mainly in the US doing this? There’s
Ben Simpson 34:33
one or two in Australia. We work with a company called Block earner. They’re not purely defi. They’re more of just a lending company, a pure defi company that I’m invested in, that’s in from Australia, is called maple, Maple finance. Oh, yeah, M, A, P, L, E, and yeah. They’re probably one of the largest defi providers in the space, founded out of Sydney. So yeah, a pretty cool project. And go check out as well.
Gene Tunny 34:59
Good one. Okay. Hey, Ben, it’s been terrific. Anything else before we wrap up? No, that’s it, mate. Thanks
Ben Simpson 35:03
so much for having me. Gene and yeah, if anyone wants some some help, we also do some free, like, just a free 30 minute call. If you’re thinking about getting into crypto or you need some help, you can jump on a call with one of our team, and we can help you out. Just head over to our website, which is just Google collective shift. And yeah, we’ll see what,
Gene Tunny 35:19
how we can help. Yeah, that’s terrific. I mean it, it sounds like, yeah, you’re coming from the right place. And my, my next door neighbor at what? So in in Brisbane, Thomas, he’s well aware of you. So he’s, he gives you the big tick of approval. So, well, I’ll put links in the show notes to you all the to your to your website and to your podcast and YouTube. Ben has been terrific. I’ve really enjoyed the conversation. Thanks,
Ben Simpson 35:46
Gene, thanks for having me. Man, bye.
Credits
Thanks to the show’s sponsor, Gene’s consultancy business, www.adepteconomics.com.au. Full transcripts are available a few days after the episode is first published at www.economicsexplored.com. Economics Explored is available via Apple Podcasts and other podcasting platforms.
Professor Tonya Evans is the author of the new book “Digital Money Demystified: Go from Cash to Crypto Safely, Legally, and Confidently.” She discusses the topic of cryptocurrency with show host Gene Tunny. Professor Evans argues there are many myths surrounding digital assets, including their association with criminal activity and extreme volatility. She aims to dispel these myths and provide readers with a more accurate understanding of cryptocurrencies. Professor Evans is distinguished professor at Penn State Dickinson Law and a leading expert in intellectual property and new technologies. Please note this episode is for general information only and does not constitute financial or investment advice.
Dr. Tonya M. Evans is a distinguished professor at Penn State Dickinson Law and a leading expert in intellectual property and new technologies. With a prestigious 2023 EDGE in Tech Athena Award, she is highly sought-after as a keynote speaker and consultant. Her expertise spans blockchain, entrepreneurship, entertainment law, and more.
As a member of international boards and committees, including the World Economic Forum/Wharton DAO Project Series, Dr. Evans remains at the forefront of cutting-edge research. She recently testified before the House Financial Services Committee and the Copyright Office and USPTO to advise on the intellectual property law issues related to NFTs and blockchain technology.
What’s covered in EP216
[00:05:31] Prudent crypto investing according to Prof. Evans.
Regarding a spot Bitcoin ETF, Yahoo Finance reported on 28 November 23 that “Crypto investors are awaiting Security & Exchange Commission (SEC) approval for a spot bitcoin ETF, which could unlock a surge of capital investment in the crypto space.”
Transcript: Digital Money Demystified w/ Prof. Tonya Evans – EP216
N.B. This is a lightly edited version of a transcript originally created using the AI application otter.ai. We then used a human application, Tim Hughes from Adept Economics, to exercise his primitive brain and see if he could successfully hunt down mondegreens. It may not be 100 percent accurate, but should be pretty close. If you’d like to quote from it, please check the quoted segment in the recording
Tonya Evans 00:03
Now we have web three where not only are we exchanging messages of information, packets of information. Now those packets are about value. It gets at the heart of even why governments tax, particularly in times of war, etc, and to protect borders that are now being threatened by a borderless currency.
Gene Tunny 00:32
Welcome to the Economics Explored podcast, a frank and fearless exploration of important economic issues. I’m your host Gene Tunny. I’m a professional economist and former Australian Treasury official. The aim of this show is to help you better understand the big economic issues affecting all our lives. We do this by considering the theory, evidence and by hearing a wide range of views. I’m delighted that you can join me for this episode, please check out the show notes for relevant information. Now on to the show.
Hello, and welcome to the show. In this episode, I talked about cryptocurrency with the author of a new book on the topic. The book is “Digital Money Demystified” and the author is Professor Tonya Evans from Dickinson Law at Pennsylvania State University. Among her many achievements, Professor Evans was a 2021 Forbes over 50 listee in the investment category. She’s on the board of directors of Digital Currency Group and she’s testified before a congressional committee on digital assets. In other words, she knows what she’s talking about on crypto. This episode was recorded in mid November 2023. Please check out the show notes for any important developments since then, particularly for any news about spot Bitcoin ETFs that may have happened. I should note that one big thing that’s happened since the interview is Binance and its CEO pleading guilty to criminal charges for anti money laundering and US sanctions violations. US Treasury Secretary Janet Yellen has said “it’s willful failures allowed money to flow to terrorists, cyber criminals and child abusers through its platform.” As always, if you have thoughts on this episode, or other episodes or ideas for future episodes, please get in touch. I’d love to hear your thoughts on crypto, positive or negative. What do you think about Professor Evans defence of crypto against the major criticisms that it faces? Has she changed your mind on crypto? What about the recent news about Binance or SBF before that? Please let me know what you think after listening to the episode. Let’s get into it. I hope you enjoy my conversation with Professor Tonya Evans on crypto.
Professor Tonya Evans, welcome to the programme.
Tonya Evans 02:42
Thank you, Gene. Thank you so much. I’ve been looking forward to this. So I’m happy to, happy to chat about my favourite topic.
Gene Tunny 02:49
Oh very good yes. You’re certainly passionate about it, I’ve been reading your book over, well the last two nights. It’s, it’s an easy to read book. And I got through it in in two sittings on my Kindle. So well done on that. So yes, your book is Digital Money Demystified from go from cash to crypto safely, legally and confidently. To start off with, what do you think needs to be demystified about digital money? Or in other words, what motivated you to write this book?
Tonya Evans 03:26
Yeah, this it’s interesting because I do so many speaking engagements, obviously, as a not only as a law professor, which is kind of a different exercise in exploring things. I know, we’ll get into some regulatory stuff later. But at a higher level, there’s so much misinformation about the nature of the assets, why they even exist, what types there are, how they’re different. Some of the most common myths that I constantly explore and help people to right size include the level of crypto involvement in criminal activity, which is actually quite low. The nature of volatility, and the the existence of volatility is not the myth. This is a nascent asset class. And so, obviously, it’s very volatile. So when I compare crypto as a nascent asset class to earlier developments of assets like the stock exchange, for example, we go back to the 30s and Buttonwood and the volatility that was involved, so many things going on behind the scenes that people weren’t aware of. And that was very problematic when you think about the asymmetry of information which is often extremely problematic in the finance lane. You really need to have the transparency and accessibility for an open market. Otherwise you don’t have an open market and people are left to their own devices. People are investing in things when they don’t have all of the information. And so that’s what made it really interesting for me to 1) start to study the area, but 2) to make sure that people understood the existing system, how crypto assets and blockchain technology actually changed that. And kind of where we go from here. As you can tell, the book is not an argument. For someone to absolutely buy crypto, I still leave that up to the person, but I want them to have a more informed body of information to draw from so that they can actually make good choices. One of the ways that I like to explain it is to say, you can actually be a prudent crypto investor, which sounds like an oxymoron. It’s like prudent and crypto investing, how do those things go together, but people are afraid of what they don’t understand. And the reality is, and we will continue to talk about this in our conversation. This technology is here, not just as a matter of Bitcoin and Etherium, and some of the other coins, but every major, not major, but every country is looking at its own version of digital currency in the form of central bank digital currencies. We have FedNow which is not in and of itself a cryptocurrency. But it’s kind of like the the framework or the platform for digital assets that I believe, my personal opinion, the government would not have this official statement today. But three to five years from now, we’ll look back on this moment in time, where FedNow, the rails, the frameworks to enable digital asset transmission, I believe will be the precursor to a central bank digital currency in the United States. And finally, when I think about the various investment products that will become available, probably, I’m pretty conservative so I would say at the beginning of 2024, we will see an exchange traded fund specifically for Bitcoin, probably 12 to 18 months after that, for Etherium. This will be an investment product that is available to investors, and also the professionals, the financial advisors that have to make sense of this, the CPAs the lawyers. So for all of these reasons, at least demystifying the space so that people don’t fall victim to the clickbait and the sensational headlines, some of which are horrible. I, there is no place for criminal activity, Sam Bankman-Fried is going to enjoy a lot of time in jail. I’m absolutely for that. But you know, that is one small part of a larger ecosystem where the great majority is used for legitimate not nefarious purposes. So for all those reasons, I just think it’s important that people level up their, their understanding, you see from the book, The glossary of terms, just helping to demystify and understand so that people will lean into the education piece to decide then if this is something that they want to add to their profession, or their portfolio.
Gene Tunny 08:04
Yeah, yeah, absolutely. So you mentioned the glossary of terms just then I think that’s one of the standout features of the book. So yeah good work on that. Professor Evans, could you just explain the difference between some of these scams until, I read your your book, I didn’t appreciate the difference between an exit scam and a rug pull. So I hear about rug pulls all the time on Coffeezilla’s channel on YouTube, could, are you able to go over what those different crypto scams are and what to watch out for? Please?
Tonya Evans 08:40
Yeah they’re quite close, right. So it’s the difference of having a team that from the beginning, knows that they are going to turn the lights off at some point, they’re gonna, you know, pump up the price, get a lot of enthusiasm. And their goal from the beginning is to scam people out of their money, right, and to set the market conditions in order to get the highest price possible to leave others downstream holding the bag. Right, as opposed to someone that at least in the beginning, has some good intention and realises at some point in time, it’s not going well. And that people who have invested fall into what we talked about earlier about not having all the information. So you have a key some key decision makers that still have an influence on a project. Oftentimes, it’s not built yet. So they have grand plans, they have a roadmap, they might have a white paper, but at a certain point they run out of gas and they disappear with everyone’s money and all of a sudden you can’t find them anymore, closely aligned but so it’s more of the intentionality from the beginning. But the end result is a lot of people get caught holding the bag.
Gene Tunny 09:51
Right so the exit scam is where there’s that intentionality at the beginning is that right and the rug pull is yeah, we stuffed up let’s just try and get out of it. And yeah well…
Tonya Evans 10:01
That’s right, that’s right.
Gene Tunny 10:05
Bad luck investors. Okay. Righto, so you’re a Gen X law professor right? So I think I read that in the book. So you’re same generation is me and I often feel I’m probably, if I was five years younger, I probably would have got massively into crypto, but I was probably, at the start of it, I was a bit sceptical of it. How did you become like, as a lawyer, as a law professor, how did you become interested in crypto in the first place?
Tonya Evans 10:34
I had a friend who was getting an advanced degree in the future of media and kind of the intersection of media and new technologies. And to take a step back, I actually am primarily an intellectual property lawyer, and law professor, I just actually celebrated my 25th reunion from Howard University School of Law. So I’ve been around for a minute, I practiced law for 10 years before I even started teaching. And now as a recovering practitioner, also known as a law professor. And I get to lean in to things normatively, how they should be rather than day to day kind of practically what they are, right? That’s really the transition from representing clients to informing law as it’s being developed. And so I was very interested in the work that she was doing at the intersection of media and blockchain. I had heard of Bitcoin at the time, this was in 2017. Bitcoin was first launched in January of 2009. So it had been around for some time, but was really relegated to the fringes of cypher, the cypherpunk movement, mostly those kind of tech men, mostly with a technology, technology background, and also in finance, and kind of like this microcosm of two microcosms is the area of cryptocurrency. So mainstream adoption or even awareness just wasn’t a thing at that time. And also, as you mentioned, I’m a lawyer. I’m licenced to practice law in four states, New York, New Jersey, Pennsylvania, and DC, I am highly revered. In my profession, I have no intention of losing my licence. And so trying to make sense of this magic internet money was not something that, that I was at all interested in at the time. But what I was interested in is her discussions around the underlying technology that was organising financial data, the transactions and the balances in a very novel way, using existing technologies. But again, organised in a novel way. So what were the technologies, are the technologies? Cryptography, which is the encrypted messaging that has been around in some form or fashion, quite frankly, for millennia, obviously, it’s digital now. But the idea of going from point A to point B, or sending a message, often in times of war and other areas, the ability to send to encrypt and decrypt messaging was critically important. But that’s been around for forever, then we have peer to peer technology. So as an IP lawyer, I’m also interested in this part, because when I first learned about peer to peer technology, it was gonna, you know, upend the media, ecosystem, and that entire industry was going to fall because you and I could be in completely different places but I could send you a perfect digital copy of a media file, and then go on the internet and send it to 1000 of my not-so-closest friends without exhausting the original. So I guess that was great if you wanted to share music, not so great for the music industry, but for everybody else. But obviously, if you are doing that with money that runs into the double spend problem, where, you know, I can say I have $100 in the bank to send it to you and also to Susan, and the first person to cash that check is the one who wins that is that’s not going to work for money. So the novel way of using cryptography, peer to peer technology, the internet, and then a novel way of coming to agreement, we would call it we call this the consensus mechanism of coming to agreement where I don’t have to trust you, but I trust a software that is pre-coded with the rules of engagement. It’s open source software, which is also lends itself to copyright, to patent areas of interest as an intellectual property attorney, where I was like, Well, I have to figure that out. I have to let my students know that this is something that is changing the nature of intellectual property. And it doesn’t, it didn’t seem at the time that I needed to also fundamentally understand cryptographically secure digital assets. But I fell down the rabbit hole, it was quickly apparent that understanding the technology I need needed to understand the nature of the assets that were being validated, verified and secured. In this type of news decentralised database, I didn’t have any appreciation for all that language at the time. But being drawn in, in my existing area of expertise, I think was the best way for me to be intellectually curious, and to really learn more.
Gene Tunny 15:31
Gotcha. And are there many legal cases? Is there much litigation regarding crypto?
Tonya Evans 15:38
What we’re seeing now involves, the short answer is yes. Now, but mostly at the federal and state levels against federal or state regulators and various parties or, or stakeholders, participants in crypto. I don’t know if you have a lot of them in terms of the actual number but the import of of actions with the SEC, the Security Exchange, Securities Exchange Commission against some of the big ones we have coinbase, we have the ripple case with ripple is a network that has a native token called XRP. That has been tied up for a long time until recently, when a federal court said that the SEC led by Gary Gensler had really overstepped the boundaries of their regulatory power. The way that reg, regulatory bodies in the executive actually get their power is it’s delegated from Congress. So an agency can only do as much as they are empowered to do by their enabling legislation. And the federal court said that the SEC overstepped its bounds actually making it the, clearing the pathway I should say, for those spot, Bitcoin exchange traded funds or ETFs, that are likely to be approved begrudgingly by the SEC, in my humble opinion. But as soon as November 17, perhaps in the first quarter of 2024, that is one of the most exciting and also pressing legal issues that people will start to learn more about. There’s other things going on with Treasury, trying to make sense of how to properly tax crypto, it was always a nightmare when I first started buying and exchanging crypto in like 2018, where you literally had to have a spreadsheet because crypto, all crypto assets are taxed in the United States as a capital asset. So imagine that every time I am going from cash to crypto, as I say, from, you know, $1 to some portion of Bitcoin is a taxable event, even if I’m using the dollar to get bitcoin and then within the same day, or maybe the same week, then exchanging Bitcoin for ETH. And then using that to get a stablecoin every single time there’s a an exchange, that is considered a taxable event, even if it’s negligible. So the argument before the before treasury, in general and IRS in particular is there should be some de minimis amount. In right now, the number that’s floated is about the equivalent of $600, where we, I mean, it gets to be completely impractical to have to account for every single transaction under that amount, because you’re not worried about money laundering, you’re, you know, you’re not worried about significant fraud or anything like that at that level. And so that’s a really interesting thing to watch. And then finally, there’s a lot of, I don’t think it’s going to happen in 2024, because we’re in a presidential cycle, but a lot of support for various types of legislation to give greater certainty as a matter of regulation. But greater clarity of what agency is actually primarily empowered, if at all, will there be a primary or lead regulator as between this SEC and the CFTC? That’s major. The CFTC is responsible for futures and for commodities. But there doesn’t seem to be agreement between the head of the CFTC and the SEC about the taxonomy, the characterization of various assets. And it’s problematic because most of them are programmable. They actually can change the nature of their character, they might start out as a security. I argue that Ethereum actually did start out as a security. It was, the project was not yet built, they did an initial coin offering inviting people to invest and get a return on their investment. That is, and it was not registered. That would be a classic unregistered security. But years later when it was fully decentralised there’s no central foundation or entity responsible, I argue, and the head of the CFTC would agree that that ETH is a commodity. But the SEC is the head. Gary Gensler does not agree. So I say all that to say, there’s a lot of uncertainty that is driving business away from the United States, to other jurisdictions where it may not be easier, but at least it’s clear. And that’s one of the greatest dangers in the United States is that we would not lead in this area. So those are some of the things to really look for in the headlines that have a direct impact on mass adoption.
Gene Tunny 20:54
And what jurisdictions would they be Professor Evans that the activity could be driven to?
Tonya Evans 21:01
So we see a lot of offshore stuff in and by off, sometimes, when people hear offshore, they immediately think illegal, this is literally off of the shores of the United States. So it makes me think of the Bahamas that has its own central bank currency, the sand dollar, it makes me think of Bermuda. I’m a former member of their advisory board, their financial Technology Advisory Board. They were quite forward thinking. Bermuda is particularly interesting, because it’s a jurisdiction that has a long history of well regulated very clear insurance. And so that’s an interesting place. Zug Switzerland is known as you know, like the Crypto Valley, in the same way that we might think of Silicon Valley here in the United States, quite forward thinking. Singapore is ahead of the curve. Absolutely. It’s the UAE. Despite all that is going on in that area of the world. The UAE, in general, makes me think of Dubai in particular, and Abu Dhabi. A couple of years ago, I was one of the first of Forbes 50, over 50 listees and we celebrated in Abu Dhabi, for example. And I was amazed not only how opulent and beautiful, but how progressive in terms of forward thinking with with crypto. And finally, and this is not a leader that we want to follow, but it’s a caution… not, well, I’ll say it a cautionary tale regarding central bank digital currencies, is China. China was the first country to launch a central bank digital currency, which raises in me all sorts of alarm bells, not not for central bank digital currencies in and of themselves. But the huge issues around financial privacy that people need to get up to speed on if in fact, the United States would start to publicly explore CBDC here, that you want to have the same financial privacy that you do with cash, but have the convenience and things that are better, faster, cheaper, with respect to digital assets. So there’s a lot going on in this space and a lot of activity. In fairness to the United States, there’s some countries and I’ve mentioned a few where you have just one regulator. They don’t have the alphabet soup of the FCC and the CFTC and the partridge in a pear tree right in, in the executive. They don’t have the committees and the subcommittee’s wrangling for jurisdiction and oversight authority in the legislature. However, you know, it’s more simplistic. And so it used to kind of not be a great thing, but it is when you need to be nimble and move quickly because our system is not intended to move quickly. It’s actually built this way to slow things down and be more methodical, but that doesn’t work with this type of technology.
