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Podcast episode

Crypto arbitrage searcher Dave Belvedere on crypto and dApps such as Wizards & Dragons – EP178

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.

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You can listen to the episode via the embedded player below or via podcasting apps including Google PodcastsApple PodcastsSpotify, and Stitcher.

What’s covered in EP178

  • What is Dave’s role in the crypto market? [1:10]
  • What is a chain and how does it work? [3:39]
  • How long does it take to make a transaction? [9:26]
  • What does a crypto exchange (e.g. FTX) do? [15:30]
  • What do we know about miners? [20:20]
  • What’s the future of crypto currencies? [25:44]
  • What is Ethereum and how does it work? [45:57]
  • What are the pros and cons of crypto? [52:07]
  • What are dApps? [57:01]
  • What are the use cases? What would motivate you to have crypto? [1:06:33]

Links relevant to the conversation

Bitcoin creator:

https://en.wikipedia.org/wiki/Satoshi_Nakamoto

Wizards & Dragons game:

https://dappradar.com/ethereum/games/wizards-dragons-game

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.

Female speaker  32:57

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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

Full transcripts are available a few days after the episode is first published at www.economicsexplored.com. Economics Explored is available via Apple PodcastsGoogle Podcast, and other podcasting platforms.

Categories
Podcast episode

Bitcoin & books w/ author & ex-fighter pilot Lars Emmerich – EP157

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. 

You can listen to the episode via the embedded player below or via podcasting apps including Google Podcasts, Apple PodcastsSpotify, and Stitcher.

About this episode’s guest: Lars Emmerich

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.

Check out Lars’s author page on Amazon

Links relevant to the conversation

The controversy over Tim Ferriss’s deal with Amazon Publishing for the 4-Hour Chef: Timothy Ferriss’ ‘The 4-Hour Chef’ stirs up trouble

What is hash power and why would anyone buy it?

Financial Times article – The Merge: a blockchain revolution or just more hype? (pay-walled)

Book on Bitcoin recommended by Lars: The Bitcoin Standard: The Decentralized Alternative to Central Banking

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

Please consider signing up to receive our email updates and to access our e-book Top Ten Insights from Economics at www.economicsexplored.com. Also, please get in touch with any questions, comments and suggestions by emailing us at contact@economicsexplored.com or sending a voice message via https://www.speakpipe.com/economicsexplored. Economics Explored is available via Apple PodcastsGoogle Podcast, and other podcasting platforms.

Categories
Podcast episode

120. Inflation, Covid, China & Crypto

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.  

Crazy Crypto charts Gene refers to in the episode

Australia’s largest bitcoin mine hopes to utilise unused renewable energy and lead the world on decarbonisation

Covid: Dutch go into Christmas lockdown over Omicron wave

 WHO forecasts coronavirus pandemic will end in 2022

China struggles to shrug off weak consumer spending and property woes 

China Evergrande reports progress in resuming home deliveries

Life in a ‘degrowth’ economy, and why you might actually enjoy it

EP115 – The Opioid Crisis and the War on Drugs

Thanks to the show’s audio engineer Josh Crotts for his assistance in producing the episode. 

Please get in touch with any questions, comments and suggestions by emailing us at contact@economicsexplored.com or sending a voice message via https://www.speakpipe.com/economicsexplored. Economics Explored is available via Apple Podcasts, Google Podcast, and other podcasting platforms.

Categories
Economic update

Crazy Crypto charts

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.

Please get in touch with any questions, comments and suggestions by emailing us at contact@economicsexplored.com or sending a voice message via https://www.speakpipe.com/economicsexplored. Economics Explored is available via Apple PodcastsGoogle Podcast, and other podcasting platforms.

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EP87 – Saving & investing for retirement: 401(k)s, IRAs, mutual funds, ETFs, etc

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. 

Links relevant to the conversation include:

ICI Education Foundation (ICIEF)

ICI webpage on 401(k)s

ICI webpage on IRA

Get on the road to investing

A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing

Australia vs US: A scorecard on the Australian and US Defined Contribution Systems

Please send through any questions, comments or suggestions to contact@economicsexplored.com and Gene will aim to address them in a future episode.

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EP66 – Money and Cryptocurrency

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.

As I discussed with Tim, and in my Queensland Economy Watch post from Saturday, Huge swings in Bitcoin value make it hard to believe it will ever replace traditional currencies, I’m very sceptical about the value of Bitcoin. But, hey, it’s 2020, and Bitcoin’s insane valuation is just another marker of this extraordinary year.

Please feel free to comment below. Alternatively, please send and comments, suggestions, or questions to contact@economicsexplored.com

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