Professor Tonya Evans is the author of the new book “Digital Money Demystified: Go from Cash to Crypto Safely, Legally, and Confidently.” She discusses the topic of cryptocurrency with show host Gene Tunny. Professor Evans argues there are many myths surrounding digital assets, including their association with criminal activity and extreme volatility. She aims to dispel these myths and provide readers with a more accurate understanding of cryptocurrencies. Professor Evans is distinguished professor at Penn State Dickinson Law and a leading expert in intellectual property and new technologies. Please note this episode is for general information only and does not constitute financial or investment advice.
About Professor Tonya M. Evans
Dr. Tonya M. Evans is a distinguished professor at Penn State Dickinson Law and a leading expert in intellectual property and new technologies. With a prestigious 2023 EDGE in Tech Athena Award, she is highly sought-after as a keynote speaker and consultant. Her expertise spans blockchain, entrepreneurship, entertainment law, and more.
As a member of international boards and committees, including the World Economic Forum/Wharton DAO Project Series, Dr. Evans remains at the forefront of cutting-edge research. She recently testified before the House Financial Services Committee and the Copyright Office and USPTO to advise on the intellectual property law issues related to NFTs and blockchain technology.
What’s covered in EP216
- [00:05:31] Prudent crypto investing according to Prof. Evans.
- [00:09:18] Crypto scams.
- [00:13:18] Peer-to-peer technology.
- [00:17:34] Taxing crypto assets.
- [00:22:45] Central bank digital currencies.
- [00:29:13] Exchanging value without government support.
- [00:38:17] The currency of outer space.
- [00:41:10] Self-custody and centralized exchanges.
- [00:47:48] “Not your keys, not your crypto.”
- [00:49:17] Underrepresentation in the crypto ecosystem.
- [00:54:07] Learning the language of crypto.
- [00:59:47] Tracking Bitcoin transactions.
- [01:01:57] The speed of prosecuting crypto fraud.
Links relevant to the conversation
Amazon page for Digital Money Demystified:
Regarding a spot Bitcoin ETF, Yahoo Finance reported on 28 November 23 that “Crypto investors are awaiting Security & Exchange Commission (SEC) approval for a spot bitcoin ETF, which could unlock a surge of capital investment in the crypto space.”
Treasury Secretary Janet Yellen on Binance:https://home.treasury.gov/news/press-releases/jy1926
Transcript: Digital Money Demystified w/ Prof. Tonya Evans – EP216
N.B. This is a lightly edited version of a transcript originally created using the AI application otter.ai. We then used a human application, Tim Hughes from Adept Economics, to exercise his primitive brain and see if he could successfully hunt down mondegreens. It may not be 100 percent accurate, but should be pretty close. If you’d like to quote from it, please check the quoted segment in the recording
Tonya Evans 00:03
Now we have web three where not only are we exchanging messages of information, packets of information. Now those packets are about value. It gets at the heart of even why governments tax, particularly in times of war, etc, and to protect borders that are now being threatened by a borderless currency.
Gene Tunny 00:32
Welcome to the Economics Explored podcast, a frank and fearless exploration of important economic issues. I’m your host Gene Tunny. I’m a professional economist and former Australian Treasury official. The aim of this show is to help you better understand the big economic issues affecting all our lives. We do this by considering the theory, evidence and by hearing a wide range of views. I’m delighted that you can join me for this episode, please check out the show notes for relevant information. Now on to the show.
Hello, and welcome to the show. In this episode, I talked about cryptocurrency with the author of a new book on the topic. The book is “Digital Money Demystified” and the author is Professor Tonya Evans from Dickinson Law at Pennsylvania State University. Among her many achievements, Professor Evans was a 2021 Forbes over 50 listee in the investment category. She’s on the board of directors of Digital Currency Group and she’s testified before a congressional committee on digital assets. In other words, she knows what she’s talking about on crypto. This episode was recorded in mid November 2023. Please check out the show notes for any important developments since then, particularly for any news about spot Bitcoin ETFs that may have happened. I should note that one big thing that’s happened since the interview is Binance and its CEO pleading guilty to criminal charges for anti money laundering and US sanctions violations. US Treasury Secretary Janet Yellen has said “it’s willful failures allowed money to flow to terrorists, cyber criminals and child abusers through its platform.” As always, if you have thoughts on this episode, or other episodes or ideas for future episodes, please get in touch. I’d love to hear your thoughts on crypto, positive or negative. What do you think about Professor Evans defence of crypto against the major criticisms that it faces? Has she changed your mind on crypto? What about the recent news about Binance or SBF before that? Please let me know what you think after listening to the episode. Let’s get into it. I hope you enjoy my conversation with Professor Tonya Evans on crypto.
Professor Tonya Evans, welcome to the programme.
Tonya Evans 02:42
Thank you, Gene. Thank you so much. I’ve been looking forward to this. So I’m happy to, happy to chat about my favourite topic.
Gene Tunny 02:49
Oh very good yes. You’re certainly passionate about it, I’ve been reading your book over, well the last two nights. It’s, it’s an easy to read book. And I got through it in in two sittings on my Kindle. So well done on that. So yes, your book is Digital Money Demystified from go from cash to crypto safely, legally and confidently. To start off with, what do you think needs to be demystified about digital money? Or in other words, what motivated you to write this book?