Gene Tunny 24:16
Hmmm, yeah, yeah, absolutely. I imagine that our regulators, I’m in Australia, so I imagine they’re looking closely at what’s happening in the States to see where things land. And you Yeah, it’s fascinating about this Bitcoin ETF. And I know that there was a group in Congress that’s looking at the regulations of how they changed the regulations around the SEC yet or is that something still to do? Do they need to give SEC more powers?
Tonya Evans 24:47
They’re exploring it. The short answer to your question is yes. Because the rulemaking authority that is delegated to an agency comes from Congress and so, we call those enabling or enabling acts, there’s another term as well, but enabling act. So basically, Congress says, here’s the framework, you’re the subject matter expert executive agency. So you all kind of you’re the mortar to these bricks. And it’s the executive branch in general agencies in particular that, that put into play the actual rules and regulations and actually run the thing you think of it like as you have a CEO, the President, and then you have all of these smaller bodies that take care of the day to day functioning, based upon, okay, we have this delegated authority from the legislative body, but it’s ultimately up to Congress to say you’ve over stepped, what we asked you to do, we empowered you to do X, Y, but now you’re doing Z, or also to say, hey, when we created this enabling legislation to empower this agency, we did not have this in mind. We did not have this in mind, right. And so we’re gonna need to go back to the drawing board on this. And I am encouraged that there is in many important, for many important issues, there seems to be a bipartisan effort. I don’t think this is beholden to one party or the other, although it is certainly playing itself out that way. When I think of President Biden’s executive order to order all of the agencies to look into the space and to come up with their rules, a report outs, etc. That happened back in 2022, in March of 2022. So a year later, we have some of those reports. The concern has been, and it’s been a bipartisan concern, that and what I what I testified about in March was about what appears to be a Choke Point 2.0. Choke Point 1.0 was an actual policy under the Obama administration that was cutting off banking access to certain industries deemed to be harmful at the time. So it was like the payday lenders and things like that. Ultimately, it was overturned. But you could at least intellectually understand why that might be. But it ended up not passing muster. We don’t have something on the books, but in effect, it has been very difficult for people operating in the crypto industry to actually be banked. They said, You know, it’s basically like, well, if you want it to be off, you know, off the grid and have your own little money, then you won’t use our banks to do it. And what we’re seeing is that and that has happened in the marijuana industry as well, it’s like if this is if something is otherwise legal, and lawful, that we shouldn’t have a government operating against it to thwart its progress and kind of kill it in its infancy, which what it appears to be. And so you will see this discussion around banking and and being able to onboard meaning going from cash to crypto, and off boarding, settling out, selling in the way that you would sell stocks, and then recoup in in Fiat. So we’ll see that playing itself out too. But that’s another major issue.
Gene Tunny 28:20
Right so is that really difficult at the moment so does the government make it difficult to do that?
Tonya Evans 28:24
It has been very difficult even for someone like me, in addition to teaching at Penn State, Dickinson Law School, I have my own onboarding platform. It’s a online business, I do not sell tokens, I do not invest for other people. And I have either been debanked or had an application denied just because I am a crypto educator, which makes no sense in the world. And it was too difficult because what banks were also hearing is, the government doesn’t like it, even though banks are private, they are in general, they are inextricably linked with the government, as we always see in terms of bailouts, etc, etc. And so when you hear from on high, that this is something that the government at this point in time does not fully support, in my humble opinion, because it is a customer service issue. When you start exchanging value that isn’t beholden to a government. That’s a big deal. You know, it’s we’re basically looking at a time where you have internet 3.0 web 3.0 is what people refer to it as, in the web 2.0 version. There was great support around the globe for the global exchange of information. Yeah, we had to use the internet, you had to protect the internet. Katie Couric and Bryant Gumbel had to figure out what the hell email was because we were all going to use it. Right. And that was great. And we wanted to support innovation, blah, blah, blah, blah, blah. Now we have web three where not only are we exchanging messages of information packets of information. Now those packets are about value. It gets at the heart of even why governments tax, particularly in times of war, etc, and to protect borders that are now being threatened by a borderless currency. That’s a BFD. And so that changes the conversation even though the technology is the same. And so we have a customer service issue. And until governments can figure it out, I don’t think they’re always going to be very excited, particularly in the United States where we have the globe currently. Let’s talk about it in 10 years, but currently the global reserve.
Gene Tunny 30:42
Yeah, yeah. In your books title, you talk about going from cash to crypto. And that’s a you’ve got a registered trademark sign there, is that your platform is it Professor Evans can you explain what cash to crypto is about please?
Tonya Evans 30:56
Yeah, that’s my signature course. So I when I launched Advantage Evans Academy, my primary course and it’s still up and very popular today. It’s an on demand, evergreen version, I’m constantly updating actually, because things change every year. And it takes you in five modules from introducing folks to fundamentals or even the purpose. We start with mindset of even trusting ourselves, managing our own money, because as a Gen Xer I grew up, the minute that you had any money, you’re gonna put it in the bank. And it’s interesting to learn more, as I’ve learned more about the crypto space to really fundamentally start to unpack savings and loans, it’s like, Alright, so let me get this straight, I’m going to put a whole bunch of money into the bank, maybe you used to be able to walk down to the bank, I don’t know if people can do that anymore. And I’m gonna put my money in and it’s gonna be safe there and up to $100,000. I’ll get it back. If we all want our money, even though I plan to have way more than $100,000 stored for another day, right? But let’s say I just have 100,000, it’s FDIC insured, and I’m going to earn a pittance, if anything in interest. And then that same bank is going to loan me back my money for cars for homes, and they’re going to keep the spread. I don’t like that. I don’t like that system. I didn’t know that was a system where I was taught not to trust myself. And not to worry my pretty little head about it. Well, I’ve learned so much in the last six, going on seven years than I had, and I went to Northwestern and went to all the best schools I graduated with honours that from law school. My dad’s a doc, my mom’s a lawyer. I knew nothing about money before I really started to lean in and see how disconnected I was even from the process. Even from understanding when people ask me, what is bitcoin backed by, like what is the dollar backed by? And I don’t hate dollars, I love dollars. But we haven’t been on the global, excuse me the gold system standard for decades. Based on the full faith and credit of the government, we keep coming up against the threat of government shutdown, we’ve had two downgrades in our credit rating, because people aren’t trusting us as much as they used to. Because it’s our full faith and credit. Our word is supposed to be our bond, and it’s scaring the rest of the world. So this is an also, an alternative, alternative to that, that people need to get aware of. Not necessarily replacement in toto today. But you definitely want options in this world.
Gene Tunny 33:33
Okay, we’ll take a short break here for a word from our sponsor.
Female speaker 33:38
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Gene Tunny 34:07
Now back to the show.
This is something I’ve covered on the show quite a bit because it’s obviously a huge issue in economics. And I mean the way that I think about it and that economists think about it’s well Milton Friedman in Monetary History of the United States, even you know, he acknowledged look, money is a fiction. But what will, what the question is which, which fiction is the most powerful do most believe and the fact is that with dollars, you can settle existing contracts, all the prices are in dollar terms. And you can pay your taxes to the inland ra…, internal revenue or to the Australian Taxation Office in the local currency. So that’s what gives the dollar power or means that that fiction is strongest. And I think that’s, that’s why many economists are concerned about that. And why there is that concern about well, maybe, I mean, is this volatility going to ever settle down? I don’t know. I mean, I think I take your points in your book, I think you make the best possible case for, for Bitcoin and for crypto. But yeah, I think that would be the concern of, of economists. Do you have any thoughts on that at all Professor Evans?
Tonya Evans 35:29
I think it’s important, it’s an important metric. I don’t even know if it’s a success or not, but just to understand what position crypto should have, if any, in an overall portfolio. And obviously, there is I mean, Bitcoin, for example, is up almost 70% this year. And it is one of the quickest ways over its lifecycle to get a significant return on investment as it goes through it’s bull and bear cycles in the same way that the stock market goes through bear, bullish and bearish cycles, the manipulation and I don’t use that pejoratively, but the way that monetary policy is set with inflation, we’re tweaking it’s kind of like we’re calibrating, right. And so there’s a natural energy lifecycle to assets. And as long as you are strategic, you could have something that is very, very safe and secure and predictable, offset with something that isn’t, with great risk comes greater reward, and then it’s an overall balance a balanced portfolio that I think is most important, I would not recommend, although I know some you know, Bitcoin maximalists will cash out their 401 K and put it all into Bitcoin and let it roll. They I think there’s a privilege in being able to do that, because I believe that if past is prologue, we are we will be entering a bull market soon. I think with more positive news. We’re getting past the crypto contagion, we have endured a two and a half, almost three year down cycle. And historically speaking, things have ticked upward. Bitcoin is generally the the rising tide that lifts all boats around. So even really crappy coins start to do modestly better. When bitcoin is doing better, that’s one of the many dangers I see in the space. But you know, whether or not this becomes this entire ecosystem becomes more stabilised. I believe that is possible. I just don’t know if I can read the tea leaves yet of when. But I do believe it’s not a matter of if but when giving, given the import of this technology that is just so pervasive across industry, and sector, it also makes me think of what will be the monetary standard. And this is not too far fetched to stay in space, in outer space, and we don’t have all of the sophisticated borders and things of that nature, but you’re gonna have to have a common currency that becomes more than any one government or, or country’s currency. What currency will that be? It’s probably going to be a digital asset. Which one I don’t know. It may not be Bitcoin, but it’s going to be some type of digital coin. And so preparing for that now and having a first mover advantage depending upon your risk tolerance is something that I’m willing personally to do. And I believe the first step to that is for folks to lean into education, from cash to crypto programme is great for fundamentals. Obviously, the book is a quick read that just level sets, facts so that people have a better idea of what questions to even ask, as they start to kind of become cautiously optimistic in the space, not fall victim to fear uncertainty and doubt or FUD and definitely not to fall victim to FOMO when people start talking about it and and celebrities are back in and NFT’s are all the rage and the next DOW comes out like you cannot be emotional about strategically investing for the long term. And so that’s what I want to educate and empower people to do through through my work through my courses. And certainly through the book.
Gene Tunny 39:22
Gotcha. You raise an interesting question about effectively what’s going to be the currency of the Galactic Empire. I’m gonna have to think more about that and see if any science fiction writers have thought about that. That’s quite a quite an important question. I like it. Right! With the, one thing I’m wondering is do you know how, how extensive is Bitcoin or crypto being used for actual transactions? Are contracts being written in do you see any of that going on?
Tonya Evans 39:53
That’s a great question. I’ve not quantified that yet. I love that question. You’ll have to have me back and we can uncover that. What I know for sure is that more and more legacy companies are creating opportunities for their existing customers to stay on platform and to have access, exposure or some of the the benefits of crypto and the underlying technology. So MasterCard and Visa have products now that will allow you to either earn crypto back, or to pay for things in crypto and you don’t really have to ever touch Bitcoin or whatever crypto is connected to it, because that happens behind the scenes. But you can say I offer this product, right? There’s still I don’t think they’re set their real time settlement is to the blockchain, right? They still have their legacy infrastructure, but they want to not lose customers, as people become more curious and have more opportunities. So Visa, MasterCard, PayPal, they will, PayPal first entered into the space, they would allow you to purchase Bitcoin, I don’t think it was other coins at the time, but you couldn’t take it off platform. So for me and for cypherpunks, or others, like the whole thing is your own personal self custody of your assets. So I don’t leave things on a centralised exchange, even if I trust it. Look what happened to you know, those who had left their property on FTX’s, centralised exchange or BlockFi. We saw a lot of lenders, you know, go out of business and file bankruptcy and your coins go with it. So self custody is a really important thing. But most people are not going to do that now. And PayPal knows that. So giving people the ability, they realised they weren’t going to get a lot of traction if they didn’t allow for people to take their Bitcoin off platform. And eventually they developed a product to do that. And in addition, they recently, I don’t know how to pronounce it, but they have their own coin. It’s like PY something. But it’s a PayPal, stablecoin so that they can do real time settlement within their own PayPal ecosystem, which is really really powerful Cash App, you have been able to buy bitcoin off of Cash App forever, and then transfer it off into your own self custody wallet. We have, in full transparency I am a member of the Board of Digital Currency Group, which owns Grayscale as in CoinDesk, it owns Genesis as well as well, probably 200 different projects and companies in its portfolio. And one of those is Grayscale, Grayscale has GBTC. So the Grayscale Trust, I’m sure a number of people have seen their commercials and Grayscale has petitioned or applied to exchange or change the character of GBTC into a spot Bitcoin ETF. And so there are so many companies BlackRock, one of the most prudent, traditional historical companies in the in the investment space has applied for an ETF as well. So Deutsche Bank, it just the gamut. So most of that exposure has been for high net worth individuals, but the crypto really is a democratic, inspiring currency. And that’s not a particular political party. It’s this the democratic with a little D that democratises access to, to money and not just money. Because we, it’s a bit of a misnomer to say cryptocurrencies. I feel like if we had to do all over again, we’d call it what I say as crypto asset, because some function well as currencies as we’ve talked about, but it also here in the States and around the world. In in Australia, for sure. We, it is a capital asset. So it’s not just currency. It has additional powers and properties, which is why many people right now, lending to its volatility. This idea of holding on we hoddle or huddle, you’ll see. So used to the proper word was hold and then it was misspelt and now it’s folklore to say huddle, instead of hold that holding for the long term, which makes Bitcoin in particular more valuable because it has a hard cap. Unlike many of the other coins and currencies that are more susceptible to inflation in the same way we see government issued currencies. So so so there’s a lot there to to focus on. You mentioned volatility is one thing I wanted to tie up with that as well, because it lends itself to what we’re talking about now. As more entrants come in to the space, as liquidity continues to rise, as clarity in the laws and regulations start to settle, historically speaking, the volatility of pricing starts to diminish. And the interesting question will be, how long will that take in this space? It just feels like everything is moving more quickly. I don’t know if it’s because I’m getting older or the world is moving faster or both. But what used to take decades and decades, I don’t know that it takes as long anymore, but time will tell.
Gene Tunny 45:36
Yeah, yeah. You mentioned GBT, was it GBTC? Could you? What does that mean? Sorry, I missed that before GB…
Tonya Evans 45:46
Grayscale has a Trust Company and it sells shares of its trust, and the trust holds Bitcoin and other assets. And what and so that was permissible, but it was set up as a trust, not offered as an exchange traded fund for Bitcoin specifically, and so Grayscale submitted a proposal, an application that is sitting before the SEC currently to be approved for a spot Bitcoin ETF. So it has an existing infrastructure. GBTC is available and traded, but based upon trust interests, not as a spot ETF, and that’s what we’re waiting to see. There are 12 different applications before the SEC, an important date for approval is the first one would be November 17. So there’s been a lot of speculation, will the SEC approve one, a few, all 12? So as not to be kind of like the kingmaker to say this is the first one we will approve, maybe that would unfairly, you know, nod to one particular company over another where I believe the SEC hates them all. My opinion, not the opinion of this show. But the federal court said what it said, so we’re gonna, you know, not a matter of if but when but will it be all of them? Will it just be the one from Grayscale? Will it be the first one that they receive? But there’s some date certains that are built into the application process and that’s what the SEC is coming up against now.
Gene Tunny 47:25
Right! Okay. Yeah, definitely. Look out for that. Right I’ve just got two more questions. If you have time Professor Evans this is fascinating. Really, really interesting. And I like the point you made about how you got to make sure you actually own the the assets, the crypto, there’s a phrase you use, I can’t remember off the top of my head but something about you if you don’t own the keys, you don’t own the crypto is that it? Something like that?
Tonya Evans 47:48
Yeah, not your keys, not your crypto not your keys, not your coins, not your keys, not your cheese, whatever you fancy.
Gene Tunny 47:54
Gotcha. Yeah, the other term I learned that is the Lamb bro. So for the Lamborghini bros. And so if we do have that, the bull market in in crypto, we’ll see a few more Lamborghinis out on the street. So it’s a bit of a…
Tonya Evans 48:10
We might, and I will have to say that those who, particularly cypherpunks, hate, hate, hate this moniker, they hate it, hate it, hate it, and I get it. I will tell you, as a woman who has gone to a number of conferences, it’s rough out there sometimes. I think there are men who have the privilege of not seeing how male dominated it, certain ecosystems can be, I mean, certain conferences can be and how intimidating it can be when people are drunk and things are going on and was very flashy. I think that is a misrepresentation in general of my experience, and I’m a black woman. As long as you know, I talk the talk and walk the walk I have, generally speaking, been received well, I have to say. That being said, the Lamborghinis, the parties, the strippers like that’s a lot. So when it makes me but, you know, you think of the idea that we have the finance world, and we have the tech world. And then they come together into this microcosm. The Crypto ecosystem is a microcosm of those two spaces where women are underrepresented significantly, even though it continues to improve people of colour, etc. And so there is no impediment other than one’s own education and knowledge and awareness of the space, which is encouraging. And I think for those who have been in the space for a long time, or maybe from the Cypherpunk movement would say, we’re not keeping anybody out. Right. Many are libertarians, they were like, equal …. is good. Get yours. I’m gonna get mine. I’m not going to keep you from yours. Don’t keep me from my, and I get that I respect that. I think there are other forces that work that make me want to be more intentional. To know how much personally and professionally I have benefited from the knowledge and awareness, the professional pivot I did as a lawyer, as a professor, as an educator, that now I believe, for anyone in the world, it is the best opportunity in countries like mine, and countries like yours, to get ahead to kind of level the playing field to get get caught up as a matter of generational wealth at any other time, in certainly my history, but I would argue the history of the world, because things are digitised, we’re starting to remove like redlining and gatekeepers, things that would maintain the status quo to have the best for just a few. And then the rest left for everybody else. This is one of those pivotal inflection points in life. And I don’t think it’s hyperbole to say, because I know personally, and for those who I’ve helped educate who are like me, that this was that makes it more exciting to. And so I, it was really important for me to put that chapter in the book, because I wanted to not only say, the crypto bro thing it has existed, but it hopefully is the exception and not the rule for people who are very serious in the space. But also it misrepresents all of those who are curious and well positioned to take advantage of the space too, because the only thing that is keeping people out presently is a lack of awareness, education, and some protection as they enter an untested space in many ways.
Gene Tunny 51:46
Gotcha. And that is one of the themes of your book, you were referencing it before. It’s the idea that you see this as it can level the playing field or can provide opportunities to people from minority groups. And I know you’re not saying definitely invest in crypto, but yeah, how do you think about it? Because I see risks in crypto. And I mean, is this the right thing for someone starting out or some someone with not a lot of resources to invest in first thing? How do you think about that?
Tonya Evans 52:17
I would like to see kind of a both and approach particularly with respect to Bitcoin. When I first started in the space I, for a number of reasons, one as a professional and thinking a lot of my profession and not wanting to misguide people, knowing people would trust my voice if they heard it from me. And so I didn’t want to be in the habit of saying buy Bitcoin, buy ETH, buy this, buy that, I’ve changed my approach because Bitcoin is quite special as are stablecoins, I actually think stablecoins are the best way for people to get in. They’re not going to get wrecked by volatility. There’s some really strong ones, USDC from Circle, I have great respect for that team doing exceptional job. I know some of those folks, personally, I love USDC. We also have Tether. I don’t know who the people are. But I know Tether is very important to the Etherium ecosystem. It’s kind of like the oil that keeps things going there. When people want to jump out of the volatility of the market, but not out of crypto, they often move in the stables. And there are ways that you can earn interest and yield and blah, blah, blah. And so, I believe the short answer to your question is that this is a space where you want to start buying, you do, the best days right now are when most people aren’t there. The best times to make a sizable return if it’s to be had at all, is when most people are scared. Right? Warren Buffett says be greedy when people are fearful and fearful when people are greedy. When people start to get greedy, that’s when you know you’re probably getting to the top of a cycle and it’s time to like stabilise move things around, rebalance, reposition. And to really understand that with all of those, you know, 1000s and 1000s of tokens and coins. I hope you’re not gonna buy them all. Probably not gonna buy the overwhelming majority but they’re the you know, the top five, top, top 10 have a proven track record. That doesn’t mean they’re always going to win. But if you start now, you start learning the language. It’s what I’ve even done with stocks when I started swing trading, not day trading, but swing trading sometimes I had to start to learn how to read charts and candles and wicks and bar graphs right to start understanding. If this is the way this particular assets move, once it hits this particular range, maybe that’s a great time to buy. Maybe I’m wrong, but at least I’m using some type of disciplined, non emo…, separate, disciplined approach like separate from emotion. And that’s really important. Some of those same strategies can be used in the crypto space, but the major caveat, not only as a matter of volatility, but also this is 24/7 365. There are no national holidays. There’s oftentimes no customer service. I mean, if you’re buying and holding on an exchange, you have some additional layers of protection. But you have some risks even being on exchanges. This is the time to learn about this. Stable coins, literally are pegged to a particular asset, in most cases, the dollar or some equivalent of that as well. So you don’t have to go up and down with the market, but you can learn about the market. And then finally, back to my original point about Bitcoin because it has a hard cap of 21 million coins that will ever be in circulation, and actually 19 million are already in circulation. But it’ll be a long time after my life. And yours when the final bitcoin is actually issued for some technical reasons we can talk about next time, but it’s special. It’s special. And actually, I don’t think and I think many people would agree with me, Bitcoin doesn’t really function well as a peer to peer cash for more stable economies in Australia, in the United States, in Canada, in very various places in Europe, because it’s a nice to have for most people, not a need to have. But then you go to other nations, you go to Central and South America, you go to countries on the continent of Africa, and you start to see places, Ecuador and El Salvador, where there’s complete destabilisation, there’s confiscation, it is critically important that people have access to something that will hold its value better than the national currency, that is more trustworthy and non-confiscatable in the same way that their local currency is. And when you when you start to learn about that, like people need to travel and understand different cultures and people to really get a handle on why this even if it’s not important, and like a nice investment to have, for some it’s life or death for others. And eventually, every one of us will be touched by some catastrophe at some point that will have a direct impact on our finances, be it natural disaster, something going on, God forbid, with the government and everything in between, like, we have to pay attention to what’s going on in the world. And to, there’s 99.9% of things we can’t control, control the controllables. And one of those is your own level of education in a space that’s transformative, but has the potential to be empowering and to protect you down the road. By the time you need to figure it out. It’s oftentimes too late. So now’s really the time, the market is kind of quiet, the bad actors are starting to get routed out. This is the time when you don’t have the FOMO and FUD pressure, and you can proactively start to take some significant steps in the right direction.
Gene Tunny 58:03
Righto, okay. Final question. You mentioned about criminal activity and as a proportion of all crypto activity, the criminal activities, very small proportion, okay, accept that, but has crypto, is there any evidence on whether crypto has enabled criminal activity? So it’s expanded the amount of criminal activity out there in, so does it make it easier to traffic arms or just you know, awful things like human trafficking, etc? Do we know in drugs? Do we know anything about that?
Tonya Evans 58:37
It’s just a small, small part. There are some significant bad actors who deal precisely in the things that you’ve mentioned. But and the Wall Street Journal here. Maybe within the last, well had to be within the last month, they ran this completely error-ridden report about Hamas, raising millions and millions in Bitcoin. And there was this huge rush by Senator Warren and some other folks signing off on letters saying that needs to be immediate action taken. And it was just completely wrong. And it was scary that our legislators would rely on something that was so faulty, and with not insignificant pushback and fact checking, mostly coming from the crypto community. The Wall Street Journal had to issue a retraction and the senators had to stand down. What was said to be millions and millions that Hamas, Hamas was like, please don’t send us any more money they can track it. Thank you. Send us dollars. Send us dollars do not, send send us dollars and oil. Do not send us Bitcoin because of the nature of the tracking. You can literally go to any bitcoin tracker and see in real time. Now it’s pseudonymous, not anonymous at but with Chainalysis and some other companies use what’sapp’s called blockchain forensics. And it’s really like following the money. It’s a paper trail. But only it’s not using paper and every single transaction all the way back to the original transaction in Bitcoin issued by Satoshi Nakamoto, him or herself, is on chain visible, and you can see from wallet to wallet to wallet to wallet, and you start aggregating pieces of data. This is the way the Department of Justice here in the United States starts to root that out, and it’s just a terrible place for activity. Now, the one point is, it might be easier to get it up front. But it’s not a matter of if but when, with the right resources behind behind it, some of that stuff is going to get found and people will be routed out and they will come to justice. So this is a terrible thing for for for criminal activity. That doesn’t mean criminals won’t try. They’re very lazy. And maybe they don’t know a lot about it either. But that’s why there’s a relatively insignificant amount because, you know, it’s easy to hide physical cash. Right? It’s not easy to hide something that’s there in plain sight. So it’s tough to combat that point because of the pervasiveness of, like the sensationalised headlines, and again not to diminish what’s going on we use Sam Bankman-Fried for example, as an you know, kind of the poster boy, but it took less time because he was apprehended in the Bahamas on November 7, in like basically almost a year to the date. He’s a convicted felon, and we’re just waiting for his sentence. It took way more time to find out who was involved in the the housing crisis, way more time to take down Bernie Madoff. It’s all garden variety fraud, but it happened far more quickly in the crypto space and I don’t think that the crypto space gets enough credit for that.
Gene Tunny 1:02:00
Yeah, good point. Very good point. Okay, Professor Tonya Evans, this has been amazing. I really value your insights and your your deep knowledge of this sector. This is this is really terrific. And I got a lot out of this. And yeah, I’d love to do a round two sometime in the future. But yep, Digital Money Demystified. I’ve got it on Kindle. I think it comes out in paperback. Next year, early next year. So yep, I think
Tonya Evans 1:02:28
It’s here now, yeah now here now go to your favourite place and buy buy buy, you can go to digitalmoneydemystified.com. But it came out on October 24. So it’s available wherever books around the world are sold.
Gene Tunny 1:02:42
Okay, ah very good. I must have misread that. That’s, that’s terrific. Well, Professor Tonya Evans, thanks so much for your time. I really value the conversation.
Tonya Evans 1:02:50
Appreciate you Gene. Thank you.
Gene Tunny 1:02:53
Righto, thanks for listening to this episode of Economics Explored. If you have any questions, comments or suggestions, please get in touch. I’d love to hear from you. You can send me an email via contact@economicsexplored.com Or a voicemail via SpeakPipe. You can find the link in the show notes. If you’ve enjoyed the show, I’d be grateful if you could tell anyone you think would be interested about it. Word of mouth is one of the main ways that people learn about the show. Finally, if your podcasting app lets you then please write a review and leave a rating. Thanks for listening. I hope you can join me again next week.
1:03:40
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Credits
Thanks to Obsidian Productions for mixing the episode and to the show’s sponsor, Gene’s consultancy business www.adepteconomics.com.au. Full transcripts are available a few days after the episode is first published at www.economicsexplored.com. Economics Explored is available via Apple Podcasts, Google Podcast, and other podcasting platforms.
Dave Belvedere is a software engineer who searches for opportunities to make the crypto market more efficient and to make money at the same time – e.g. by exploiting arbitrage opportunities. Dave gives show host Gene Tunny and his colleague Tim Hughes an overview of cryptocurrency and also talks about NFTs and decentralized applications (dApps), such as Wizards & Dragons.
Transcript: Crypto arbitrage searcher Dave Belvedere on crypto and dApps such as Wizards & Dragons – EP178
N.B. This is a lightly edited version of a transcript originally created using the AI application otter.ai. It may not be 100 percent accurate, but should be pretty close. If you’d like to quote from it, please check the quoted segment in the recording.
Gene Tunny 00:06
Welcome to the Economics Explored podcast, a frank and fearless exploration of important economic issues. I’m your host Gene Tunny. I’m a professional economist and former Australian Treasury official. The aim of this show is to help you better understand the big economic issues affecting all our lives. We do this by considering the theory evidence and by hearing a wide range of views. I’m delighted that you can join me for this episode, please check out the show notes for relevant information. Now on to the show. Dave Belvedere, welcome to the show. Thanks for having me. Excellent Dave, joined by Tim Hughes. Of course, Tim, good to have you here too.
Tim Hughes 00:43
Hey, Gene. Good to be here mate.
Gene Tunny 00:44
And Tim, thanks for introducing me to Dave, who is involved in crypto and crypto is something that Tim and I have chatted about before, and we’re conscious that we need to know more about it, we’re at a certain level of understanding of it, and it’d be good to increase that understanding. So to kick off with Dave, could you talk about your involvement with crypto, please?
Dave Belvedere 01:10
Yeah, so I’m what I do is I’m classified as a searcher within cryptocurrency. So a searcher is somebody who looks for opportunities to make the market more efficient. So one of the classic examples is arbitrage. So when somebody adds a cryptocurrency to one side of a pool, so those get created by automatic market makers, which we can talk about, so yeah, yeah. So if they add, say, you know, 20,000 ETH to one side of the pool, and the other side of the pool holds USD t, then there’s an offset of the balance of how much USD T costs versus what the general market says.
Tim Hughes 01:48
So David, USD t is,
Dave Belvedere 01:50
it’s so sorry, yeah, the USDt is tether. It’s backed by sort of the organisation that runs it to maintain a level pay going against the US dollar. So it’s one to one to the US dollar. Okay. So there’s a couple of coins like that, that are referred to as stable coins. So this is within Ethereum, which is USD T and USDC. So us coin but it’s not the US market coin. So it’s not connected to the US government at all. Okay, so ETH is Ethereum and if there’s a theory, okay, and then you’ll have BTC, which is Bitcoin? Yeah.
Gene Tunny 02:29
And is there a simple way to explain the difference between Ethereum and Bitcoin?
Dave Belvedere 02:34
Yeah. In essence, the cryptocurrencies. So it’s cryptocurrency really is just a digital asset that’s backed by a cryptographic hashing algorithm. Digital Asset is something just like a bank account, or something like that. So yeah, we see it every day. Yeah, technically, all Australian dollars, when you start to pay with your credit card, that’s really just a digital asset. In this case, it’s a digital asset that is then secured by cryptography. So when you go visit the bank, you’ll usually see HTTPS, that s stands for secure, and that’s backed by cryptography. So same sort of mechanism. And in this regard, when we talk about Bitcoin and Ethereum , they’re actually two independent cryptocurrency chains. So they’re not really connected together. And what that means is that they operate a little differently. So Bitcoin was the first one, they came in around 2009. So a lot of people would have heard it, because, yeah, that the market value quite, quite hugely, I think, a couple of years ago, it was up to like 80,000, US or 80,000, Australian. And it’s come back down now. But yeah, head has gained a lot of popularity. So when we get into a chain, there’s a couple of things when we talk about what a chain is. So we would have all heard of the classical blockchain. And that’s what sort of secures Bitcoin and Aetherium. So blockchain is really an ledger, we probably always, always heard it. So transactions just get added, and you can’t go back and modify the transactions. And one way, well, the guarantee for that is the consensus mechanism that gets used. So let’s just say I make a couple of transactions on Bitcoin. So I’m sending some bitcoin to somebody else, that transaction gets added to a block. So there can be many transactions or none, no block. Yeah. And then that block then goes through all gets consensus with the rest of the network. So one of the differences are that, I guess one of the big differences with blockchains is that for most of the blockchains, that distributed systems, so nodes all around the world make up the actual blockchain. So there’s no one entity that can control the blockchain itself.
Tim Hughes 04:53
So this is the decentralised term when it’s used. This is what the what they mean by that.
Dave Belvedere 04:57
Yeah, yeah. So that’s sort of like you can shut down, say everything in the US, but the chain will still operate because you know, it’s in Europe, it’s in Asia, it’s in Australia. So you can’t really shut the chain down.
Tim Hughes 05:09
And is that just on that subject, is that one of the reasons that so much energy is needed for a transaction? Is that where that consumption comes in?
Dave Belvedere 05:17
So to a degree, there’s a couple of things that will maintain the security of the blockchain. So a couple of blockchain. So in this case, Bitcoin itself is actually vulnerable to a degree to the 51% attack. So when we talk about distributed systems, it’s different control most of those systems, you can do whatever you want in the system, which is classified as the 51%. Yeah, so I haven’t heard that term before. So if I control 51% of all miners, and let’s just say in Bitcoin, then I can make any transaction valid, because I control the majority. Yeah, the consensus mechanism that gets used as always a majority, if the most of the nodes agree that this transaction is valid, it’s valid, and there’s no going back once that transaction, that transaction has been committed, there’s there is a couple of nuances to that. So you can challenge a block if it hasn’t been finalised. But for the most part, we you can always just assume, as soon as that transaction gets committed into a block, and it’s on the blockchain, it’s there forever.
Gene Tunny 06:19
Yeah, but because it’s so decentralised. And there are so many 1000s I don’t know how many 10s of 1000s of people around the world who are they’re mining or whatever they’re doing. They’re overseas, so they’ve got a stake in it, then the probability of having that 51% attack is extremely low, isn’t it?
Dave Belvedere 06:40
Yeah, you need sort of a lot of a lot of materials and a lot of money, honestly, to get to that point. Yeah. So when something small, obviously, it’s easy. But yeah, given its past sort of popularity, and its nature, yeah, it gets gets very hard. And yeah, so the Yeah, it’s, it’s extremely hard to try and try and get that in a bunch of, there’s a collection, so you might not be able to create the block. So when we, when we talk about these miners, yeah, suddenly, to I guess sort of to lead up to is why miner are unnecessary in Bitcoin, now and previously, in Ethereum, is that they are looking for the next block. So they’re trying to get consensus on the block. Yeah. So when somebody commits a transaction that doesn’t get added to the blockchain, automatically, it goes to the miners. And what they’re doing is running the consensus algorithm. So the algorithm is just really cryptographic hash. And what it includes is the hash of the header of the previous block, plus all the transactions plus a random number. And what they’re trying to do is run that hash it such that they get a viable block, the block is valid in accordance to the consensus algorithm. That is where all the power is spent all that time, because you’re running a cryptographic algorithm, which is usually quite computationally heavy. Yeah, in the best of times, and they’re trying to beat everyone to the block. Because if you create a block, you get a reward for it. So you might get one Bitcoin, or something like that. So it is viable to try and create as many blocks as you can to get those rewards.
Tim Hughes 08:16
That’s the reward for being a miner. Is that right?
Dave Belvedere 08:20
That’s the reward for creating a block. You spend all your time mining, not create a block and get nothing. Yeah, so one of the things that they’ve done, because obviously, that sort of starts to lean towards people with more money, more resources can deploy more things, is they’ve created these mining pools, such that you can contribute to the pool, and it might make up say, 25% on the network. And then if the pool itself creates a block, you get a you get a little piece of that based off of you know, how much you contribute to the pool.
Tim Hughes 08:57
Quick, quick question with that. So with the people who don’t manage to mine the block, is that part of the excessive amount of energy needed for a transaction because it’s basically wasted energy, they resource is a bit like an Olympic bid or how it used to be. So all that money is spent was for nothing, because it went to wherever
Dave Belvedere 09:18
Somebody else. Yeah, so they’re basically you know, running these things as quick as they can and they might get beaten by nanoseconds.
Tim Hughes 09:26
Yeah. And how long would a transaction normally take roughly?
Dave Belvedere 09:29
So it depends on the on the chain being used, I think at the moment with Bitcoin because they’ve like they’ve mined so much it takes you know, 10s of minutes to actually create a new block in Ethereum. They switched from proof of work the consensus of proof of work, which is what Bitcoin still operates on, to proof of stake which is less computationally heavy consensus mechanism and it also you can argue it distributed through the miners a lot cleaner to, and they’re fairly quick. So compared to Bitcoin, so they generate a new block, I think, every second pretty much and the transactions that get included are just transactions there.