Tonya Evans 03:26
Yeah, this it’s interesting because I do so many speaking engagements, obviously, as a not only as a law professor, which is kind of a different exercise in exploring things. I know, we’ll get into some regulatory stuff later. But at a higher level, there’s so much misinformation about the nature of the assets, why they even exist, what types there are, how they’re different. Some of the most common myths that I constantly explore and help people to right size include the level of crypto involvement in criminal activity, which is actually quite low. The nature of volatility, and the the existence of volatility is not the myth. This is a nascent asset class. And so, obviously, it’s very volatile. So when I compare crypto as a nascent asset class to earlier developments of assets like the stock exchange, for example, we go back to the 30s and Buttonwood and the volatility that was involved, so many things going on behind the scenes that people weren’t aware of. And that was very problematic when you think about the asymmetry of information which is often extremely problematic in the finance lane. You really need to have the transparency and accessibility for an open market. Otherwise you don’t have an open market and people are left to their own devices. People are investing in things when they don’t have all of the information. And so that’s what made it really interesting for me to 1) start to study the area, but 2) to make sure that people understood the existing system, how crypto assets and blockchain technology actually changed that. And kind of where we go from here. As you can tell, the book is not an argument. For someone to absolutely buy crypto, I still leave that up to the person, but I want them to have a more informed body of information to draw from so that they can actually make good choices. One of the ways that I like to explain it is to say, you can actually be a prudent crypto investor, which sounds like an oxymoron. It’s like prudent and crypto investing, how do those things go together, but people are afraid of what they don’t understand. And the reality is, and we will continue to talk about this in our conversation. This technology is here, not just as a matter of Bitcoin and Etherium, and some of the other coins, but every major, not major, but every country is looking at its own version of digital currency in the form of central bank digital currencies. We have FedNow which is not in and of itself a cryptocurrency. But it’s kind of like the the framework or the platform for digital assets that I believe, my personal opinion, the government would not have this official statement today. But three to five years from now, we’ll look back on this moment in time, where FedNow, the rails, the frameworks to enable digital asset transmission, I believe will be the precursor to a central bank digital currency in the United States. And finally, when I think about the various investment products that will become available, probably, I’m pretty conservative so I would say at the beginning of 2024, we will see an exchange traded fund specifically for Bitcoin, probably 12 to 18 months after that, for Etherium. This will be an investment product that is available to investors, and also the professionals, the financial advisors that have to make sense of this, the CPAs the lawyers. So for all of these reasons, at least demystifying the space so that people don’t fall victim to the clickbait and the sensational headlines, some of which are horrible. I, there is no place for criminal activity, Sam Bankman-Fried is going to enjoy a lot of time in jail. I’m absolutely for that. But you know, that is one small part of a larger ecosystem where the great majority is used for legitimate not nefarious purposes. So for all those reasons, I just think it’s important that people level up their, their understanding, you see from the book, The glossary of terms, just helping to demystify and understand so that people will lean into the education piece to decide then if this is something that they want to add to their profession, or their portfolio.
Gene Tunny 08:04
Yeah, yeah, absolutely. So you mentioned the glossary of terms just then I think that’s one of the standout features of the book. So yeah good work on that. Professor Evans, could you just explain the difference between some of these scams until, I read your your book, I didn’t appreciate the difference between an exit scam and a rug pull. So I hear about rug pulls all the time on Coffeezilla’s channel on YouTube, could, are you able to go over what those different crypto scams are and what to watch out for? Please?
Tonya Evans 08:40
Yeah they’re quite close, right. So it’s the difference of having a team that from the beginning, knows that they are going to turn the lights off at some point, they’re gonna, you know, pump up the price, get a lot of enthusiasm. And their goal from the beginning is to scam people out of their money, right, and to set the market conditions in order to get the highest price possible to leave others downstream holding the bag. Right, as opposed to someone that at least in the beginning, has some good intention and realises at some point in time, it’s not going well. And that people who have invested fall into what we talked about earlier about not having all the information. So you have a key some key decision makers that still have an influence on a project. Oftentimes, it’s not built yet. So they have grand plans, they have a roadmap, they might have a white paper, but at a certain point they run out of gas and they disappear with everyone’s money and all of a sudden you can’t find them anymore, closely aligned but so it’s more of the intentionality from the beginning. But the end result is a lot of people get caught holding the bag.
Gene Tunny 09:51
Right so the exit scam is where there’s that intentionality at the beginning is that right and the rug pull is yeah, we stuffed up let’s just try and get out of it. And yeah well…
Tonya Evans 10:01
That’s right, that’s right.
Gene Tunny 10:05
Bad luck investors. Okay. Righto, so you’re a Gen X law professor right? So I think I read that in the book. So you’re same generation is me and I often feel I’m probably, if I was five years younger, I probably would have got massively into crypto, but I was probably, at the start of it, I was a bit sceptical of it. How did you become like, as a lawyer, as a law professor, how did you become interested in crypto in the first place?