Tim Hughes 10:14
Because yeah, this sorry, Jamie, because this is something like last year or isn’t it when Ethereum. So this is the change that they did way? I think it’s only 10%? Or is it like a 90%? reduction on 99.9%. Wow, okay, of their power, which is enormous. I mean, that’s because that was the we’ve talked about it before with outrageous amount of energy spent. And to hear it, they’re like is completely wasted? Any delegates not necessary for that transaction. So it’s wasted energy. Yeah. So Ethereum have made this quantum leap, basically, to make it far more efficient. Yeah, pretty
Dave Belvedere 10:46
well, efficient in terms of memory. Sorry, in terms of power. Yeah, like the contestants. So proof of stake, the way it works is like a scheduler just goes, you’re going to create the next block. And so only one person is effectively going, here are the valid transactions and pushes the block out, you still got validators that will be like, That’s a good job or challenge to do it. So I guess sort of a little difference between proof of work and proof of stake as the consensus mechanisms. Proof of Work is just really run, like find that cryptographic hash match. Proof of stake is you put up X amount of capital, or for this, in this case, it’s 32 ETH, which is about 80,000 Australian, and you say I will behave correctly and properly. And if I generate a block, you get sort of the rewards for that. Now, in order to avoid bad actors, or just somebody coming in with a massive amount of ETH. And being like, I’m just going to do this, they have challenge periods. So if somebody like, let’s just say, misbehaves as the node and puts in a bad transaction, somebody, anyone on the network, so like, you could be just a little guy on the network and these big, big mining groups around you can challenge the block. It’ll force everyone to go through and actually, like, compute this at a sort of hashing level. And if you’re right, and they did misbehave, they lose all the capital that they put up. So they get slashed, 32. And so the node gets bounced, and then that 32 ETH comes back to the network. Because you challenged it, I think you get like, 90% of that, and a bunch of it gets burnt offs. Yeah. So it’s sort of the that’s the mechanism to make sure everyone is behaving correctly.
Gene Tunny 12:39
Don’t can’t ask a basic question. Yep. Say you bought a couch off, Tim. And you wanted to pay Tim in cryptocurrency? I mean, maybe bitcoins the example to use, since that’s what most people are familiar with? How would it work? I mean, would Tim have to have a wallet, a crypto wallet?
Dave Belvedere 13:01
Yeah, so crypto will only really send to what we call wallets are really just public keys and private keys. So it’s the public key infrastructure that sort of backs a lot of lot of internet, mobile, a lot of sort of infrastructure around the world at the moment. And you have a public key and a private key. Okay, so most people might have heard this, like, somebody’s private key got lifted, and crypto got drained. If you’ve got a private key, you can decrypt anything that gets encrypted with the public key. So in this case, I’m sending it to Tim’s public key, and then only Tim will be able to, to get that from his public key if he’s got the private key.
Gene Tunny 13:43
So who sets up the public key? Tim need to do that?
Dave Belvedere 13:46
And Tim needs to do it. So in order to generate a wallet, you’ll get both the public key and its private key.
Gene Tunny 13:51
Okay. And who are the players that do that for you that is that a an exchange? A crypto exchange?
Dave Belvedere 13:56
Yeah, there’s, there’s a, like, you can do it through an exchange. But then typically, like, there are exchanges out there, okay. They might like to hold the private key or, you know, be able to recover private keys and things like that. Yeah, you can do it through a bunch of, sort of specialised applications. So we call them just wallets. So the most common one in Ethereum is Metamask. So it can you can just plug it in, it’s just a Firefox Chrome app, and you go create new wallet, and it’ll generate that those keys for you.
Tim Hughes 14:29
Is that user-friendly Dave or is that something that you’d need someone like yourself to help set up?
Dave Belvedere 14:36
No, it’s it’s it’s pretty easy. User friendly now. So yeah, like a couple years ago would have been like, what’s going on what’s up, but now, you know, they’ve made many changes has been very user friendly, like to go through you instal it. It’ll be like, how you like recovering your existing wallet. And if that’s the case, you got to provide the private key, or the seed phrases to generate the key Um, ball. It’s just like, okay, cool. Finding a new wallet, you click a button creates the wallet for you. Yeah, it stores the like, you won’t see the private key, but I’ll give you the seed phrases that are used to recover that private key and record these because if you don’t have the private key, this is the only way to get this back.
Gene Tunny 15:20
Okay, so who would do the transaction? Is that through the exchange? If you understand money to Tim, or is the exchange doing is FTX? I mean, what did a company like? FTX do so
Dave Belvedere 15:33
FTX was primarily changing, like currency for cryptocurrency. So they, they act as the middleman. Okay, so you know, I’d give them Australian dollars from the bank, okay, and then I could buy on their market at their rates, x amount of crypto that they’re holding in their wallet, okay. And then from that I can either like so as a part of that, typically, you’ll find an account with the exchange that will have like an embedded wallet associated with it, or whatever their infrastructure needs. And then I can transfer that to say, my wallet, and then I can transfer some to Tim or I can use that exchange to transfer it to Tim directly. Okay, so exchanges are primarily there for transferring currency. So, so transferring dollars to currency, or transferring between cryptocurrency across chains, or transferring between cryptocurrency on the same chain. So when we talk about an Ethereum is not just ETH it has a bunch of coins on the same chain. And yeah, you can use an exchange to say transfer one Eth to USD C or USD t. So the two stable coins you’re talking about before. Or I can, you do that what they call on chain through DEX’s. Okay, decentralized exchanges. Okay. So they create pools or what we call automatic market makers. Yeah, so they usually have a pool, which is, this is a 50/50 pool. So it has Ethereum and USDC. So the pool itself, ideally, at any point is trying to maintain half of its quantities Ethereum and the other half is USDC. And now what sort of I look for on chain is when somebody then dumps 20k Ethereum into that pool, means there’s an imbalance between the side. So yeah, who would automatically want USDC or getting rid of ETH. So it’ll make eath very cheap to buy, so wants to get rid of it to maintain the balance, yeah, or give me a really good price to put USDC into the pool, because it wants more of that to try and maintain that 50/50. And that sort of is the classical arbitrage from that I can buy low at some other pool or on the decks itself, and then put it into this. And what makes that possible is decentralise exchanges. Don’t look at you know, a fee that says the market price for ETH is x to what exchanges use. So exchanges will typically have, you know, the current market price of ETH is whatever $1,600 And that’s based off of, you know, what’s happening now what’s happening on other exchanges, like Binance and things like that, and they sort of get a get a market price for that. Whereas decentralised applications, their market price is literally what the pool says. So yeah, you can sort of get really good deals. And yeah, when you sort of try and make that market efficient on the decentralised side it Yeah, can can open up a bunch of opportunities.
Tim Hughes 18:55
Can I just ask Dave? So with winning that transaction in your, you know, for that particular situation, is that all about speed? Or is so what are the factors in being able to get that transaction?
Dave Belvedere 19:06
Yeah, so there’s, there’s a couple of things that will impact that transaction. So on Ethereum, it’s not necessarily about speed, you certainly have to be there when they’re trying to create the block. So let’s just say the timing window for creating a block is 100 milliseconds. So as long as my transaction to do that is in that block time creation window, I have a chance to potentially win that transaction. And what it comes down to on Ethereum is you can tip the miner to be like, you want to put my transaction first. So let’s just say I’m going to make three ETH. From this transaction, I can tip the miner 2.5 of that ETH so I get half of that if I can give the miner 2.5 If they put my transaction first, so which means the Miner is getting more money to make sure that my block Isn’t there first my transactions in there first, and then they can put the rest of the transactions. And so that’s sort of making up what we, you know, sort of what gets identified as MeV. So mine extractable value. So they’re looking for the most profitable transactions to put inside their block in order to make the most money. Yeah.
Gene Tunny 20:20
So what do we know about these miners? There are professional miners aren’t there? And are there amateur miners? I mean, is it guys in the basement? Or is it? I know there are some dedicated companies aren’t there that are doing the mining and they’re all around the world? Do we have any here in Brisbane, I’m just fascinated with these miners are.
Dave Belvedere 20:40
Ya know, it’s really it’s, it’s anyone that has the computer with the resources and is running the algorithm, you can be a miner at that point. Yeah, mine is there to operate the chain it does. Under proof of work, it is better to be with other miners, like around other miners, because you want to broadcast the block that you find to the network as quickly as possible, because two people might come up with the same solution or like different transaction orders. But both of the blocks that they produce pass the consensus algorithm, it’s whoever can saturate the network or saturate 51% of the network they’re blocked in is the next block. So you might do all this work, find a block, create the block and then still miss out.
Tim Hughes 21:29
Right, which was the original problem, anyway. So yeah, just is it? Well, as far as energy consumption goes. So with the changes that Ethereum made, it’s the same process, but just quicker, and with fewer people vying for it. Is that right?
Dave Belvedere 21:41
Just just one person vying for it. So it’s like, with proof of stake, it’s like, it’s your time to create the block. And you have to answer within a certain timeframe. If you don’t, there is a little bit of a penalty, like you lose, start to lose some of your stake, and they just go to the next person.
Tim Hughes 21:56
And how do you be in that little group or chain? Or?
Dave Belvedere 22:00
Oh, it’s just really running the node software, So the actual node software is executing, you just connect to it. And and you’re pretty much in it.
Gene Tunny 22:09
Yeah. What do you know about the profitability of the mining? Because is it something where there’s such low barriers to entry, there’s just, you know, lots of people have come into it seeking the profit. And then that gets, you know, that those opportunities get dissipated? Or? I mean, I’m guessing there are some players in the mining game who have, they’ve just got such great computer capability, or there, they’ve got a better algorithm, that they could get a lot of the winnings, but what do you know about the profitability of mining? And the, I guess, the market structure, I suppose you call it?
Dave Belvedere 22:48
Yeah. So um, under proof of work, mining profitability, I think sort of, when we talk about Bitcoin is starting to fade away very quickly, because you need to spend all this energy. And I’m, I’m pretty, pretty sure that they’ve dropped the block rewards, quite recently. So what you get for actually creating a block that’s come down, so you’re getting less and less, sort of Bitcoin for creating that block now, right? So the profitability is starting to go away. In Ethereum, it’s still kind of there, it’s sort of like a random random shoot, if you get a really good block, where let’s just say something skewed pool a lot. And you’ve got these searches, trying to like get money out of the pool to make it market efficient, you might end up with a block that might pay you say, 50 EtH, in those tips. So that’s random. But the problem is, is that there’s a lot of like, nodes around the world for a theorem, because now it’s just super, super, super basic to set up and those sort of requirements are starting to fall away a little bit. That yeah, it is hard to like, get to that block, like it is pretty much a random chance. Okay.
Tim Hughes 24:04
But, Dave, you mentioned a couple of terms, actually, you have Bitcoin operate and how Ethereum operate, which is essentially then the difference that made it possible for Ethereum to use so much less energy. What was that again?
Dave Belvedere 24:18
They’re their consensus mechanism. So proof of work versus proof of stake.
Tim Hughes 24:22
Yeah, right. Okay. So Bitcoin have proof of work, Bitcoin and proof of work? Yep. Is it possible for them to do the same thing as a theorem and move to proof of steak?
Dave Belvedere 24:33
It is they would have to change how the chain would not have the chain, well, how the miners would operate. So the actual software that the miners run. One of the things with Bitcoin is there are very big miner groups now. So there’s a lot of sort of power in these groups because they don’t want the status quo to change. Because they they’re making they’re making money. So proof of work, works for those miners. Yeah. And so you have to convince like majority of the miners or like 90% of the miners that this is the way forward. Otherwise, what will happen is you’ll get a hard fork. So you’ll potentially see if you’ve looked at sort of some of the crypto you’ll see like, Bitcoin classic and a theorem classic. Yeah, these are hard forks of the chains where miners have just disagreed. Okay, and so, you know, a group of miners went one way. And other group of miners went the other way. People yeah. Always soiling it.
Tim Hughes 25:34
Humans always do. Okay, so, um, because with that, I mean, it looked like such a big change for Ethereum that Bitcoin might have its days numbered, like, Is that a fair assumption?
Dave Belvedere 25:44
I think so. Like, I think bitcoins done really good stuff and trying to like break into the businesses and operate as like, Hey, here’s a digital asset coin and sort of challenge the status quo that was previously that it’s days to look, you know, pretty, pretty bleak. In terms of future it is just a coin, and it’s just a digital asset. And you’ve got other sort of crypto currencies like Ethereum that operate as a coin, but then also have these decentralised exchanges, as you know, on chain games that you can play and like, do stuff with, they’ve building out an entire ecosystem over top of them. So they’ve now got what what gets referred to as layer two chains. So chains that operate on Ethereum. So you can bridge assets, I can take what I’ve got on a theorem and hold it up to this layer two chain, and that layer two chain is secured by Ethereum. So typically, you’d like to take arbitrage, for example, it’s a really popular layer to chain on a theorem, what they do is they’ve got their own. They’re a centralised chain. So the way that they validate and sequence blocks is controlled by off chain labs. But what they do is when they’ve got a bunch of blocks, they roll them all up. So they have a rollup mechanism. And they send that data back down as a transaction on layer one. And so when it gets committed into layer one, I can essentially rebuild the layer two chain from just layer one. And that’s where I sort of think Ethereum is going to head towards the future, is that a Ethereum , what we call layer, layer one will end up being more of a security mechanism, rather than sort of what exists today with DEXIS and coins, that will still be around, but I think the majority of us will start to go towards layer two and potentially even layer three, because they can upscale the amount of transactions they can handle. So that’s, that’s the other one. That’s pretty key, if this was going to take over sort of like, a digital asset is how many transactions you can compute per second. So you know, take Visa, for example, I think can do like, what 4000 transactions a second. And so yeah, that sort of puts a minimum requirement on how many transactions you can compute per second, in order to like, not really notice, it’s like you don’t notice, like when you tap a credit card to go pay a delay of like, hang on, gotta mine that block.
Gene Tunny 28:22
This is where we need quantum computers. And are they, are they something that will actually happen?
Dave Belvedere 28:28
Potentially, yeah, it depends on like, what gets used. So hashing is always a weird one for quantum computers, because hashes are typically not vulnerable to, I guess, you know, Shor’s algorithm, which says, basically, sort of at a high level, anything that’s secured by, say, just a cryptographic algorithm, you can break with Shor’s algorithm. Yes, yeah. it all up. So cryptography today depends on the fact that when I make like input equal output, if I have to break that output, it’s a brute force attack. So I have to just iterate through all possible inputs to try and find what input gave me that output. It depends on that that is pretty much impossible. You need a lot of resources. And it’s going to take a lot of time. Not to say it’s not impossible, but it’s so far out of just, it’s 100 years to like, try and work out what this input equals that output, that it’s just not worth it. So that’s what fundamentally secures all cryptography today in those sort of algorithms. What the concern with quantum is, is that you’ll be able to do that a lot quicker. Yeah, but with hashes, not so much. It’s still just run through how the hashes work.
Gene Tunny 29:56
Right? Okay. Yeah, fair enough. I had another had another question about this proof of work versus proof of stake. One. Criticism I heard at the time when this merge occurred was at the merge, like the merge. Yeah. Was that Well, the great thing about Bitcoin and I think I had Yeah, I had a guest on the show, who was a Bitcoin enthusiast, and he was also a writer of thrillers. Lars Emmerich. I think it was, yeah. It was interesting. Guest fun. Yeah. All right, is excellent. And former fighter pilot and oh, yeah, writes thrillers. And he’s, we talked about crypto among other things. And he’s a big Bitcoin enthusiast because he sees the risk of he’s concerned about the US dollar hyperinflation, etc. So we had a good conversation on that. But he was saying the great thing about Bitcoin is decentralised, the proof of work means that there’s benefits from having proof of work, and it is, I guess what I’m asking is Ethereum still crypto, is it still, I mean, there’s moving to proof of stake move away from the benefits of having to do that proof of work.
Dave Belvedere 31:23
I mean, oh, yeah. Yeah. No, not Not really. So okay. It is still crypto. It’s still cryptographically you know, okay, locked in and secured, as is still decentralised, still decentralised.Yeah, so absolutely. So it’s even some people can argue it’s even becoming more decentralised than say, Bitcoin. So Bitcoin itself is moving towards centralization, because you have the big miner groups that start to control more and more of the chain, sort of moving towards a centralised figure. And so that’s that 51% attack that we talked about earlier, with moving to a proof of stake in order to control or sort of start to centralise the chain, I have to control 51% of all Ethereum. So every single ETH that’s ever been issued, I need to hold 51% of that, which is, you know, starting to become trillions and trillions of dollars. Yeah, so it is less viable for me to actually try to attack at the network. And yeah, it’s sort of proof of stake kind of starts to push more of a distributed type of feel to it doesn’t stop big groups coming together and like, obviously, trying to pull the chain towards centralization. But I’d probably argue that proof of stake makes that harder than say, proof of work.
Gene Tunny 32:51
Okay, we’ll take a short break here for a word from our sponsor.
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Gene Tunny 33:26
Now back to the show.
Tim Hughes 33:31
Can I say what would happen with layer one, layer two, if someone was to get that 51% ownership? Do they then become the layer one? They’ve got their? They’ve got the conch as it were, you know, so is that where the layer one status is? Is like yeah, because the majority.
Dave Belvedere 33:49
so yeah, pretty much like yeah, if somebody can control, you know, the, the layer one and you’ve got layer two, and layer three is built on top of it. They call the shots, they call it. Yeah, they effectively have the control of the network.
Tim Hughes 34:02
Because it’s an interesting part of how this seems to be unfolding is that the decentralised nature seems to be one of the big attractions and I’m sure it still is. But as far as confidence in the currency, it seems to be the downfall of, so it’s it looks quite possible that so for instance, Reserve Bank of Australia or Bank of England may want to bring up their own cryptocurrency which would then be centralised that would be layer two as you were saying so if they did it with Ethereum it would for instance, you know, hypothetically will come on as a layer two and be centralised. Yeah. What are the is that the direction we’re heading in? Is that seem to be most likely?
Dave Belvedere 34:47
Yeah. Maybe. I think because they would want to control the chain. So one of the reasons I guess that a lot of people are still You know, fairly excited is that cryptocurrencies do bring some anonymity to the game. You’re just identified by a wallet, not by name, address or anything like that. Yeah, right, sort of what the banks need. So you don’t get KYC in exchanges, KYC so know your customer.
Gene Tunny 35:19
Yeah, that’s the stop money laundering. Dodgy transactions, technically, they’re supposed to know their customers. And this is where some banks have got into trouble. Yeah, he is that they actually didn’t know their customers and all of the money laundering through the Westpac ATMs. I don’t know if you remember that.
Dave Belvedere 35:39
It was it Westpac? There was a little I remember stuff with Commbank, they’ll doing.
Gene Tunny 35:43
maybe it was Commbank, I actually have to check that in the show notes. So I don’t get sued. But I thought it was Westpac is one of those four. Yeah. So
Tim Hughes 35:58
Good to know, because I’ve got to deliver a CAPTCHA apparently. So. Good thing to know.
Dave Belvedere 36:03
Yeah. So So currently, sort of government regulations, sort of say like, Okay, if you are transferring currencies and things like that, you have to KYC. So you have the customer have to provide details. Yeah, and one of the great things about digital coins is, you know, you just identified by a wallet on the network. So, you know, is that really you? I don’t know. So, you know, this is where, yeah, recently I had to go through tax in a year, which is, which was always fun. And yeah, you got to provide like, his wallet addresses, these are all the wallet addresses I touch. These are all the transactions I made to, obviously, ATO, so they can make sure that you are getting taxed correctly.
Tim Hughes 36:48
That’s a really good point. I hadn’t thought of that. So how does this work with a tax return? Like, you know, with your transaction, what you own what you dont own.
Dave Belvedere 36:56
Every transaction is considered an investment or sell, buy or sell order, basically. So cryptocurrency still is considered, well, it’s a high risk investment, right? It is extremely volatile. And yeah, and there are many dodgy things that do happen on chains. And, you know, one of the classic examples is you can’t even trust exchanges, because FTX, for example, they were messing around with customer funds and things like that.
Tim Hughes 37:27
So yeah, sorry I was always going to ask at some point, now is obviously that time, I guess, what happened?
Dave Belvedere 37:33
So sort of the story that we got for the collapse of FTX customers are obviously putting in the money FTX I believe that the time offered, you know, futures options, traditional sort of trading markets that people could play around with. However, they also sort of had a behind the doors deal with one of their sub companies, I think is Ella Mira or something, something similar to that, where they will lend them a bunch of money at them was backed by customer money from an FTX, FTX perspective. And they played around with it and lost, I think it was they lost billions and billions of dollars. And so when customers started to lose confidence in FTX, I can’t remember what the particular event was. And they tried to withdraw their money. They couldn’t, because FTX didn’t have that money anymore. So and that’s sort of what led to the collapse. And what Yeah, ultimately forced the US government to start to step in. And that’s where I think we’ll start to see more changes. I think crypto is here to stay. But in its current form, probably not. I think governments will start to get involved. And yeah, you’ll start to see sort of a traditional securities market approach, I think, come over the top of it. So yeah, whether you’re more KYC or, you know, more rules around what you can and can’t do in particular countries, which makes it quite hard because there is no one thing controlling crypto, and it’s all decentralised. So it’s like, well, if we see you’re coming from the US, you gotta use this. If we see you’re coming from Australia, you got to do this, which, yes, is it’s hard to make that work well.
Tim Hughes 39:27
So that was a failure of the exchange, not the currency.
Dave Belvedere 39:30
Yeah, that’s, that’s purely a failure of the exchange. So the people running the exchange are doing Yeah. Yeah, questionable. Questionable things.
Gene Tunny 39:38
Yeah, because they should have just been exchanging or holding that money on behalf of their customers. And they were going to use that to purchase cryptocurrencies were they?
Dave Belvedere 39:51
Yeah, so effectively, like, yeah, they would purchase cryptocurrencies and then they would sell it on so they, you know, if starting up they would prop we’ll be running at a bit of a deficit or like have a raw, somebody’s given them a bunch of money too, and have that initial crypto. Yeah. And then yeah, as people come in, and they, like, give money for that crypto, obviously at a particular market margin. Yeah, they start to be able to add more crypto and sort of become profitable in that regard.
Gene Tunny 40:22
Yeah. But they went in, did they go and lend that money that they should have held in trust, or they shouldn’t they were looking out for customers to that. That other company was run by his ex girlfriend. By Sam Bankman-Fried’s ex-girlfriend. Yeah. Yeah, it was a daughter of an economist, economist. MIT economist, I think, I think he’s a professor at MIT or one of those schools. Really good school. Yeah, that was a debacle. The other thing I hear about is the rug pull. Rebuild, goes on about rug pulls. And when coffees Zilla, you probably follow Him or you say he’s really sceptical of crypto. Have you seen coffee Zilla? I will flick you some videos.
Tim Hughes 41:07
I love the fact that rug pulled got a conversation. I’ve never heard of this. About this.
Dave Belvedere 41:13
It’s a funny term. So obviously there with with anything new and like, Give somebody a little bit of anonymity, they just go wild. You know, there are at the moment, a lot of yeah, a lot of good actors that people are trying to, you know, accomplish and create new things. But there are also a lot of bad actors. So classical pump and dump schemes are not uncommon. And yeah, one of the other ones is what gets what got its own name, which is a row pool. So let’s just say, you know, there’s, there’s a, there’s a token that I’m releasing, people buying that token, so they’re sending me money, and I’ve given them the token back, and then on the owner, cool, I can just like swipe all that money out of the account, and then that token is now worthless. That’s, that’s effectively a rug pull. So the people who created that, that have control of that sort of asset, because the assets on an Ethereum are controlled by contracts. So if you’ve got the private key to the contract, you effectively control the contract. And you can just take all the money that’s in that contract, and then the token then becomes worthless.
Tim Hughes 42:20
Actually, on that note, so this, this brings up the question I was going to ask, who started these? Obviously, they’re, you know, whoever is behind bitcoin or Ethereum? Are they known?
Dave Belvedere 42:33
So, Bitcoin, no. There is a famous paper that is written but no one knows the true identity. Within Ethereum, it’s Vitalik. So he traded a theorem and then it’s now run by the Ethereum foundation. So the people who sort of operate and try to improve the chain and things like that are known as a foundation whereas Bitcoin it’s, it’s murky, who started.
Tim Hughes 43:00
It’s very James Bond, the whole thing of like, you know, having something like Bitcoin with, you know, who’s behind it is fascinating that it’s anonymous at that level with potentially a lot of power.
Gene Tunny 43:11
Well, it was this person with a pseudonym was it’s a Satoshi
Dave Belvedere 43:16
Satoshi. It started with Okay, yeah, but yeah, Satoshi, something
Gene Tunny 43:19
like that. I’ll put links in the show notes. And what they did I think they published a white paper. So they publish the code or the rules for Bitcoin and then people read it and thought, actually, yeah, this would, could work. This is a great idea. Let’s go ahead with it. So it’s obviously a computer scientist of some kind, potentially. Yeah, I think is there an Australian who claims that he invented it? I think, as well?
Dave Belvedere 43:44
Yeah. There are claims that the Australian is Satoshi. Ah, right. Yeah, so sort of he released the white paper with the chain already there. So one of the things that you have to do to I guess, you know, start a chain, is you got to create the Genesis block. So the first block that then things build on top of, and typically, if you’re going to create the Genesis block, well, you might as well just create a good fundamental base. So I think, I think Satoshi has like, a ridiculous amount of bitcoin, because you’re effectively controlled. The base asset right at the start, and then you sort of like, give yourself as much as you need as you’re building these blocks, like you might release the chain to the public, say, and it’s got like, 200-300 blocks. So you’ve got all the rewards for those blocks are doing no work, no competition, but now you’re going to release the chain. And so I think, from memory, reading papers, like everyone knows which coins because obviously the coins effectively get numbered based on the block that they were minted in.
Tim Hughes 44:52
And on that note, Dave, there’s a certain number of Bitcoin and then that’s it. Is that right? And was that determined at the very beginning?
Dave Belvedere 45:00
yeah, so that would have been determined by the actual algorithm that that got generated for Bitcoin.
Tim Hughes 45:05
How many other?
Gene Tunny 45:07
21 million, isn’t it? Yeah, I’ll put it in the show notes anyway.
Tim Hughes 45:14
So that’s part of the strength of it, though, that it’s a finite number.
Dave Belvedere 45:18
It is a finite number. Yeah. So it’s like it is the strength. So once everything’s been mined, you know, that’s it, then it just becomes transactions passing between to and fro.
Tim Hughes 45:28
You need a level of scarcity for it to have a value.
Dave Belvedere 45:31
Scarcity will drive the wealth of the actual element up, or potentially not, depending on which way it flows. But yeah, that’s, that’s the sort of appeal for it is that it’s running out, so if you’re going to grab it.
Tim Hughes 45:45
And Is that comparable to how many Ethereum there are in the in circulation? No. I knew as I was asking the question, this is not right.
Dave Belvedere 45:57
So what gets classified as Ethereum? Has, it does have a max value, but it’s quite big.
Tim Hughes 46:05
So sorry, I mean, this is coming from a very base level of understanding. But I’m sort of fascinated by this. So how does that work? Then with Ethereum? How many? Like what do you call? So Bitcoin is a Bitcoin? Because Bitcoin isn’t what Ethereum? Worked with? ETH. So yes, okay. Yes. So the number of ETH isn’t determined, it’s not finite.
Dave Belvedere 46:28
It, there is a there is a finite, but they can always add more. So it’s, yeah, it’s backed by a contract. And you can always change that contract. Sort of as an example. Like, right at the start, it was ETH. So ETH, is the classical. Everyone knows, sort of what gets defaulted to, technically, it’s not ETH anymore. It’s actually wrapped ETH. So three or four years ago, I think, the foundation or or one of the one of the partners that works with Ethereum, closely, they published the standard that every token should follow, because a token is really just a contract on chain, and you’re calling methods on that contract to say meant, you know, how many does this address have? If everyone is, you know, everyone just goes, I’m going to create a new contract, that API of like, what do I call to, like mean to what do I call the burn could change from token to token. So what got published was what was being classified as ERC. 20 So it’s a standard that every token follows. So an ERC 20 token follows that standard. ETH at the time, didn’t meet that standard. And so they created a contract that did create that didn’t meet the standard called wrapped ETH and you can transfer ETH and wrapped ETH at a one to one. So I can have like eight ETH and automatically make it a wrap ETH, okay? It’s just like taking that asset and making it different. But it’s still what you know, it’s still what we call ETH on chain.
Tim Hughes 48:13
Yeah, okay. Yeah.
Gene Tunny 48:14
Here’s another basic question that just occurred to me. So a Bitcoin. I’m not sure what its value at the moment, but is it around 20,000 USD?
Dave Belvedere 48:23
26,00US.
Gene Tunny 48:27
Okay, yep. Yep, can I have a fraction of a Bitcoin? Can I or, but I How does that work? I mean, all because I thought if it’s in a wallet, does it have to be one Bitcoin? Or can it be gonna be a fraction?
Dave Belvedere 48:40
It can be a fraction of Bitcoin. So typically, with the tokens they’ll have? Like, we call it decimals on chain, but it’s really just precise. Okay, gotcha. So like, I think Bitcoin has a precision of six, I think six or eight. I’d have to double check that. So which means I can have point 000001 of a bitcoin. Right. Okay. Yeah, as long as it’s within that, that precision element, it doesn’t matter. You can you can still operate and work on it. Gotcha. Yeah, so as an example, ETH has a precision of 18. Right. So one eath, actually on chain is one times 10 to the power of 18. That’s what it looks like on chain.
Tim Hughes 49:23
Okay. And what’s a ETH worth nowadays? I think it’s around 1600 USD at the moment. Okay. So, as far as affordability goes in a single as against a Bitcoin.
Dave Belvedere 49:37
An ETH is more affordable.
Gene Tunny 49:40
Okay, can I ask you about smart contracts? So as an economist and speaking with other economists, and just reading about crypto and, and all of that, I mean, there seems to be increasingly there’s a view that will crypto might that There’s a lot of scepticism about crypto itself, but they’re saying, well, the blockchain is great, and smart contracts are great. So, can you explain what a smart contract is? And it’s linked to Ethereum? Is that correct? Yeah. How does that work?
Dave Belvedere 50:13
Yeah. So, um, a smart contract is really just code that’s on the chain. And so one of the one of the sort of, I think, very fundamental things that makes a theorem quite good is that I can store more than just the coin on the chain, I can create code, I can put it on chain, and then that’s the code forever. And so that code can no longer be changed, which does lead to some interesting problems, like, Oh, crap, that’s a bug. How do I actually, you know, patch and fix that bug? And you know, that’s, that’s kind of, we’ve seen consequences of that already. Yeah, somebody’s found a security flaw and just like, stolen millions and millions of dollars from contracts, or from DEXIS in particular. So they’re sort of the common hacks that are in theorem. So whenever you see somebody’s hacked, say, a bridge, or a Dex, that’s typically somebody’s found a flaw in the code and been able to exploit that code. Yeah, so a contract is written in solidity for the most part. So solidity is the most common language used for writing smart contracts. And it’s just, it’s just really code at that point. It’s just structured code. So similar to obviously different but like, similar to as if I was to read a C programme. So well, you know, a Ross programme or anything like that. It’s just common, it’s just code. So that’s why if you’ve ever heard coders law on some of the sort of the defences of hacks, that’s, that’s where that’s coming from, is that this is written as code. And the code allowed me to take millions of dollars, therefore, am I really responsible for it? My view is yes.
Tim Hughes 52:07
That is not a strong defence.
Gene Tunny 52:12
It’s like, if you get a million dollars deposited into your bank account, you can’t go out and buy a Ferrari.
Tim Hughes 52:20
The doors open, so I went in and took what I could carry. With that, as well, because I was zooming out a little bit as well. Dave? Yeah, you know, financial markets. There are so many issues like that may influence like a human emotions, like greed, panic, fear, these things happen all the time, you know, cyclical, or whatever it may be. And banks get robbed, you know, like, you know, cash was stolen, whatever. This doesn’t seem to be answering too many sort of problems, you know, they can get hacked. Yeah. So as far as, as a few questions that I guess, because the number one thing with all of that is trust, in my view is like, you know, if people trust something more and more, then it’s a stronger sort of system, and less likely to be driven by greed, panic, fear, etc. What was the pros and cons, if you like, of crypto, like if we ultimately heading towards something where we might be able to have more trust in a financial system than we currently have?
Dave Belvedere 53:23
Yeah, potentially. So I think if the people in on this so you know, sort of Ethereum, you know, who’s who’s running the show to agree.
Tim Hughes 53:35
So there’s trust there as well, compared to some phantom person with a white paper? Yeah. is less, less trustworthy, I guess. But yeah. Yeah.
Dave Belvedere 53:44
Sort of, yeah. Human nature, we sort of trust. If we can see somebody like that. That’s actually a real person. Yeah, there rather than like talking to a computer screen, we’ll be like, Yeah, who are you actually really talking to on the other side of that? So I think inherently, we will trust, obviously, the traditional market setups more because they are run by people. And that’s where, hopefully, you know, something like Ethereum can start to come in and sort of do that. But while you still have people who can misuse, I guess, the environment of like, these rug pools, and, you know, just doing pump and dump schemes and things like that, it does get hard to trust. Yeah, is everything on there. Really a scam or not? Yeah, yeah. Yeah. So it’s sort of a double whammy where it’s like, you know, for myself personally, it’s like, yeah, I trust a theorem like I don’t think the Ethereum ecosystem or anything like that. It’s going to go away anytime soon. The changes that they’re making to it a sensible and things like that, and you can actually see and talk to the people at conferences. However, that contracts and like opportunities that then can be a part of Ethereum, yeah, that’s where it gets a bit dodgy. And that’s where you need to sort of like, okay, I trust this exchange more than the others, you know, uni swap, for example has been around on Ethereum for so long. Well, probably since, uh, since it started, right. And they’re, they’re a decentralised automatic market maker. I trust that, you know, they’ve been around for so long, you know, probably so many people have tried to hack their pools. Nothing’s really happened to it. So if I’m dealing with any swap as a DEX, I’m pretty, pretty confident that nothing’s bad’s going to happen, other than I might not get the best price on chain for my tokens.
Tim Hughes 55:45
But that’s the most likely weak link in that chain is the exchanges or that the middle the people in the middle between the consumer and the Ethereum safe using us?
Dave Belvedere 55:56
Yes. And so sort of the users of Ethereum people are actually creating their own what we call DAPS. So decentralised applications. Yeah, that’s that’s where I think that that trust will start to fade. And and because crypto itself is, you know, it’s it’s quite volatile hasn’t had the best sort of, sort of time it’s been ups being down. It’s dumped to come back and don’t again. Yeah, a lot of people I think a lot of people look at and go cool, that might be a good way to, you know, make easy money because it’s just like going left, right and centre. But it can also backfire very quickly. Yeah. Where, where it sort of blurs the line is that it’s not treated as a traditional investment. Like because it is digitalized. And I can interact with it. And I can like, spend money on it. Like people treat it as money. But it’s really volatile money.
Tim Hughes 56:51
If you’re willing to take advice from Matt Damon and Kiefer Sutherland. I mean, like, it’s so you know, yeah, they are very confident of it being a good move.
Gene Tunny 57:01
Yeah. I’ve got a couple of two more questions. Dave. We’re probably getting close to time. Have you got a couple more Tim?
Tim Hughes 57:07
I’ve? No, I’m good. Thank you. I’ve been I’ve been enjoying as it’s gone on. And my big ones are gone. Thank you.
Gene Tunny 57:16
Yeah, I’ve learned a lot. It’s, it’s great. Would you have any examples of DAPS? That what are some daps that we might want to look at just so we can understand what what they are?