Tonya Evans 10:34
I had a friend who was getting an advanced degree in the future of media and kind of the intersection of media and new technologies. And to take a step back, I actually am primarily an intellectual property lawyer, and law professor, I just actually celebrated my 25th reunion from Howard University School of Law. So I’ve been around for a minute, I practiced law for 10 years before I even started teaching. And now as a recovering practitioner, also known as a law professor. And I get to lean in to things normatively, how they should be rather than day to day kind of practically what they are, right? That’s really the transition from representing clients to informing law as it’s being developed. And so I was very interested in the work that she was doing at the intersection of media and blockchain. I had heard of Bitcoin at the time, this was in 2017. Bitcoin was first launched in January of 2009. So it had been around for some time, but was really relegated to the fringes of cypher, the cypherpunk movement, mostly those kind of tech men, mostly with a technology, technology background, and also in finance, and kind of like this microcosm of two microcosms is the area of cryptocurrency. So mainstream adoption or even awareness just wasn’t a thing at that time. And also, as you mentioned, I’m a lawyer. I’m licenced to practice law in four states, New York, New Jersey, Pennsylvania, and DC, I am highly revered. In my profession, I have no intention of losing my licence. And so trying to make sense of this magic internet money was not something that, that I was at all interested in at the time. But what I was interested in is her discussions around the underlying technology that was organising financial data, the transactions and the balances in a very novel way, using existing technologies. But again, organised in a novel way. So what were the technologies, are the technologies? Cryptography, which is the encrypted messaging that has been around in some form or fashion, quite frankly, for millennia, obviously, it’s digital now. But the idea of going from point A to point B, or sending a message, often in times of war and other areas, the ability to send to encrypt and decrypt messaging was critically important. But that’s been around for forever, then we have peer to peer technology. So as an IP lawyer, I’m also interested in this part, because when I first learned about peer to peer technology, it was gonna, you know, upend the media, ecosystem, and that entire industry was going to fall because you and I could be in completely different places but I could send you a perfect digital copy of a media file, and then go on the internet and send it to 1000 of my not-so-closest friends without exhausting the original. So I guess that was great if you wanted to share music, not so great for the music industry, but for everybody else. But obviously, if you are doing that with money that runs into the double spend problem, where, you know, I can say I have $100 in the bank to send it to you and also to Susan, and the first person to cash that check is the one who wins that is that’s not going to work for money. So the novel way of using cryptography, peer to peer technology, the internet, and then a novel way of coming to agreement, we would call it we call this the consensus mechanism of coming to agreement where I don’t have to trust you, but I trust a software that is pre-coded with the rules of engagement. It’s open source software, which is also lends itself to copyright, to patent areas of interest as an intellectual property attorney, where I was like, Well, I have to figure that out. I have to let my students know that this is something that is changing the nature of intellectual property. And it doesn’t, it didn’t seem at the time that I needed to also fundamentally understand cryptographically secure digital assets. But I fell down the rabbit hole, it was quickly apparent that understanding the technology I need needed to understand the nature of the assets that were being validated, verified and secured. In this type of news decentralised database, I didn’t have any appreciation for all that language at the time. But being drawn in, in my existing area of expertise, I think was the best way for me to be intellectually curious, and to really learn more.
Gene Tunny 15:31
Gotcha. And are there many legal cases? Is there much litigation regarding crypto?
Tonya Evans 15:38
What we’re seeing now involves, the short answer is yes. Now, but mostly at the federal and state levels against federal or state regulators and various parties or, or stakeholders, participants in crypto. I don’t know if you have a lot of them in terms of the actual number but the import of of actions with the SEC, the Security Exchange, Securities Exchange Commission against some of the big ones we have coinbase, we have the ripple case with ripple is a network that has a native token called XRP. That has been tied up for a long time until recently, when a federal court said that the SEC led by Gary Gensler had really overstepped the boundaries of their regulatory power. The way that reg, regulatory bodies in the executive actually get their power is it’s delegated from Congress. So an agency can only do as much as they are empowered to do by their enabling legislation. And the federal court said that the SEC overstepped its bounds actually making it the, clearing the pathway I should say, for those spot, Bitcoin exchange traded funds or ETFs, that are likely to be approved begrudgingly by the SEC, in my humble opinion. But as soon as November 17, perhaps in the first quarter of 2024, that is one of the most exciting and also pressing legal issues that people will start to learn more about. There’s other things going on with Treasury, trying to make sense of how to properly tax crypto, it was always a nightmare when I first started buying and exchanging crypto in like 2018, where you literally had to have a spreadsheet because crypto, all crypto assets are taxed in the United States as a capital asset. So imagine that every time I am going from cash to crypto, as I say, from, you know, $1 to some portion of Bitcoin is a taxable event, even if I’m using the dollar to get bitcoin and then within the same day, or maybe the same week, then exchanging Bitcoin for ETH. And then using that to get a stablecoin every single time there’s a an exchange, that is considered a taxable event, even if it’s negligible. So the argument before the before treasury, in general and IRS in particular is there should be some de minimis amount. In right now, the number that’s floated is about the equivalent of $600, where we, I mean, it gets to be completely impractical to have to account for every single transaction under that amount, because you’re not worried about money laundering, you’re, you know, you’re not worried about significant fraud or anything like that at that level. And so that’s a really interesting thing to watch. And then finally, there’s a lot of, I don’t think it’s going to happen in 2024, because we’re in a presidential cycle, but a lot of support for various types of legislation to give greater certainty as a matter of regulation. But greater clarity of what agency is actually primarily empowered, if at all, will there be a primary or lead regulator as between this SEC and the CFTC? That’s major. The CFTC is responsible for futures and for commodities. But there doesn’t seem to be agreement between the head of the CFTC and the SEC about the taxonomy, the characterization of various assets. And it’s problematic because most of them are programmable. They actually can change the nature of their character, they might start out as a security. I argue that Ethereum actually did start out as a security. It was, the project was not yet built, they did an initial coin offering inviting people to invest and get a return on their investment. That is, and it was not registered. That would be a classic unregistered security. But years later when it was fully decentralised there’s no central foundation or entity responsible, I argue, and the head of the CFTC would agree that that ETH is a commodity. But the SEC is the head. Gary Gensler does not agree. So I say all that to say, there’s a lot of uncertainty that is driving business away from the United States, to other jurisdictions where it may not be easier, but at least it’s clear. And that’s one of the greatest dangers in the United States is that we would not lead in this area. So those are some of the things to really look for in the headlines that have a direct impact on mass adoption.
Gene Tunny 20:54
And what jurisdictions would they be Professor Evans that the activity could be driven to?