Dave Belvedere 57:28
Oh, yeah, um, a couple of pretty, pretty fun ones. So there’s a game called wizards and dragons. Okay, it’s a it’s a decentralised application, but it’s also a game. It’s pretty fun. It released, I think, a couple of years ago. And what it is, is, you meant an NF T, and it has a chance to be a wizard, or dragon. And then based off of, if it’s a wizard, it can, like interact with, you can stake it. So you can actually say to the contract, hey, here’s my wizard, which is staking, and it might earn certain rewards. So there’s a coin that’s associated with the game as well. So there’s a coin called windy. So it’s wizards and dragons. And that coin can then be used to spend on the contracts to interact with the actual game and stuff like that. So it’s not like I’m continually having to feed ETH it’s just like gas fees at that point. Or if you get a dragon like you have chances to steal wizards when they go and stake and non stake . It’s, it’s it’s pretty, pretty fun.
Gene Tunny 58:36
This is a computer game, is it?
Dave Belvedere 58:38
Yeah, it’s a game on chain. Yeah. So it’s a game that actually happens within the blockchain again, So the game is happening per transaction. So I send a transaction to do something with the game, like the contracts that make up the game are there. And then I like create a transaction to say, stake, my wizard, and then there’s a chance if dragons are staked, that my wizard goes to a dragon.
Gene Tunny 59:08
But okay, I’m gonna ask a really dumb question. But do I see a wizard on the screen? Or do I see dragons?
Dave Belvedere 59:15
Yeah, you can see both. So like, depending on what you’ve meant it, you get an NFT, which is a type of token so a non-fungible token so yeah, they were the ones that got talked about, I think, why the last couple of years because like, yeah, okay, and then the punks and the apes they’re all worth stupid amount of money.
Tim Hughes 59:37
So these are basically like, it’s an in the form of like having something that’s identifiable as being unique, even though it can be copied. So taking the Mona Lisa as an example of one painting, but there’s millions of copies. And so it’s basically a digital form a non fungible token or nifty I’ve heard them called Tim Ferriss calls them nifties. But so base Having something that can be identified as being the original and owned by a person.
Dave Belvedere 1:00:06
Yeah. And so we see that as like a token. It’s just really like a coin is not quite an NFT. Because there are many coins. But it’s like an NFT, sort of superset. There’s only like one coin that represents this thing. And so yeah, so like, it’s just a token. And yeah, that that has things. So like, I can go interact with the contract, you know, meant for a bunch of ETH. So that’s sort of how they get their startup is like, hand over like point zero seven ETH or point zero five ETH, to mint and have a random chance to generate a wizard or a dragon. And then they all sort of give you that NFT. So you’ll get that token back. And then yeah, you can use that token to then interact with the rest of their contract on the actual Ethereum chain.
Gene Tunny 1:00:54
Right. Okay. And are they used in these massive multiplayer games as well, online?
Dave Belvedere 1:01:01
The coins could be. Yeah. So I think they’re starting to come out. I think I read recently with like, digital coins. Yeah. But to sort of looking to go to be fair, that sort of already was kind of going there place anyway. So like, I could pay a bunch of money to the Microsoft store and have like, xbox credits. That was sort of already the lien. And then yeah, what, you know, one of the good things that has come about sort of what’s happening with blockchains? And things like that is Yeah, sort of companies are realising, actually, that’s, that’s a pretty nifty way of like, dealing with this sort of securing that data and making sure like, oh, okay, we can’t accidentally do something. Like, you can’t go back and try and change those records. It’s sort of there permanently. And you can follow a transaction at a time. For bookkeeping purposes, or, yeah.
Gene Tunny 1:01:59
I’m gonna have to come back to smart contracts in a future episode, because I think that’s probably its own episode, is it?
Dave Belvedere 1:02:07
There’s a lot yeah, there’s a lot, a lot of things to talk about, I guess, in contracts, and yeah, sort of, you know, that’s how that how they get built, you know, how they sort of interact. And you know, that’s where these bugs can can arise. And, you know, people might accidentally do something and somebody takes money.
Gene Tunny 1:02:27
Yeah. And I’d be fascinated to know who the parties to the contract are. I mean, could Tim and I have a smart contract where if certain conditions are met or if the then Tim transfers Ethereum. To me, so if, I mean, is there a way of programming, it’s so that if it’s, say, let’s take the weather, for example, if the maximum temperature for Brisbane ends up being over 35 degrees on one day in the future, then the smart contract, picks that up, and then transfers, I don’t know, one ETH from me from Tim.
Dave Belvedere 1:03:01
Yeah, it can do. So there’s, there’s a bunch of things that need to happen and be in place for that. But yeah, you can store like money. So you can store ETM with the smart contract, because it is itself really just an address. And then yeah, you like a transaction is usually always going to be the trigger just can’t do stuff automatically. You always have to trigger it with a transaction. And yeah, you can just be like, Oh, okay, cool.
Gene Tunny 1:03:27
All you have to trigger it with a transaction. Okay. So it’s not, it’s not going to automatically. It’s not a way of automating transactions. And I understood that.
Dave Belvedere 1:03:35
Yeah. Yeah, everything that happens on the chain has to have triggered from a transaction. Okay, so transaction might trigger a bunch of things to happen. Yeah, and interact with a bunch of stuff on chain. But yes, every everything will come through from a certain transaction has triggered this thing, which might then trigger events, but, you know, cascade of roll on.
Gene Tunny 1:04:00
Okay, I might have to look at that in a future episode. I promise. I’ve only got one more question. You got any more, but,
Tim Hughes 1:04:07
you know, I just want to comment, um, not surprisingly, to hear that wizards and dragons entered the conversation seems to be a natural progression from the smartest of the smart in, you know, the 80s or whatever it is, whatever they’ve come through to this point. And no doubt behind some of this technology or this, these theories.
Dave Belvedere 1:04:31
We’re all we’re all nerds on the inside. Right. So
Tim Hughes 1:04:33
yeah, but it’s great. It’s sort of like a bit there’s a human element to that as well, which is nice to see.
Gene Tunny 1:04:39
Great. Final question, Dave. For you. What are the use cases for crypto Why do you think it’s good to for you personally to be in crypto?
Dave Belvedere 1:04:51
It’s it’s a fairly exciting field. So I’m I’m a software engineer by trade. I studied as a computer systems engineer And it’s can be difficult to try and see how technology technology progresses through the years. So that, you know, unless you’re sort of, say deep in with Google and working on their, you know, bleeding edge stuff. For the most part, it’s all kind of pretty much the same. And so it’s pretty cool to see something. So you know, there’s this whole blockchain theories and the cryptographic proofs and stuff. I think we’re around since I think the 80s. So it’s always interesting to see how that is getting transformed and evolved into something new. And then yeah, then being used and sort of one of one of the cool things, I think that’s coming, a part of this, it’s sort of attaching itself to sort of a wider push of everyone should be and I think, you know, I think if you look at the world today, most of the kids growing up today are very computer literate. And it is sort of continuing to push that, like, computers are just going to become more and more part of it. And I think the common school like programming, or reading or writing code, should be sort of start to become one of the fundamental things just because of the heavy involvement that we start to have. So understanding why things are doing things, right. Yeah.
Gene Tunny 1:06:21
Now, the other part of that is your you personally, so assuming I may be incorrect, but I’m assuming you own some crypto of some kind. So do you what are the use cases? Why? What value do you see in having it all? So Lars Emmerich, for example, he’s concerned about the value of the US dollar, he’s concerned about all of the money printing, he’s concerned about hyperinflation, what are the what are the use cases? Or what would motivate you to have crypto?
Dave Belvedere 1:06:52
Yeah, it’s, I guess, you know, personally, I’m pretty, pretty basic. For me, it’s just a fun, high risk investment. So I see it as something that that might pay off. Or it might not. You know, personally, I don’t have a lot of money in it. But it also, because I’m in the area, it helps me like interact with chains. And yeah, play around with like, games, such as, like wizards and dragons. sort of have
Tim Hughes 1:07:18
There as a confession. Yeah. But
Dave Belvedere 1:07:21
I still see it as a very high risk asset. Yeah. Yeah. I’m still relatively young. So to me if I lose, lose what I’ve got, personally, I’ve only got about 20k. There. It’s not gonna hit me hard. Hit me hard in terms of I’m gonna make that back over my lifetime of work. Yeah. But you know if it if it goes and like, whoo, and yeah, all of a sudden that 20k goes to 100k. Yeah.
Gene Tunny 1:07:47
Right. Yeah.
Tim Hughes 1:07:49
But that’s actually a good point. Because none of this is in any way. investment advice from us. Oh, goodness, exactly. You know, like, it’s not investment advice. And the one thing that gets mentioned all the time, it’s like going to the horse races or something like that, you know, if you’ve got something that you can afford to lose, then go for it, because there’s a high risk investment and see what happens.
Dave Belvedere 1:08:09
I honestly look at this and go, it should be treated as a casino like, yeah, you gotta walk into a casino going, like, I have money. If I lose it, I’m not gonna, like get carried out by security. Yeah. Sounds like you can afford to lose the money. It is. Yeah, extremely high risk. And I think, like, especially now with the sort of scenarios that happened, like the FTX collapse, and you know, some of the other things that are happening there. And like the US government sort of taking notice, or like the SEC, taking notice more parts and like, pulling out rulings and stuff, it will become a little bit of, like, no one is really certain what’s going to happen in the area. Yeah. So it’s probably, you know, at this point still, quite, it’s probably riskier than it was before, because, you know, the SEC might turn around and say no, crypto goodbye, and like, you shut out the entire US market, like, that’s not gonna play well, for crypto.
Tim Hughes 1:09:07
Sec? The Securities
Dave Belvedere 1:09:08
and Exchange.
Gene Tunny 1:09:10
Okay, that’s been terrific. I mean, we’ve learned so much. I mean, I’ve never I’ve been blown away with all this info. And I think it’s helped me understand more what’s going on and it’s dispelled some, or it’s got rid of some ideas or misunderstandings I had. So that’s been really good. Are there any final thoughts? Any final words before we wrap up?
Dave Belvedere 1:09:37
No. Like, yeah, I encourage everyone to like, play around with it. Obviously, I think it’s an interesting technology. I think it’s going to be around for a long time. But in its current form, hard to say. I wish I would probably say I’m confident that as we know crypto today is probably not what we’re gonna see in the future. Yeah, this is sort of the first building block towards something that will become widespread.
Tim Hughes 1:10:08
Terrific. Now Dave, I really appreciate it because so we’ve often talked about this gene and I and it we we have fumbled in the dark somewhat. And I’ve been looking forward to the time where we can get somebody on and talk in depth, as we have done today. So yeah, I’ve really enjoyed that and got a lot from it. So thank you for coming in.
Gene Tunny 1:10:28
Dave Belvedere, thanks so much for your time. Thanks. Right. Hi, thanks for listening to this episode of economics explored. If you have any questions, comments or suggestions, please get in touch. I’d love to hear from you. You can send me an email via contact@economicsexplored.com, or a voicemail via SpeakPipe. You can find the link in the show notes. If you’ve enjoyed the show, I’d be grateful if you could tell anyone you think would be interested about it. Word of mouth is one of the main ways that people learn about the show. Finally, if your podcasting app lets you then please write a review and leave a rating. Thanks for listening. I hope you can join me again next week.
1:11:19
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Credits
Thanks to Obsidian Productions for mixing the episode and to the show’s sponsor, Gene’s consultancy business, www.adepteconomics.com.au.
Author and ex-fighter pilot Lars Emmerich explains why he’s so excited about the future of Bitcoin. And you’ll hear how he responds to the criticism that Bitcoin mining wastes a lot of energy. Lars also tells show host Gene Tunny about his experience as an author operating in a disrupted book industry. Lars explains how the internet can give authors a better deal than traditional book royalties, and he tells us about the importance of Facebook Ads for acquiring new readers.
Notes:
a) This episode was recorded on Tuesday 13 September 2022, two days before the Ethereum Merge with Lars and Gene discuss in this episode.
b) This episode contains general information only and nothing in this episode should be taken as financial or investment advice. Please see a professional financial adviser regarding investment decision making specific to your needs.
Lars Emmerich is a retired fighter pilot, entrepreneur, investor, and musician. He writes about good guys with a bad streak and bad guys with a few redeeming qualities.
He is the author of the million-selling Sam Jameson series. He lives in Colorado with his family and his neuroses. He’s either hard at work on the next novel in the series, or he’s procrastinating. Usually the latter.
Stop by Lars Emmerich Books to pick up a free digital copy of The Incident: Inferno Rising, the first installment in the Sam Jameson series.
Transcript: Bitcoin & books w/ author & ex-fighter pilot Lars Emmerich – EP157
N.B. This is a lightly edited version of a transcript originally created using the AI application otter.ai. It may not be 100 percent accurate, but should be pretty close. If you’d like to quote from it, please check the quoted segment in the recording.
Gene Tunny 00:00
Coming up on economics explored.
Lars Emmerich 00:01
The bull case for Bitcoin is that at some moment in the future, we will have given the world the last dollar the world cares to have, cares the hold…
Gene Tunny 00:18
Welcome to the Economics Explored podcast, a frank and fearless exploration of important economic issues. I’m your host Gene Tunny. I’m a professional economist based in Brisbane, Australia and I’m a former Australian Treasury official. This is episode 157 on books and Bitcoin. My guest is Lars Emmerich, a popular author and investor in Bitcoin. His bio on his Amazon page reads, Lars Emmerich is a retired fighter pilot, entrepreneur, investor, and musician. He writes about good guys with a bad streak, and bad guys with a few redeeming qualities. Is the author of the million selling Sam Jamison series. He lives in Colorado with his family and his neuroses. In this episode, you’ll hear from Lars and why he’s such a supporter of Bitcoin. You’ll hear how he responds to the criticism that Bitcoin mining wastes a lot of energy. Lars provides some great information and makes some thought provoking points. Nothing in this episode should be interpreted as financial or investment advice specific to you. Obviously, you’d want to think about whether it makes sense for you to invest in something so risky and so difficult to value. Do you believe the story that Bitcoin enthusiasts tell about it potentially becoming a global reserve currency? Let me know what you think. I’d love to hear from you. Please get in touch, either by email or voice message. You’ll find my contact details in the show notes along with relevant info and links. Right oh, now for my conversation with Lars Emmerich. About online book publishing in Bitcoin. Thanks to my audio engineer, Josh Crotts for his assistance in producing this episode. I hope you enjoy it. Lars Emmerich, welcome to the programme.
Lars Emmerich 02:04
Thank you, Gene. Pleasure to be here.
Gene Tunny 02:06
Yes, good to be chatting with you, Lars, I’m keen to speak about a couple of things, at least that your you’ve been involved in. So you’re successful author, so I’m keen to chat with you about your experience in the book industry, because that’s an industry that’s been disrupted substantially over the last few decades because of the internet. So I’m interested in how you thrive in that industry. And also, I’m keen to get your thoughts on crypto and Bitcoin and, and other cryptos to the extent that you’ve been involved in them, because that’s, that’s a sector in which a lot is happening. And there’s been a lot of big news lately. So be keen to keen to chat with you about those things. So, to begin with, could you tell us a bit about your experience as an author, please Lars.
Lars Emmerich 02:56
I think I formed the idea of becoming an author when I read my first Tom Clancy novel, back when I was probably 20 Years Old. I was just fascinated by the way these seemingly mundane and separate storylines, wove themselves together into this amazing, multifaceted story. And fortunately, I had nothing to say at 20 or 23. So I was off doing other things, flying fighters for 20 years and, and learning about life. And I came back to it at a time when I was spending most of my days in airports and hotel rooms. And so I wanted something productive to do with my, quote unquote, free time. And I just started writing, I had writing professionally. Not as a novelist, but for business purposes. And I, I think I was writing a piece on a particular bit of sewage processing equipment. And I had one of those, what in the world am I doing with my life moments, and I decided if I was going to write words, I was going to write my own stories. And I dove in and really enjoyed it. And I quickly discovered that the publishing landscape was definitely in the process of being disrupted by at the time, nearly Amazon but Barnes and Noble and a couple of other retailers had a significant online presence as well. And I never, I never had it in my mind to pursue a traditional publishing deal, because it just didn’t seem like a good deal. The royalty percentage, the effort was the same. You were very much beholden to the degree of interest your publisher took in your work or didn’t take in your work. And generally speaking, if your author career is to go anyplace, you’re going to be the one pushing, you’re going to be the one doing the work. And so if that’s the case, I would much rather be on the 94% and of the revenue stream than on the 6% end of revenue stream, as it were,
Gene Tunny 05:08
Sorry, what do you mean exactly by that exactly Lars. Sorry just so I understand that you’d rather be on the 94%, than the 6%, oh, you get 94% of it rather than just 6%.
Lars Emmerich 05:19
That’s an a normal publishing deal like a traditional publishing deal, author royalties, and this changes per deal, for sure. But at the time I was making this decision, the number in my head that I had researched was about 7% of the book, royalties would find their way in your pocket, at some, some moment, well beyond when the books were sold, and the tallies were conducted. And all of the rights subtractions were, taken from your royalties. And the way that I had approached it originally was just to publish directly via the online retailers. I realised quickly that this was just a slight adjustment to the existing agreement, they paid you a bit more, but you’re still pretty much at their whim. And it was still up to you. And so I believe in 2018, I decided to sell directly to readers. And so while my books remain available on Amazon, they’re also mainly sold directly to readers, readers just buy directly from my website. That’s where the 94% revenue comes in. There are some there, there are some realities associated with credit card processing, and a few other services that are mandatory, that take it take their cut, but by and large, the, the gross revenues are yours. Now against that is the advertising costs, that’s required to make any business enterprise go. And that becomes that can become, it’s extremely time consuming. And it also consumes a huge portion of the revenue. So the margins in business are no better than they really ever have been. For most authors. But the landscape as you as you’ve alluded to, has definitely changed.
Gene Tunny 07:17
Yeah. Look, there are a few things I want to follow up on. And this is, it’s so fascinating stuff with advertising. What’s the best channel for you? Or for authors? In generally, I’ll just say anything about that? Is it Facebook? Is it is it is a Google ads, do you have any thoughts on that?