Tonya Evans 21:01
So we see a lot of offshore stuff in and by off, sometimes, when people hear offshore, they immediately think illegal, this is literally off of the shores of the United States. So it makes me think of the Bahamas that has its own central bank currency, the sand dollar, it makes me think of Bermuda. I’m a former member of their advisory board, their financial Technology Advisory Board. They were quite forward thinking. Bermuda is particularly interesting, because it’s a jurisdiction that has a long history of well regulated very clear insurance. And so that’s an interesting place. Zug Switzerland is known as you know, like the Crypto Valley, in the same way that we might think of Silicon Valley here in the United States, quite forward thinking. Singapore is ahead of the curve. Absolutely. It’s the UAE. Despite all that is going on in that area of the world. The UAE, in general, makes me think of Dubai in particular, and Abu Dhabi. A couple of years ago, I was one of the first of Forbes 50, over 50 listees and we celebrated in Abu Dhabi, for example. And I was amazed not only how opulent and beautiful, but how progressive in terms of forward thinking with with crypto. And finally, and this is not a leader that we want to follow, but it’s a caution… not, well, I’ll say it a cautionary tale regarding central bank digital currencies, is China. China was the first country to launch a central bank digital currency, which raises in me all sorts of alarm bells, not not for central bank digital currencies in and of themselves. But the huge issues around financial privacy that people need to get up to speed on if in fact, the United States would start to publicly explore CBDC here, that you want to have the same financial privacy that you do with cash, but have the convenience and things that are better, faster, cheaper, with respect to digital assets. So there’s a lot going on in this space and a lot of activity. In fairness to the United States, there’s some countries and I’ve mentioned a few where you have just one regulator. They don’t have the alphabet soup of the FCC and the CFTC and the partridge in a pear tree right in, in the executive. They don’t have the committees and the subcommittee’s wrangling for jurisdiction and oversight authority in the legislature. However, you know, it’s more simplistic. And so it used to kind of not be a great thing, but it is when you need to be nimble and move quickly because our system is not intended to move quickly. It’s actually built this way to slow things down and be more methodical, but that doesn’t work with this type of technology.
Gene Tunny 24:16
Hmmm, yeah, yeah, absolutely. I imagine that our regulators, I’m in Australia, so I imagine they’re looking closely at what’s happening in the States to see where things land. And you Yeah, it’s fascinating about this Bitcoin ETF. And I know that there was a group in Congress that’s looking at the regulations of how they changed the regulations around the SEC yet or is that something still to do? Do they need to give SEC more powers?
Tonya Evans 24:47
They’re exploring it. The short answer to your question is yes. Because the rulemaking authority that is delegated to an agency comes from Congress and so, we call those enabling or enabling acts, there’s another term as well, but enabling act. So basically, Congress says, here’s the framework, you’re the subject matter expert executive agency. So you all kind of you’re the mortar to these bricks. And it’s the executive branch in general agencies in particular that, that put into play the actual rules and regulations and actually run the thing you think of it like as you have a CEO, the President, and then you have all of these smaller bodies that take care of the day to day functioning, based upon, okay, we have this delegated authority from the legislative body, but it’s ultimately up to Congress to say you’ve over stepped, what we asked you to do, we empowered you to do X, Y, but now you’re doing Z, or also to say, hey, when we created this enabling legislation to empower this agency, we did not have this in mind. We did not have this in mind, right. And so we’re gonna need to go back to the drawing board on this. And I am encouraged that there is in many important, for many important issues, there seems to be a bipartisan effort. I don’t think this is beholden to one party or the other, although it is certainly playing itself out that way. When I think of President Biden’s executive order to order all of the agencies to look into the space and to come up with their rules, a report outs, etc. That happened back in 2022, in March of 2022. So a year later, we have some of those reports. The concern has been, and it’s been a bipartisan concern, that and what I what I testified about in March was about what appears to be a Choke Point 2.0. Choke Point 1.0 was an actual policy under the Obama administration that was cutting off banking access to certain industries deemed to be harmful at the time. So it was like the payday lenders and things like that. Ultimately, it was overturned. But you could at least intellectually understand why that might be. But it ended up not passing muster. We don’t have something on the books, but in effect, it has been very difficult for people operating in the crypto industry to actually be banked. They said, You know, it’s basically like, well, if you want it to be off, you know, off the grid and have your own little money, then you won’t use our banks to do it. And what we’re seeing is that and that has happened in the marijuana industry as well, it’s like if this is if something is otherwise legal, and lawful, that we shouldn’t have a government operating against it to thwart its progress and kind of kill it in its infancy, which what it appears to be. And so you will see this discussion around banking and and being able to onboard meaning going from cash to crypto, and off boarding, settling out, selling in the way that you would sell stocks, and then recoup in in Fiat. So we’ll see that playing itself out too. But that’s another major issue.
Gene Tunny 28:20
Right so is that really difficult at the moment so does the government make it difficult to do that?
Tonya Evans 28:24
It has been very difficult even for someone like me, in addition to teaching at Penn State, Dickinson Law School, I have my own onboarding platform. It’s a online business, I do not sell tokens, I do not invest for other people. And I have either been debanked or had an application denied just because I am a crypto educator, which makes no sense in the world. And it was too difficult because what banks were also hearing is, the government doesn’t like it, even though banks are private, they are in general, they are inextricably linked with the government, as we always see in terms of bailouts, etc, etc. And so when you hear from on high, that this is something that the government at this point in time does not fully support, in my humble opinion, because it is a customer service issue. When you start exchanging value that isn’t beholden to a government. That’s a big deal. You know, it’s we’re basically looking at a time where you have internet 3.0 web 3.0 is what people refer to it as, in the web 2.0 version. There was great support around the globe for the global exchange of information. Yeah, we had to use the internet, you had to protect the internet. Katie Couric and Bryant Gumbel had to figure out what the hell email was because we were all going to use it. Right. And that was great. And we wanted to support innovation, blah, blah, blah, blah, blah. Now we have web three where not only are we exchanging messages of information packets of information. Now those packets are about value. It gets at the heart of even why governments tax, particularly in times of war, etc, and to protect borders that are now being threatened by a borderless currency. That’s a BFD. And so that changes the conversation even though the technology is the same. And so we have a customer service issue. And until governments can figure it out, I don’t think they’re always going to be very excited, particularly in the United States where we have the globe currently. Let’s talk about it in 10 years, but currently the global reserve.
Gene Tunny 30:42
Yeah, yeah. In your books title, you talk about going from cash to crypto. And that’s a you’ve got a registered trademark sign there, is that your platform is it Professor Evans can you explain what cash to crypto is about please?
Tonya Evans 30:56
Yeah, that’s my signature course. So I when I launched Advantage Evans Academy, my primary course and it’s still up and very popular today. It’s an on demand, evergreen version, I’m constantly updating actually, because things change every year. And it takes you in five modules from introducing folks to fundamentals or even the purpose. We start with mindset of even trusting ourselves, managing our own money, because as a Gen Xer I grew up, the minute that you had any money, you’re gonna put it in the bank. And it’s interesting to learn more, as I’ve learned more about the crypto space to really fundamentally start to unpack savings and loans, it’s like, Alright, so let me get this straight, I’m going to put a whole bunch of money into the bank, maybe you used to be able to walk down to the bank, I don’t know if people can do that anymore. And I’m gonna put my money in and it’s gonna be safe there and up to $100,000. I’ll get it back. If we all want our money, even though I plan to have way more than $100,000 stored for another day, right? But let’s say I just have 100,000, it’s FDIC insured, and I’m going to earn a pittance, if anything in interest. And then that same bank is going to loan me back my money for cars for homes, and they’re going to keep the spread. I don’t like that. I don’t like that system. I didn’t know that was a system where I was taught not to trust myself. And not to worry my pretty little head about it. Well, I’ve learned so much in the last six, going on seven years than I had, and I went to Northwestern and went to all the best schools I graduated with honours that from law school. My dad’s a doc, my mom’s a lawyer. I knew nothing about money before I really started to lean in and see how disconnected I was even from the process. Even from understanding when people ask me, what is bitcoin backed by, like what is the dollar backed by? And I don’t hate dollars, I love dollars. But we haven’t been on the global, excuse me the gold system standard for decades. Based on the full faith and credit of the government, we keep coming up against the threat of government shutdown, we’ve had two downgrades in our credit rating, because people aren’t trusting us as much as they used to. Because it’s our full faith and credit. Our word is supposed to be our bond, and it’s scaring the rest of the world. So this is an also, an alternative, alternative to that, that people need to get aware of. Not necessarily replacement in toto today. But you definitely want options in this world.
Gene Tunny 33:33
Okay, we’ll take a short break here for a word from our sponsor.
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Gene Tunny 34:07
Now back to the show.
This is something I’ve covered on the show quite a bit because it’s obviously a huge issue in economics. And I mean the way that I think about it and that economists think about it’s well Milton Friedman in Monetary History of the United States, even you know, he acknowledged look, money is a fiction. But what will, what the question is which, which fiction is the most powerful do most believe and the fact is that with dollars, you can settle existing contracts, all the prices are in dollar terms. And you can pay your taxes to the inland ra…, internal revenue or to the Australian Taxation Office in the local currency. So that’s what gives the dollar power or means that that fiction is strongest. And I think that’s, that’s why many economists are concerned about that. And why there is that concern about well, maybe, I mean, is this volatility going to ever settle down? I don’t know. I mean, I think I take your points in your book, I think you make the best possible case for, for Bitcoin and for crypto. But yeah, I think that would be the concern of, of economists. Do you have any thoughts on that at all Professor Evans?
Tonya Evans 35:29
I think it’s important, it’s an important metric. I don’t even know if it’s a success or not, but just to understand what position crypto should have, if any, in an overall portfolio. And obviously, there is I mean, Bitcoin, for example, is up almost 70% this year. And it is one of the quickest ways over its lifecycle to get a significant return on investment as it goes through it’s bull and bear cycles in the same way that the stock market goes through bear, bullish and bearish cycles, the manipulation and I don’t use that pejoratively, but the way that monetary policy is set with inflation, we’re tweaking it’s kind of like we’re calibrating, right. And so there’s a natural energy lifecycle to assets. And as long as you are strategic, you could have something that is very, very safe and secure and predictable, offset with something that isn’t, with great risk comes greater reward, and then it’s an overall balance a balanced portfolio that I think is most important, I would not recommend, although I know some you know, Bitcoin maximalists will cash out their 401 K and put it all into Bitcoin and let it roll. They I think there’s a privilege in being able to do that, because I believe that if past is prologue, we are we will be entering a bull market soon. I think with more positive news. We’re getting past the crypto contagion, we have endured a two and a half, almost three year down cycle. And historically speaking, things have ticked upward. Bitcoin is generally the the rising tide that lifts all boats around. So even really crappy coins start to do modestly better. When bitcoin is doing better, that’s one of the many dangers I see in the space. But you know, whether or not this becomes this entire ecosystem becomes more stabilised. I believe that is possible. I just don’t know if I can read the tea leaves yet of when. But I do believe it’s not a matter of if but when giving, given the import of this technology that is just so pervasive across industry, and sector, it also makes me think of what will be the monetary standard. And this is not too far fetched to stay in space, in outer space, and we don’t have all of the sophisticated borders and things of that nature, but you’re gonna have to have a common currency that becomes more than any one government or, or country’s currency. What currency will that be? It’s probably going to be a digital asset. Which one I don’t know. It may not be Bitcoin, but it’s going to be some type of digital coin. And so preparing for that now and having a first mover advantage depending upon your risk tolerance is something that I’m willing personally to do. And I believe the first step to that is for folks to lean into education, from cash to crypto programme is great for fundamentals. Obviously, the book is a quick read that just level sets, facts so that people have a better idea of what questions to even ask, as they start to kind of become cautiously optimistic in the space, not fall victim to fear uncertainty and doubt or FUD and definitely not to fall victim to FOMO when people start talking about it and and celebrities are back in and NFT’s are all the rage and the next DOW comes out like you cannot be emotional about strategically investing for the long term. And so that’s what I want to educate and empower people to do through through my work through my courses. And certainly through the book.