Lars Emmerich 07:38
I do, absolutely. I’ve tested, if there’s a place you can advertise and sell books are most likely tested. And far and away the most profitable, has been historically Facebook ads. And this is changing now. Because the way that Facebook worked, relied on very granular user preference data, Facebook was able to see a good bit of what you bought as a consumer. And so it could, it could understand Facebook could with a good bit of detail which authors a person liked to read. And you could and we’re talking about the big luminaries in each genre, the big names, the biggest names in the genres. And if your books were similar to those other authors’ books, you could reach fans of the big names in your genre, via the data that Facebook had on the number of people and who they were who really enjoyed these authors. Now, last year, at some point, Apple said, Facebook, you’re very welcome for all the data you’ve been getting for free and building this billion dollar business on top of, however, we’re building our own advertising platform, and we’re, we’re cutting you off. We’re producing data that you’re that you’re able to use and profit from. And when this happened, we’ve lost a lot of the detail that we used to have about we can tell generally who likes to read, it’s much more difficult to tell what those people like to read. And so that has, that’s the first thing that has changed the profitability of Facebook, it’s still profitable, not not as much as it used to be. The second thing is that it is an auction market for advertising. And all of the excess profit margin in any industry accrues to the advertising, the advertising platform, because I’m always competing with the next person who’s trying to get attention to sell books, and I compete all the way up until I have just squeezed the last bit of margin out of my business and I either quit, or I took another take another channel and all of that excess profit, all of that excess margin accrues to Facebook and to Google. And there was some interesting report where 40% of all venture capital investment went to Facebook ads.
Gene Tunny 10:21
I’ll have to look that up. Yeah, I believe it. Yeah.
Lars Emmerich 10:24
You know, don’t take that number to the bank. It’s an interesting, you know, it’s an interesting, it’s an interesting concept. And, and certainly, having been deeply involved in Facebook advertising and Google ads and other mechanisms, I can see that it does not sound false to me.
Gene Tunny 10:42
Yeah, it’s that point about, the, the the auction mechanism, that’s one that Seth Godin has made, and how that means a lot of the money ends up with Google or Facebook. So I think that’s a very good point. Just on. So you mentioned Tom Clancy. So this is the Jack Ryan series of novels, is it? Is it clear and present danger and Patriot Games and Hunt for Red? October is that’s what’s inspired you, is it? And then how did, what is your series of books about you write thrillers in that? Well, I mean, I’m not necessarily saying you’re trying to emulate Tom Clancy, but you write thrillers you’re trying to write in that sort of genre, so to speak.
Lars Emmerich 11:25
Yeah. Alright. So I spent a long time in the national security business. And I don’t write directly about those for various reasons. But I write peripherally about them. And they, I basically write edgy spy novels. And so Clancy was this intersection of espionage and statecraft and whatnot. It’s interesting that it’s interesting thinking about Tom Clancy now, because several years ago, I went back and I started rereading one of the novels, the cardinal of the Kremlin, and I got about 60 pages in. And it struck me that it was going so slowly. The pace of the narration was so slow, I couldn’t finish it, I stopped, I put it down. And I think our standards for what makes the story interesting have definitely changed, there needs to be much more movement, and much more. It needs to be much twister and turnier then some of those old masters. Another one along those lines is another one along those lines is the Bourne series. Yeah, they’re amazing movies, the books not so much. But they’re classics. And at the time, they were revolutionary, but our taste for story has changed, the pace at which we consume concepts has changed, we’re smarter. Generally, we have access to so much more information. So there’s less description required for any particular scenario, that’s another interesting phenomenon that my inspiration was now so slow as to be unreadable for me. But interesting, how that’s changed your I suppose what’s now been 30 years.
Gene Tunny 13:21
Yeah, but could you tell me, could you tell me about the series that you’ve developed? You’ve got a central character, haven’t you? You’ve got a central, you’ve got someone in sort of an arc or whatever you call it. Can you tell us about that process?
Lars Emmerich 13:35
Yeah, the Sam Jameson series. And by the way, these are the best deal I have at any given time available at Lars.buzz, if this is of interest to anybody, large.buzz is a great spot to go get the best, the best deal currently. But the SamJameson series is centred around a female protagonist, Samantha Jameson. And her, her stint in the series begins as she’s a counter espionage agent for Homeland, some made up office in a, in a real bureaucracy. And I did that to avoid the inevitable letters about oh, no such and such reports directly to so and so in the real world wanted to avoid all of that by creating a fake office inside of the Department of Homeland Security. And I have a lot of fun exploring all sorts of different kinds of themes that relate to the relationship of the individual to the state, the big macro kind of way and that leads us directly into the cryptocurrency discussion that I think is around the corner. The other thing that is really interesting is how do you discover what’s true in a business where everybody is lying. Yeah, everybody is deceiving somebody in some way. Many people are deceiving everybody in some way. How do you find what is true? Not I don’t mean like metaphysically true. I mean fact, how do you discover what’s factual and act on it? And that’s a really interesting set of really, interesting set of situations.
Gene Tunny 15:27
Yeah, well, I mean, in real life, there was the concern in the 60s and 70s that there was a high level mole in think it was in British intelligence or even in US intelligence and the counter counter espionage people I think was a James Jesus Hangleton in the US and yes, yeah, but he was just obsessed with finding that mole whether or not they existed and, and John, the John le Carre, in Smiley’s People and tinker Tailor, Tinker Tailor Soldier Spy, I think it was I mean, he’s very good at just explain, just telling that story about how difficult it is to figure out what’s going on. And you don’t know who you can trust. I love those. Those novels. Right. Okay, so yeah, I’ll put links to your, to your books to the Sam Jameson series. So, so yeah, that sounds that sounds great. Just on the book publishing can ask you’ve, you’re selling direct. And you’re also selling via Kindle. Is that right? On the Amazon store?
Lars Emmerich 16:29
I am. Yep. So I’m always testing, testing, right? What’s the, what’s the best way to get books to readers that have a value that they are pricing in a way that meets their value expectations, but also allows allows us to run a profitable business? That’s a constant evolution as big landscape changes, and it changes quite quickly.
Gene Tunny 16:54
Yeah, and the best deal for you is obviously if they buy on your website, because is it the case that Amazon takes a substantial cut on Kindle,
Lars Emmerich 17:04
Your royalties are either 70% or 65%, depending on the way it is set up. 70% is a terrific royalty rate, it represented a 10x improvement in the deal that authors generally otherwise got. And, and so they, they disrupted the industry in a way that, that really allowed a lot of very talented folks to find an audience who otherwise would not have done. But there’s a level of bureaucracy that comes with having to curate a library, that’s, I don’t know, 20 million volumes old and are large. And they’re not always well behaved, about how they do that. So within, you know, within the Amazon community, there’s a lot of unrest on the part of authors regarding the way that we’re treated. And, you know, we’re, there’s always some dissatisfaction about how royalties you calculated, or discoverability on the platform, or the way that your rankings are calculated, which influences your discoverability on the platform. And these things are always in flux. And you occasionally come to realise that Amazon, they’re actually serving their shareholders, which is the way that American businesses constructed, but you’re not a shareholder, you’re a supplier. And they’re overtly and aggressively looking to replace and vertically integrate suppliers. So the price pressure, and a bunch of other aspects of the way the book business has developed under Amazon’s auspices, it’s not appreciably better for many authors than it was under the old system, in spite of a better route.
Gene Tunny 18:55
By the vertical integration, what do you mean, exactly? Do you mean they’re trying to get them have people as dedicated Amazon authors, I’m just trying to understand what your what you mean by that,
Lars Emmerich 19:08
Their business model as as they in order by being the marketplace, you have a terrific understanding of what where margin exists in the marketplace. And when you find that, you can just either use your own manufacturing techniques and technologies to replace the merchants so that you don’t have to pay them. You don’t have to pay them a cut you. You are the merchant as Amazon, and they’re doing this in a lot of other industries. And they’re, they’re definitely looking at looking into it in, in the book business as well. And there are some interesting projects underway related to artificial intelligence, writing stories and and whatnot. We’re not there yet. Wow. But as a position as a position. They’re interested in paying suppliers less and less and less and having fewer and fewer and fewer suppliers to have to pay. There are reading that writing on the wall, you have to make your own way. You can’t, you can’t rely on it for your, you know, for your meals.
Gene Tunny 20:08
Okay. Yeah, I’ll have to look more into that. I remember, I think it was Tim Ferriss got into trouble. Well, he had an issue, maybe 10 years ago or so with his Four Hour Chef book that he was developing. I think he developed it for Amazon. And it was going to be sold through Amazon and then some of the traditional booksellers, I think Barnes and Noble, were unhappy with him about that. I have to look up the details and put it in the show notes. Fascinating developments. It looks like yeah, this is the, this is the wider guide and the extent that you can do it yourself. And the technology’s there, and why not? And I know that there was a lady who wrote 50 Shades of Grey, who think she started off as a self published and just selling it, using the platforms that are available to sell it rather than having a traditional book and is able to say whether that you’ve you’ve been, have you been approached by anyone in the film industry? Has your work been optioned at all?
Lars Emmerich 21:08
No, not at the moment. We’re not under option for anything. You hear rumblings and such.
Gene Tunny 21:15
Oh, yeah, I was just gonna say it sounds like you’ve got a good concept and, and, you know, people that people are looking for new content to develop and that I think that Jack Ryan series on Amazon Prime was popular. I think that’s, that’s a good example of how everything’s sped up, right? Because the new Jack Ryan is much more he’s much younger, he’s much more, there’s much more action than in the traditional Harrison Ford films. Okay. So I might ask you about crypto now, Lars, you were talking about how one of the themes you explore is the relationship of the individual to the state. Now, it’d be good to unpack that exactly what you, you mean by that? And how then that influences your views on? Well say traditional money, fiat money? And, and crypto like how, why did? Why does that lead you to be a supporter of crypto? Could you tell us a bit about that, please?
Lars Emmerich 22:13
Sure, I noticed that the money that I was saving was worth less and less over time, I became aware at some moment that there was an inflation target. Not more than but also not less than. And I think when you print more and more of anything, the sum the total, individual dollars that you print each become less valuable over time. So it struck me as weird that you couldn’t just hold your money, because it would lose its value by virtue of just being held. And that was, I mean, it’s part of the it’s part of culture, it’s part of just the socio economic background, the water that we’re swimming in, we all take it as a given, you must invest your money, otherwise it would disappear. And I started wondering, gosh, who does it really serve? process. And it turns out, I think that a fiat system, it has a lot to recommend. There’s a there, there’s a lot in terms of being able to organise and focus, human effort and energy in a particular direction, you can do that very, very quickly. With a loan. Those dollars don’t generally exist before you go take out a business loan to open a gas station or whatever. It’s a very quick way, at the point of need to deploy capital. I think it exists mainly to ensure that the authority that issues that remains the authority remains viable remains in charge. And they, the agreement is, hey, we’re the state we have the monopoly on violence. And we decree that all transactions will occur in our currency will control the supply of that currency. And that’s for your own benefit. You know, when times are tough, we’ll be there to help. When it gets a little too crazy. We’ll be there to ease back, right. Inherent in that is that we have both the wisdom and the judgement to do that effectively. And I think that’s the great weakness of the fiat currency system is that the temptation is, is overwhelming to irresponsibly print. And, and I think, where you get into trouble and when it seems to happen, it seems to happen with a very large percentage of fiat currencies. Something will happen where the state feels the need to have it really amounts to an abuse of this agreement, like the estate says, Here’s the money, your job is to pretend it’s valuable. And we’ll control the supplies such that we don’t flaunt your trust. It’ll, you know, we won’t just flood the world with so many of these things that you’re pretending it has value, these little green pieces of paper are these numbers in a spreadsheet, you’re, you’re pretending that they’re valuable. It’s sort of relies on the state’s good behaviour. But something inevitably comes up, somebody wants to start a war, how do you get it? How do you start a war? Well, you don’t save a trillion dollars, and then go buy a war, you start a war, and print your way to the hardware and payroll that you need to execute this war. So that’s one way that it’s, it’s sort of abused. In other ways, when you’re looking to be reelected, or you’re looking to quell any kind of an uprising, you can very easily pander and purchase the loyalty that you need, with printed money that occurs at like an accelerating pace over time, either to the point where people recognise that whatever was supposed to have been backing the currency, for example, gold, there’s no longer any real relationship between some quantity of currency and a different quantity of gold. That’s supposedly back into currency. That’s the first way that people lose confidence in a currency. And I think a second way is when the rate of inflation is visibly painful. It’s personally painful. It’s causing hardship in a way that it wasn’t before. It’s just under the radar until it is until you’re thinking my gosh, I’m having trouble affording my food and my energy costs. And that’s the second major way I think that people on mass, lose confidence in occurrence. Yeah, ultimately, that’s what it is. It’s an agreement, we’re all going to agree to pretend this is valuable, until pretending it is so far farcical that we have to start doing it. And then the currency collapses.
Gene Tunny 27:16
Yeah. So I think what you’re describing when you’re talking about, oh, well, we want a war or we want to, you know, we’ve got a reelection election coming up, then we’ll just spend up big and we’ll just turn on the printing press to fund that. I think that’s something that’s been, you know, that’s occurred in some Latin American countries or some kleptocratic African states in the past. And you’ve seen the results of that. We mean, I was just looking the other day, at the inflation rate in Peru in the early 90s. That got up to I think it was 10,000% over the year, or something like that, just absolutely insane. And, and you’ve seen that in some other Latin American countries in the past, I guess, in the US and Australia and Britain, we, we haven’t had inflation that bad, thankfully. And we’ve we’ve managed, we haven’t we typically haven’t financed, or we’ve been careful with how we have finance budget deficits, where we can we do try to borrow from the bond market, so that it’s not as if we are turning on the printing press to to fund that. But one of the big changes in the last well, since the financial crisis, and this is something that economists are still debating and something that, you know, I personally, I used to work in the treasury here in Australia. And you know, it’s something that has started to concern me is just this now that quantitative easing, or this large scale purchase of assets with newly created money by the Central Bank, that’s something that, I don’t know, 20 or 30 years ago, we thought we would never do that. I mean, that’s sort of, yeah, that’s really, that that unconventional monetary policy is that’s, that’s a bit out there. We wouldn’t go there. But now it seems to be part of the standard, macro economic playbook. And I think we’ll be debating that for the wisdom of that for decades to come. So yeah, I think I think you do make some some good points there. Lars. And so is this what has led you into being a crypto investor? Could you tell us a bit about that, please?
Lars Emmerich 29:28
Yeah, I like the idea. I think it’s important here to make a distinction. Cryptocurrency is has become a fairly broad term. I view it this way. There’s, there’s Bitcoin and there’s everything else. And the distinction there is the degree of decentralisation which makes Fiat type printing extremely difficult to do with Bitcoin. And exceptionally easy to do with the other projects, which amount to very centralised. They’re basically unregulated unregistered securities. They’re, they’re a project run by founders, in the best cases, the feathers of CEO and a CEO and a board of directors not vetted to the same extent that you would find on a stock exchange, for example. In the best cases, you’re, you’re investing in a legitimate business. And the worst case is you’re investing in vaporware. And you have a rogue pool in your, in your future, where and how Bitcoin differs is that the supply is algorithmically controlled, which means nothing if one person can change the algorithm, but spread around the globe are something on the order, somewhere between depending on whose numbers you believe 15,000 and 100,000, individual verifiers if you will have every transaction. So if you suddenly want to change the rules, you can do so if and when you convince 51% of everybody globally, involved in the project, that it’s a good idea to devalue the currency. So from a practical standpoint, it’s it’s not likely to happen. And what this ensures is scarce. And so it’s it’s very, it’s unlikely that there will be runaway inflation, or even inflation of any sort that’s beyond the programme to mount that. That exists in Bitcoin as the minting and mining that the total number of planned coins, which is 21 million. So that’s the part one, it’s scarce, nobody can abuse, no individual, no small group of people, no even large group of people are likely to be able to abuse your trust in the currency. On the first hand, on a second hand, there’s no third party risk. Meaning when I put my money in a bank, that’s a building full of people doing things. And they’re in between every transaction that occurs, I give them money that I have, they dole it out to whoever I say, I want them to pay it to, they’re the trusted third party that makes the whole thing go. And trust like that can and is abused. And it’s most obvious and most prevalent in the cases where nations undertake capital controls where suddenly the money that was in your account is not. The state took it, okay, it’s part of living here, sorry, times are rough, we’re taking your money, or we’re going to ensure that you can’t, you can exchange your money and take it out of country. Bitcoin allows you to move millions of dollars all across the globe, inside of 10 to 15 minutes for fees under 10 bucks. So the degree of participation available now, economic participation is much higher than it was before when there was a third party gate gatekeeper standing between you and whoever you were trying to pay or receive money from. So this, is this has just dissolved economic borders. And it has a huge impact for things like remittances. But it also has a huge impact. For things like personal sovereignty. We’re less beholden to the good behaviour of the state in order to earn a livelihood in order to provide for your family. If things become politically untenable, where you live, you have the you have a real option by memorising your private key to carry all of your wealth with you out the door with nothing in your pockets. So the degree of personal sovereignty and individual liberty that comes from having this a construct like that. It’s quite important in many, many parts of the world. And I think those two things scarcity and this global transaction capability, they’re going to prove to be quite transformational.
Gene Tunny 34:39
Okay, we’ll take a short break here for a word from our sponsor.
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Gene Tunny 35:13
Now back to the show. With that private key this is your password to your, your wallet, is it? Is that what you’re talking about? And is that just that’s a string of characters? Is it? Is it something that you can memorise it, because I know that some people have lost that in the past, and then they’ve lost their, their access to Bitcoin that would be worth, you know, large amounts of money. So you got to make sure you keep hold of that.
Lars Emmerich 35:40
Yeah, there ain’t no free lunch. So if you are responsible, if you think of it as you are your own banker, so you have to learn how to take take care of your private keys. Now you can leave them on an exchange, but now it’s just like leaving it in the bank, you’re trusting the third party? So yeah, it’s, it’s, it’s a way to get your foot in the door in to the space, but the best practice is to, is to be the custodian of your own private keys, which are like your password to spend the money that is yours.
Gene Tunny 36:13
Gotcha. And can I ask you about the volatility? So you were talking about look, the problem with fiat money is that inflation will erode the value of it. And you’re concerned about our monetary and fiscal authorities and their policies and what that means for, for inflation. I mean, I think we’ve seen that in the time of the pandemic, and then we had the big monetary expansion and then followed by the inflation that probably should have been predicted back then, when they were undertaking those policies. That if we look at what’s happened with Bitcoin, I mean, it’s fallen in value by almost 50%, or something this year, or over the last year. So
Lars Emmerich 36:54
More than that, I would imagine.