Gene Tunny 39:22
Gotcha. You raise an interesting question about effectively what’s going to be the currency of the Galactic Empire. I’m gonna have to think more about that and see if any science fiction writers have thought about that. That’s quite a quite an important question. I like it. Right! With the, one thing I’m wondering is do you know how, how extensive is Bitcoin or crypto being used for actual transactions? Are contracts being written in do you see any of that going on?
Tonya Evans 39:53
That’s a great question. I’ve not quantified that yet. I love that question. You’ll have to have me back and we can uncover that. What I know for sure is that more and more legacy companies are creating opportunities for their existing customers to stay on platform and to have access, exposure or some of the the benefits of crypto and the underlying technology. So MasterCard and Visa have products now that will allow you to either earn crypto back, or to pay for things in crypto and you don’t really have to ever touch Bitcoin or whatever crypto is connected to it, because that happens behind the scenes. But you can say I offer this product, right? There’s still I don’t think they’re set their real time settlement is to the blockchain, right? They still have their legacy infrastructure, but they want to not lose customers, as people become more curious and have more opportunities. So Visa, MasterCard, PayPal, they will, PayPal first entered into the space, they would allow you to purchase Bitcoin, I don’t think it was other coins at the time, but you couldn’t take it off platform. So for me and for cypherpunks, or others, like the whole thing is your own personal self custody of your assets. So I don’t leave things on a centralised exchange, even if I trust it. Look what happened to you know, those who had left their property on FTX’s, centralised exchange or BlockFi. We saw a lot of lenders, you know, go out of business and file bankruptcy and your coins go with it. So self custody is a really important thing. But most people are not going to do that now. And PayPal knows that. So giving people the ability, they realised they weren’t going to get a lot of traction if they didn’t allow for people to take their Bitcoin off platform. And eventually they developed a product to do that. And in addition, they recently, I don’t know how to pronounce it, but they have their own coin. It’s like PY something. But it’s a PayPal, stablecoin so that they can do real time settlement within their own PayPal ecosystem, which is really really powerful Cash App, you have been able to buy bitcoin off of Cash App forever, and then transfer it off into your own self custody wallet. We have, in full transparency I am a member of the Board of Digital Currency Group, which owns Grayscale as in CoinDesk, it owns Genesis as well as well, probably 200 different projects and companies in its portfolio. And one of those is Grayscale, Grayscale has GBTC. So the Grayscale Trust, I’m sure a number of people have seen their commercials and Grayscale has petitioned or applied to exchange or change the character of GBTC into a spot Bitcoin ETF. And so there are so many companies BlackRock, one of the most prudent, traditional historical companies in the in the investment space has applied for an ETF as well. So Deutsche Bank, it just the gamut. So most of that exposure has been for high net worth individuals, but the crypto really is a democratic, inspiring currency. And that’s not a particular political party. It’s this the democratic with a little D that democratises access to, to money and not just money. Because we, it’s a bit of a misnomer to say cryptocurrencies. I feel like if we had to do all over again, we’d call it what I say as crypto asset, because some function well as currencies as we’ve talked about, but it also here in the States and around the world. In in Australia, for sure. We, it is a capital asset. So it’s not just currency. It has additional powers and properties, which is why many people right now, lending to its volatility. This idea of holding on we hoddle or huddle, you’ll see. So used to the proper word was hold and then it was misspelt and now it’s folklore to say huddle, instead of hold that holding for the long term, which makes Bitcoin in particular more valuable because it has a hard cap. Unlike many of the other coins and currencies that are more susceptible to inflation in the same way we see government issued currencies. So so so there’s a lot there to to focus on. You mentioned volatility is one thing I wanted to tie up with that as well, because it lends itself to what we’re talking about now. As more entrants come in to the space, as liquidity continues to rise, as clarity in the laws and regulations start to settle, historically speaking, the volatility of pricing starts to diminish. And the interesting question will be, how long will that take in this space? It just feels like everything is moving more quickly. I don’t know if it’s because I’m getting older or the world is moving faster or both. But what used to take decades and decades, I don’t know that it takes as long anymore, but time will tell.
Gene Tunny 45:36
Yeah, yeah. You mentioned GBT, was it GBTC? Could you? What does that mean? Sorry, I missed that before GB…
Tonya Evans 45:46
Grayscale has a Trust Company and it sells shares of its trust, and the trust holds Bitcoin and other assets. And what and so that was permissible, but it was set up as a trust, not offered as an exchange traded fund for Bitcoin specifically, and so Grayscale submitted a proposal, an application that is sitting before the SEC currently to be approved for a spot Bitcoin ETF. So it has an existing infrastructure. GBTC is available and traded, but based upon trust interests, not as a spot ETF, and that’s what we’re waiting to see. There are 12 different applications before the SEC, an important date for approval is the first one would be November 17. So there’s been a lot of speculation, will the SEC approve one, a few, all 12? So as not to be kind of like the kingmaker to say this is the first one we will approve, maybe that would unfairly, you know, nod to one particular company over another where I believe the SEC hates them all. My opinion, not the opinion of this show. But the federal court said what it said, so we’re gonna, you know, not a matter of if but when but will it be all of them? Will it just be the one from Grayscale? Will it be the first one that they receive? But there’s some date certains that are built into the application process and that’s what the SEC is coming up against now.