Gene Tunny 36:56
Yeah, I mean, crypto is, crypto is quite, it’s volatile, because we’re still trying to figure out what the true value of it is. So how do you how do you deal with that? Is that something you just accept that just comes with, with crypto assets?
Lars Emmerich 37:14
Well, in in the case of in the case of Bitcoin, that relates to sentiment, news cycle, whatever’s in the news, I think it also relates to the fact that the supply is really quite, quite inelastic. So you get wild price swings as sentiment changes, I think the other thing at play is the available availability of investable cash. So I think it has become known at the moment as an inflation hedge and an asset to invest your dollars in, in the hope that you can exchange them for more dollars in the future. I think the bull case for Bitcoin is that at some moment, in the future, we will have given the world the last dollar the world cares to have cares the whole. And I think we because the SWIFT system settles in USD, because for years, we’ve been forced militarily, the petro-dollar concept where whoever buys oil anywhere from anybody pays in US dollars, that has given us carte blanche to print in a way that, you know, small countries, there’s only so many of the units of currency you can print before they spill over. And this spilling over is what we can think of as this as the crisis causing loss of confidence. But that the entire globe is now the reservoir of dollars, everyone is kind of infected with dollars everyone is whether they know it or not. They’re deeply exposed to the US dollar. So what that means is we can print a lot more dollars for a lot longer before the crisis occurs. But when the crisis occurs, because I think these things tend to have this kind of cycle, there’s likely to be some moment where we’ve, we’ve just pushed it too far. And people have finally said, it can’t be worth all this if you’re just printing it at this pace, right? If and when that happens, what I think will be a very strong candidate for the global, global reserve currency is something like Bitcoin is relatively free of politicisation. I mean, all of all the miners were kicked out of China, get out, beat it. And Bitcoin didn’t skip a beat. The network ran, transactions settled. This was an entire block, a huge block of mining entire operations just overnight, decimate and and yet, functionally, and practically. Yes, there were price fluctuation associated Bitcoin to dollar exchange rate that fluctuated, of course, but the way the network function, completely oblivious to this loss of hashing power and this giant political upheaval, I think that will make it very attractive as a reserve currency. So, in the moment, we’re comparing, how many dollars is a Bitcoin worth? And we hope it’s worth more in X number of months or years. I think the long case is this is this has some likelihood of being the reserve currency. So you’re, you’re purchasing today, what will be the money going forward? And so from that standpoint, if your horizon is that length of time, whether it’s a decade or two, or three, who knows? If that’s your horizon, you’re far less concerned about the volatility than if you’re trying to put in a good result, result this quarter. Yeah, my argument is if you want to invest in this space, take the longest view possible. And make your decision based on the longest you don’t, don’t, don’t expect that you’re going to be able to, A predict the right project and B predict the right timeframe, an entry and exit points to get in and out to make a bunch of dollars off of your crypto investment. But that’s, you know, people will make a lot of money, but a lot more people will lose a lot more money.
Gene Tunny 41:20
Yeah. So you talked about a loss of hashing power. So I’ll put a link in the show notes about hashing power. I think I know what you mean. But this relates to the process of, is this the process of solving the puzzles of proving whether a transaction is legitimate or not, broadly speaking?
Lars Emmerich 41:40
Yeah, this is, so it’s the marriage of how Bitcoin is created. And the pace at which it’s created, the way it’s set up is that every 10 minutes or so a new block. And a block is nothing but a list of all the transactions that have occurred in the last 10 minutes, plus the hash. So the cryptic cryptographic code that summarises every prior transaction. And this does two things. The way this hash is determined, you, you can’t calculate it in advance, but it’s trivial to verify it in reverse. The way the math works, it’s, you couldn’t with massive amounts of computing power, you couldn’t trick the system and guess faster than everyone else. So the way mining works, is that these processors, they’re guessing millions of times a second, the hash, and the world is literally guessing what string of characters will solve this hash of the summary of the last 10 minutes worth of transactions plus the hash that represents cryptographically, every other transaction that’s ever happened. And so because it’s trivial to verify, its takes no, almost no computation power whatsoever to verify that the right hash has been found. But it’s very, very difficult to guess it, you have to roll a 36 sided dice correctly, 100 times in a row, that’s what mining is. Now, that’s when your computer or your mining pool guesses correctly, you get rewarded with some number of Bitcoins. That’s the incentive for mining. But what mining represents, is when you, you take the list of transactions and package them together and create a hash function out of them. What you’re saying is if anybody tries to go back and change any one of these transactions, no words, if anyone tries to commit fraud, the entire world knows about the entire world rejects the fraudulent transaction, because the entire world can tell cryptic, cryptographic, if one thing has been changed at any point along the line. And so this is the real value of mining operation, is that it it prevents fraud. It prevents theft, it prevents double spending in a way that takes entire police apparatus and, you know, buildings full of banks and all sorts. It’s a beautiful solution to a really intractable, intractable problem prior to this, prior to this innovation that reason. It’s remarkably immune to political and criminal intervention. Right.
Gene Tunny 44:52
It sounds like they’re using a brute force approach as you were describing it. So there’s no algorithm that allows you to quickly get to the right solution to solve this, this hash or figure out what it is. And that’s why you need all of this computing power. Now, there’s, if I’m interpreting this all correctly, and there was an article in the Financial Times that I didn’t get a chance to send it to you before, because I just, I just read it this, this morning, my time in Australia, and they’re talking about how the amount of energy that’s consumed by Bitcoin mining or the, you know, all the Bitcoin operations around the world is equivalent to the energy use, or the electricity used by the country of Belgium, I think it was, and this was in an article.
Lars Emmerich 45:44
Its about 1 half of 1%, I think of current global energy supply. So there’s a lot in that figure that we can, we can pull apart, the first thing I think we would say about that is given that every transaction is visible and verified by the entire globe. That removes what you’re, what you’re buying by expending that energy, is the security of the global financial network and the integrity of the global financial network. And what you don’t have to buy is the military intervention for 30 years in the Middle East to ensure that all petroleum transactions settle in US dollars, you don’t have to pay the energy for all of the buildings and humans it takes to run the global banking system, which is just a series of of parochial, third party, you know, intermediaries, and you don’t pay the cost of a fraud and theft. And you also don’t pay the enormous cost of inflation. When you’re, even if inflation is 3% per year, you’re you’re, you’re spending 3% more energy every single year, just to keep your nose above water to keep your productivity to keep your standard of living. So that’s what you’re, that’s what’s on the other side of this energy equation. I don’t know how much energy that amounts to. I know that, by many estimates, we, we’ve spent between six and a half and $10 trillion, since 2001 prosecuting the global war on terror, which has been conducted largely in the oil producing countries on the planet. And you know, someone somewhere on the order of, of a million lives, you have to think that those kinds of things are less necessary, when the currency has its own integrity. The other thing that is difficult to quantify is and we’ll get to the actual breakdown of that, that number one half of a percent, in just a second, there’s more there than, than their first appears. The other thing is that when a currency is scarce, and you can’t just print it up, when you’re ready to go fight a war there’s likely to be fewer wars, there’s likely to be less military action, when when it’s an it’s always always destructive, you know, that the real cost of military action is just astronomical. And it’s far less feasible when you can’t just print up a war like you, like you can now. So I think those are costs that are that are on the other side of the ledger that that people don’t necessarily appreciate. That’s what scarce and sound and and forcibly scarce and and forcibly sound money buys for you. The second thing is it’s an exceptionally competitive industry mining Bitcoin, super competitive, the salient variable, are two. Chip production and these are application specific integrated circuits, their their purpose in life is to mined Bitcoin period. When you produce a new semiconductor, that’s an expensive process. The second and this ends up being the dominant cost in Bitcoin mining is the price of energy. So what this means is that the Bitcoin mining operation automatically flows to those places where energy production is cheap. And so you can think of it like the aluminium industry where it takes a massive amount of electricity to smelt aluminium. And so, aluminium, put production migrated to those places where geothermal energy is cheap or other sources of energy. So Iceland, a couple of places that have a high geothermal energy output? Well beyond what people, what people can use in those areas, and there are places in China where seasonally, and places all over the Earth where seasonally, the hydroelectric power that’s available in the rainy season is astronomically more than the population consumes. And more than current battery technology lets you hold. So the hashing power goes to these places where excess electricity is produced largely sustainably. And so a good portion of the energy that secures the Bitcoin network is pretty green. Another area is that as petroleum is processed in the world runs on petroleum, that’s not going to change overnight. It’s not going to change in several decades, because it’s it’s so deeply entrenched in everything that we that we do. It’s just a fact of life. But the process of it, you have to burn certain amount of, of gas, that’s a byproduct. So these are refineries all over the earth, you see these bright orange flames, just shooting energy into the ether, because there’s nothing else that they’re doing with that gas. Well, what Bitcoin and Bitcoin and energy production, they’re, they’re coming together, because Bitcoin helps stabilise the production profile for power plants, number one, number two, it gives a bit the burn, that refineries do just burning off this waste gas, that thermal energy can produce electricity on site that can be used for Bitcoin mining, and there are several places where those agreements are, are being implemented now. So that’s, that’s energy that is just currently being absolutely full of waste, that will no no longer be wasted it will be put to put to use. So it’s not clear. It’s not this clear case where we’re irresponsibly securing the Bitcoin network, which in and of itself, I think is a mean, what else you’re going to spend energy, if not to secure the financial infrastructure of potentially all sorts of nations on Earth, and maybe even at some point, what may become a global reserve currency in the way that the US dollar has become a global reserve currency. You know, it’s not quite the soundbite that the reality of the situation is not quite the soundbite that you hear, Oh, gosh, it’s terrible. It’s kind of warm the earth up to whatever and it’s evil? Not so much, you know, not so fast. Yeah, there’s, there’s been a bit a bit of thought put into it.
Gene Tunny 52:56
Yeah, I’ll have to look more into those, those opportunities you were talking about to to use energy that would otherwise be wasted for for crypto. So I’ll have to look at that. That’s interesting. You’ve got an interesting hypothesis there about how crypto could mean less military intervention worldwide. So again, yeah, I think I have to get my head around around that. And but I think yep, you know, if that’s, if that’s, that, that’s, that’s a hypothesis. So I’m happy to accept that as a as a hypothesis. Can I ask about a theory? Um, if you’ve been following what’s been happening with a theory? Are you mainly in Bitcoin laws
Lars Emmerich 53:42
with a great deal of interest? Yeah. I want to circle back Yeah. It’s not nearly crypto. That is, like, not all crypto is good in the way that I have described bitcoins virtues, okay. Because if, if it is just down again, to a central authority to govern the supply, whether or not it’s cryptographically secured, once you’ve issued the new supply, doesn’t really matter. If I can print more of these tokens whenever I desire, then I lose the scarcity. I’m just an all I am is an updated digital fiat currency and the central bank, digital currencies that that are. I think, in autocrats, you know, dream. They’re, they’re really, they’re really just digital forms of the existing system. There’s not there’s not any advance not any revolution, not any evolution there. And in the case of Aetherium this is a really interesting case because Aetherium is a project that you know that eath has some some value. eath is also used to power it’s a substrate a commodity used to To power computation in Aetherium, related applications, or business. In other words, it, you can think of it almost like a programming language that requires fuel. And eath is the fuel. And they are currently on a proof of work system. And that’s what Bitcoin is proof of work. They’re talking about moving to a proof of stake, meaning who makes the rules, the people who have the most eath make the rules, they have the greatest stake in the game, and therefore they have the greatest authority over the governance. And this is, this is basically fiat currency. It’s, it’s basically the same thing as the fiat currency, you know, the, the, the Board of Governors or or whoever’s whatever small collection of people is in charge at Etherium. They will ultimately decide how many tokens or print Yeah, and, and the proof of stake just you’ve automatically instituted an oligarchy. As you go proof, you the only people are the people who have the most say, over the way our money is handled, if that comes money, or the people already have all the money, or most of the money. That doesn’t seem like an improvement. To me, that seems like more of the very same. And the bumper sticker is oh, we’re going green. Yeah, we’re not gonna do this evil energy thing. Instead, we’re just gonna hand the keys to the kingdom to the people already, who already own the kingdom.
Gene Tunny 56:40
Yeah, yeah, that was. That was. I think that was the sentiment from some of the critics of this, that were quoted in the Financial Times. I’ll put a link in the show notes. Yep. So they’re saying that look, this is going away from what crypto is all about? So yeah, it’s it’s not the right direction, according to them. Okay. Lars has been great. Pick your brain for the last nearly an hour or so. Is there anything? Before we wrap up any anything we’ve missed? Or any any important points you think would be good to? To get out there to my audience? Before we wrap up, please?
Lars Emmerich 57:21
Sure. I think there’s been a, we’ve talked a lot, a lot of it is technical. And there are some technical details to digest. For sure. I think the most important thing to say on this particular topic is there’s there’s a lot out there that you can, that you can educate yourself on, you won’t fully understand it unless and until you bite the bullet. And just get into some of the more technical discussions. Until you do that. You’re completely at the mercy of the interpretation of whoever’s writing the news article, and whatever slant has been taken on it. So if you want to make a real decision, I would say look at how the technology actually works. Whether you’re thinking of a project that’s that’s not Bitcoin, that’s more of a security or a stock, or a new investment, or a new startup that you’re thinking of investing in that’s issuing a token? Or if you like, what you’ve heard about Bitcoin, go look at how it functions, and then make up your mind from there and stress tested, think about edge cases, think about who can manipulate it, and how what would it take to manipulate this particular venture. And I think that’ll go a long way toward also, think about your time horizon. If you’re looking to get in and get out with a quick book, join the club, everybody wants to do that. And there’s enough lottery ticket winners to just keep us off frothing at the mouth, but you’re gonna lose your shirt, most likely. Think really long term, and think about all the edge cases and arrive at a sober you know, well considered position on
Gene Tunny 59:07
rod and were there any good resources from your perspective that I could link to in the show notes? If there are if you do have any I can. I can link to them in the show notes for people.
Lars Emmerich 59:17
Yeah, there’s there’s a, I recommend this with reservation safety and almost the Bitcoin standard. There’s a few digressions in there that are that are worrisome, and that detract from the central argument that he makes, he goes on a few tangents that are not helpful, but he does a really good job of describing the fundamentals of how the network works and how how the Bitcoin, the Bitcoin network works. So if you can ignore the rant on modern art. I mean, just completely skip the chapter. And if you can, you know, just focus on the way he describes the functioning of network that’s really quite useful.
Gene Tunny 1:00:02
Good stuff. Okay, last anyway, thanks so much for the conversation. I really enjoyed it. And yeah, it’s made me think think a bit more laterally about these issues. So that’s great and yeah all the best for your, your publishing career. I think it’s terrific. You’re, you’re doing well in that area. So that’s great. And yeah, Lars, really appreciate it. So thanks so much for your time.
Lars Emmerich 1:00:28
Thank you, James. My pleasure.
Gene Tunny 1:00:31
Okay, that’s the end of this episode of economics explored. I hope you enjoyed it. If so, please tell your family and friends and leave a comment or give us a rating on your podcast app. If you have any comments, questions, suggestions, you can feel free to send them to contact at economics explore.com And we’ll aim to address them in a future episode. Thanks for listening. Till next week, goodbye.
Credits
Thanks to Josh Crotts for mixing the episode and to the show’s sponsor, Gene’s consultancy business www.adepteconomics.com.au.
2021 saw accelerating inflation in advanced economies, the pandemic continuing, cracks appearing in the Chinese economic model, and massive price growth in cryptocurrencies and NFTs. In episode 120, Economics Explored host Gene Tunny discusses the big issues of 2021 and looks forward to 2022 with frequent guest Tim Hughes.
The episode also features discussion on the COP26 climate change summit, the idea of “degrowth” advanced by some ecologists and environmentalists, and feedback on EP115 on the Opioid Crisis and the War on Drugs.
The forthcoming EP120 of Economics Explored includes a discussion of the massive price growth seen in some cryptocurrencies over 2021. In the conversation, to be published at 12am UTC+10 on 1 January 2022, show host Gene Tunny refers to a couple of great charts from data service provider Macrobond showing just how incredibly crazy that growth has been.
The first chart shows the percentage growth in the value of different types of assets, including Bitcoin, gold, and stocks on the Nasdaq, relative to their levels at the start of the years they arguably each became the subject of a “bubble”. This clearly shows just how much of an outlier Bitcoin is. Note all data in this chart and the next one were current as at 29 December 2021.
Chart from Macrobond comparing Bitcoin’s price growth far exceeding that of other assets which have allegedly been subjects of speculative bubbles since the seventies, including gold, Japanese stocks, and tech stocks.
The second chart shows the mega growth in the value of a range of cryptocurrencies, including the Gala and Axie Infinity cryptocurrencies associated with their respective online games.
Chart from Macrobond showing incredible growth in the value of particular cryptocurrencies over 2021, particularly Gala (+31k%) and Axie Infinity (+17k%).
This post is for general information only, and does not constitute financial or investment advice. Please see a qualified professional regarding any investment decisions.
In Episode 87 of Economics Explored, host Gene Tunny discusses saving and investing for retirement with Sarah Holden, Senior Director of Retirement & Investor Research at the Investment Company Institute (ICI). ICI is the leading association representing regulated funds globally, including US mutual funds and exchange-traded funds (ETFs). Sarah has a Ph.D. in economics and has studied retirement trends and policy, as well as the behavior of investors, for decades. She uses humor and plain English to make retirement and investment concepts clear. Sarah is based in Washington, DC and Gene spoke with her over Zoom on 12 May 2021.
When I recorded the latest episode of my Economics Explored podcast last Friday afternoon, the price of one Bitcoin was a bit above US$18,000 after having failed to get beyond US$20,000 in the previous weeks. In my chat with my friend Tim Hughes, I said who knew what it would end up at when the episode was finally released. Well, it turns out that the price of one Bitcoin has finally gone beyond US$20,000 (check out this Coindesk report).
The US$20,000 Bitcoin price is the latest illustration of the Greater Fool Theory. If you’re buying Bitcoin at this price you’re speculating/gambling you’ll find a greater fool who’ll buy it at a higher price. Coindesk suggests there could be a lot of greater fools out there:
Breaking above $20,000, which represented a significant hurdle in the mindset of most traders, is entirely new ground for bitcoin and opens the doors for a climb to $100,000 over the course of 2021, according to some.