Gene Tunny 47:25
Right! Okay. Yeah, definitely. Look out for that. Right I’ve just got two more questions. If you have time Professor Evans this is fascinating. Really, really interesting. And I like the point you made about how you got to make sure you actually own the the assets, the crypto, there’s a phrase you use, I can’t remember off the top of my head but something about you if you don’t own the keys, you don’t own the crypto is that it? Something like that?
Tonya Evans 47:48
Yeah, not your keys, not your crypto not your keys, not your coins, not your keys, not your cheese, whatever you fancy.
Gene Tunny 47:54
Gotcha. Yeah, the other term I learned that is the Lamb bro. So for the Lamborghini bros. And so if we do have that, the bull market in in crypto, we’ll see a few more Lamborghinis out on the street. So it’s a bit of a…
Tonya Evans 48:10
We might, and I will have to say that those who, particularly cypherpunks, hate, hate, hate this moniker, they hate it, hate it, hate it, and I get it. I will tell you, as a woman who has gone to a number of conferences, it’s rough out there sometimes. I think there are men who have the privilege of not seeing how male dominated it, certain ecosystems can be, I mean, certain conferences can be and how intimidating it can be when people are drunk and things are going on and was very flashy. I think that is a misrepresentation in general of my experience, and I’m a black woman. As long as you know, I talk the talk and walk the walk I have, generally speaking, been received well, I have to say. That being said, the Lamborghinis, the parties, the strippers like that’s a lot. So when it makes me but, you know, you think of the idea that we have the finance world, and we have the tech world. And then they come together into this microcosm. The Crypto ecosystem is a microcosm of those two spaces where women are underrepresented significantly, even though it continues to improve people of colour, etc. And so there is no impediment other than one’s own education and knowledge and awareness of the space, which is encouraging. And I think for those who have been in the space for a long time, or maybe from the Cypherpunk movement would say, we’re not keeping anybody out. Right. Many are libertarians, they were like, equal …. is good. Get yours. I’m gonna get mine. I’m not going to keep you from yours. Don’t keep me from my, and I get that I respect that. I think there are other forces that work that make me want to be more intentional. To know how much personally and professionally I have benefited from the knowledge and awareness, the professional pivot I did as a lawyer, as a professor, as an educator, that now I believe, for anyone in the world, it is the best opportunity in countries like mine, and countries like yours, to get ahead to kind of level the playing field to get get caught up as a matter of generational wealth at any other time, in certainly my history, but I would argue the history of the world, because things are digitised, we’re starting to remove like redlining and gatekeepers, things that would maintain the status quo to have the best for just a few. And then the rest left for everybody else. This is one of those pivotal inflection points in life. And I don’t think it’s hyperbole to say, because I know personally, and for those who I’ve helped educate who are like me, that this was that makes it more exciting to. And so I, it was really important for me to put that chapter in the book, because I wanted to not only say, the crypto bro thing it has existed, but it hopefully is the exception and not the rule for people who are very serious in the space. But also it misrepresents all of those who are curious and well positioned to take advantage of the space too, because the only thing that is keeping people out presently is a lack of awareness, education, and some protection as they enter an untested space in many ways.
Gene Tunny 51:46
Gotcha. And that is one of the themes of your book, you were referencing it before. It’s the idea that you see this as it can level the playing field or can provide opportunities to people from minority groups. And I know you’re not saying definitely invest in crypto, but yeah, how do you think about it? Because I see risks in crypto. And I mean, is this the right thing for someone starting out or some someone with not a lot of resources to invest in first thing? How do you think about that?
Tonya Evans 52:17
I would like to see kind of a both and approach particularly with respect to Bitcoin. When I first started in the space I, for a number of reasons, one as a professional and thinking a lot of my profession and not wanting to misguide people, knowing people would trust my voice if they heard it from me. And so I didn’t want to be in the habit of saying buy Bitcoin, buy ETH, buy this, buy that, I’ve changed my approach because Bitcoin is quite special as are stablecoins, I actually think stablecoins are the best way for people to get in. They’re not going to get wrecked by volatility. There’s some really strong ones, USDC from Circle, I have great respect for that team doing exceptional job. I know some of those folks, personally, I love USDC. We also have Tether. I don’t know who the people are. But I know Tether is very important to the Etherium ecosystem. It’s kind of like the oil that keeps things going there. When people want to jump out of the volatility of the market, but not out of crypto, they often move in the stables. And there are ways that you can earn interest and yield and blah, blah, blah. And so, I believe the short answer to your question is that this is a space where you want to start buying, you do, the best days right now are when most people aren’t there. The best times to make a sizable return if it’s to be had at all, is when most people are scared. Right? Warren Buffett says be greedy when people are fearful and fearful when people are greedy. When people start to get greedy, that’s when you know you’re probably getting to the top of a cycle and it’s time to like stabilise move things around, rebalance, reposition. And to really understand that with all of those, you know, 1000s and 1000s of tokens and coins. I hope you’re not gonna buy them all. Probably not gonna buy the overwhelming majority but they’re the you know, the top five, top, top 10 have a proven track record. That doesn’t mean they’re always going to win. But if you start now, you start learning the language. It’s what I’ve even done with stocks when I started swing trading, not day trading, but swing trading sometimes I had to start to learn how to read charts and candles and wicks and bar graphs right to start understanding. If this is the way this particular assets move, once it hits this particular range, maybe that’s a great time to buy. Maybe I’m wrong, but at least I’m using some type of disciplined, non emo…, separate, disciplined approach like separate from emotion. And that’s really important. Some of those same strategies can be used in the crypto space, but the major caveat, not only as a matter of volatility, but also this is 24/7 365. There are no national holidays. There’s oftentimes no customer service. I mean, if you’re buying and holding on an exchange, you have some additional layers of protection. But you have some risks even being on exchanges. This is the time to learn about this. Stable coins, literally are pegged to a particular asset, in most cases, the dollar or some equivalent of that as well. So you don’t have to go up and down with the market, but you can learn about the market. And then finally, back to my original point about Bitcoin because it has a hard cap of 21 million coins that will ever be in circulation, and actually 19 million are already in circulation. But it’ll be a long time after my life. And yours when the final bitcoin is actually issued for some technical reasons we can talk about next time, but it’s special. It’s special. And actually, I don’t think and I think many people would agree with me, Bitcoin doesn’t really function well as a peer to peer cash for more stable economies in Australia, in the United States, in Canada, in very various places in Europe, because it’s a nice to have for most people, not a need to have. But then you go to other nations, you go to Central and South America, you go to countries on the continent of Africa, and you start to see places, Ecuador and El Salvador, where there’s complete destabilisation, there’s confiscation, it is critically important that people have access to something that will hold its value better than the national currency, that is more trustworthy and non-confiscatable in the same way that their local currency is. And when you when you start to learn about that, like people need to travel and understand different cultures and people to really get a handle on why this even if it’s not important, and like a nice investment to have, for some it’s life or death for others. And eventually, every one of us will be touched by some catastrophe at some point that will have a direct impact on our finances, be it natural disaster, something going on, God forbid, with the government and everything in between, like, we have to pay attention to what’s going on in the world. And to, there’s 99.9% of things we can’t control, control the controllables. And one of those is your own level of education in a space that’s transformative, but has the potential to be empowering and to protect you down the road. By the time you need to figure it out. It’s oftentimes too late. So now’s really the time, the market is kind of quiet, the bad actors are starting to get routed out. This is the time when you don’t have the FOMO and FUD pressure, and you can proactively start to take some significant steps in the right direction.
Gene Tunny 58:03
Righto, okay. Final question. You mentioned about criminal activity and as a proportion of all crypto activity, the criminal activities, very small proportion, okay, accept that, but has crypto, is there any evidence on whether crypto has enabled criminal activity? So it’s expanded the amount of criminal activity out there in, so does it make it easier to traffic arms or just you know, awful things like human trafficking, etc? Do we know in drugs? Do we know anything about that?
Tonya Evans 58:37
It’s just a small, small part. There are some significant bad actors who deal precisely in the things that you’ve mentioned. But and the Wall Street Journal here. Maybe within the last, well had to be within the last month, they ran this completely error-ridden report about Hamas, raising millions and millions in Bitcoin. And there was this huge rush by Senator Warren and some other folks signing off on letters saying that needs to be immediate action taken. And it was just completely wrong. And it was scary that our legislators would rely on something that was so faulty, and with not insignificant pushback and fact checking, mostly coming from the crypto community. The Wall Street Journal had to issue a retraction and the senators had to stand down. What was said to be millions and millions that Hamas, Hamas was like, please don’t send us any more money they can track it. Thank you. Send us dollars. Send us dollars do not, send send us dollars and oil. Do not send us Bitcoin because of the nature of the tracking. You can literally go to any bitcoin tracker and see in real time. Now it’s pseudonymous, not anonymous at but with Chainalysis and some other companies use what’sapp’s called blockchain forensics. And it’s really like following the money. It’s a paper trail. But only it’s not using paper and every single transaction all the way back to the original transaction in Bitcoin issued by Satoshi Nakamoto, him or herself, is on chain visible, and you can see from wallet to wallet to wallet to wallet, and you start aggregating pieces of data. This is the way the Department of Justice here in the United States starts to root that out, and it’s just a terrible place for activity. Now, the one point is, it might be easier to get it up front. But it’s not a matter of if but when, with the right resources behind behind it, some of that stuff is going to get found and people will be routed out and they will come to justice. So this is a terrible thing for for for criminal activity. That doesn’t mean criminals won’t try. They’re very lazy. And maybe they don’t know a lot about it either. But that’s why there’s a relatively insignificant amount because, you know, it’s easy to hide physical cash. Right? It’s not easy to hide something that’s there in plain sight. So it’s tough to combat that point because of the pervasiveness of, like the sensationalised headlines, and again not to diminish what’s going on we use Sam Bankman-Fried for example, as an you know, kind of the poster boy, but it took less time because he was apprehended in the Bahamas on November 7, in like basically almost a year to the date. He’s a convicted felon, and we’re just waiting for his sentence. It took way more time to find out who was involved in the the housing crisis, way more time to take down Bernie Madoff. It’s all garden variety fraud, but it happened far more quickly in the crypto space and I don’t think that the crypto space gets enough credit for that.
Gene Tunny 1:02:00
Yeah, good point. Very good point. Okay, Professor Tonya Evans, this has been amazing. I really value your insights and your your deep knowledge of this sector. This is this is really terrific. And I got a lot out of this. And yeah, I’d love to do a round two sometime in the future. But yep, Digital Money Demystified. I’ve got it on Kindle. I think it comes out in paperback. Next year, early next year. So yep, I think
Tonya Evans 1:02:28
It’s here now, yeah now here now go to your favourite place and buy buy buy, you can go to digitalmoneydemystified.com. But it came out on October 24. So it’s available wherever books around the world are sold.
Gene Tunny 1:02:42
Okay, ah very good. I must have misread that. That’s, that’s terrific. Well, Professor Tonya Evans, thanks so much for your time. I really value the conversation.
Tonya Evans 1:02:50
Appreciate you Gene. Thank you.
Gene Tunny 1:02:53
Righto, thanks for listening to this episode of Economics Explored. If you have any questions, comments or suggestions, please get in touch. I’d love to hear from you. You can send me an email via firstname.lastname@example.org 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.
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