Welcome Hey, everybody. Welcome to this week's episode of dead cat. It's me, Tom here joined by Eric and we have as our special guest, Jacob Silverman, journalist of many, many topics within tech, although has been spending a lot of his time in the past couple years. How long is your crypto fascination lasted? Jacob?
Let's see it really started at the very end of 2020. So yeah, so about a year, a year and a half, maybe. Okay, okay. I'm relatively new as far as sort of the scene goes,
right but outspoken as a crypto critic. And yeah, kind of signs out. No coin
or that? Yeah. Yeah. I think gloves off a little bit.
Yeah. Okay. Yeah. So this is going to be a crypto episode to all those who have been paying attention to the brutal and disturbingly bad crypto markets that have crashed, not only in tandem with the equity markets, but far, far worse.
Bitcoins down 37% year to date. Luna, obviously, collapse was a theory of I don't know, just trying to be Yeah, every everything's down, everything's down
down in a big way. And Jacob is obviously great to talk to you about this, because, you know, obviously he is he's been into it and writing about it over the last year or so. But also, you are working on an upcoming book with Ben McKenzie. Yeah, that Ben McKenzie, Ryan Atwood of OSI fame, who is also probably the most prominent crypto critic out there these days. How did
you guys sync up? What's the backstory there?
He it was actually a pretty, pretty basic meet cute, I guess. He likes something I wrote for The New Republic about Bitcoin basically being a scam. And he DM me, and then we both live in Brooklyn. So we went and had beers and burgers and talked about crypto and he had fallen down the rabbit hole to at that point of the sort of critics rabbit hole, like I fully admit, much to the chagrin of people in my life that I am obsessed. But you know, I'm obsessed from this angle of of kind of fraud and, and the absurdity of it and the characters involved and how could this all be happening so much out in the open? So Ben, kind of, well, I've been writing a bit about crypto intermittently, it wasn't totally my beat. But Ben had some time on his hands as Hollywood is basically shut down during the pandemic. And that's how he first fell down the rabbit hole and then roped me in.
Right, got it. And I guess we should lay out at the outset here. Because we've talked about crypto on the show before, we've probably run the gamut. I mean, Eric, you're you're probably going to be on like the the more defensive side, I imagine
why I was gonna point out, the convenient thing about starting to cover crypto in 2020 is you have not had to apologize for past cycles, where everybody took a victory lap and said, This crypto thing is like a scam. And then it comes roaring back better than ever. And then you're sort of like, well, it's a really it's a better scam. Right realized.
And so because high ticket has had so little time having fun.
My position has always just been people, I've made so much money on it. Like it's real. In that sense. I sort of wanted to throw out the question like, if you pull off a Bernie Madoff and never go to jail, isn't that a success? You know what I mean? It's
like, yeah, yeah. I mean, well, I honestly, I think that's the attitude in some ways for people within the industry. I mean, you hear a lot of talk about Ponzi schemes and maybe about sort of Ponzi economics not being that bad, necessarily, I argue that there's been almost a rehabilitation of the Ponzi scheme. So I mean, just to take me off his example. He was one of the most successful investors on Wall Street for years. So in a sense, he succeeded for a long time. And one thing you learn is that sometimes it's not necessarily the the contradictions of a Ponzi scheme or law enforcement, that ends the Ponzi scheme or the scam. It can be outside forces, like, like the recession, or often not being when when the bill comes due a recession hits say, your customers want to want to cash out suddenly, you can't pay them all. That's, I think, a common way so many scams fail, but even just to bring it back to this week, the whole Tara and Luna thing, I mean, a lot of people thought that was a Ponzi scheme, even supporters of it thought was a Ponzi scheme. But there was a sense that it could just be a Ponzi, until maybe it was somehow legitimize whether it was the $10 million plus worth of bitcoin backing that doe Quan was trying to build up. I mean, he basically said that that was the defensive mechanism to keep this whole thing going. Right. Well,
there was that interview with Sam bank, Ben freed, right where I seem to sort of admit a Ponzi ish level of to some of these projects, and then you see the crypto people you know, This world so much better than I do. But like they talked about like D Gen boxes all the time, or there's just this idea that it's like, yeah, it's like a magic box and produces money that's like probably broken, but like, Yeah, I'm gonna make money off the box. Well, while it's working.
Yeah. And that seems to be the sort of the latest term or framing for some of these defy pools and protocols and stuff like that. I mean, what the it would be, it's pretty complicated. Describe what just happened with Tara and Luna, I'm not sure if I even fully understand it, really. But you know, but basically, it was a way of creating a stable coin, a coin that has a value of pegged at $1, of which there are a number now of sort of varying trustworthiness. But that's how defy runs these days is on stable coins, and you stick them, you stake them, or you stick them in the magic box. This is the simplified version. And then you get insane interest rates. So in the Terra Luna ecosystem, if you put your your the staking pool was through something called Anchor, and there you were getting like, you know, actually don't know what the anchor rates were recently, but, you know, these are double digit rates, and some of them are promising. 70% and not necessarily an anchor but something's other Defy. Yeah, those
like 19% at one point, yeah,
they certainly fluctuate, but like, you know, you're not gonna get a more than single digits from a regular bank. So obviously, they're promising these improbable returns, I think it's gotten to the point where even someone like SPF has to admit, like, sandbag and free. Yeah, I'm sorry. That's, you know, those of us in the know, we vote we both pretend this podcast
is super incendiary, but then tried to bring people along into
balancing, please steer me away from jargon or tell me to explain anything here
is we've launched so far into this immediately, we didn't even really define to a degree how a stable coin works. And I mean, to me, that is probably been the biggest story of the last couple of days is the collapse of Luna and Terra, and you sort of say that, you know, it's pegged to the dollar. But can you explain just mechanically how that's supposed to work? And why, you know, for whatever reason, the structure that was put in place to ensure stability, clearly just collapsed.
Yeah. So there are a number of stable coins in the crypto economy. There actually, if you look at the top 10 coins by market cap, several of them are our stable coins because they become very useful. So the most, there's about $150 billion worth of stable coins out there. These are all ones where at least in this case, we're talking about ones that are pegged to the dollar. They're ones that are pegged to other currencies, but the most popular ones are pegged to the dollar. So tethers the most popular one also, sort of the most
Tezzeret one, if that goes down, some people really do think the economy will
like Oh yeah, and tether is considered disreputable in a number of ways. There are good articles out there. And Bloomberg, I've written a couple pieces that sort of serve explainer type pieces. But there has been some good investigatory uses
definitely other shoes could drop, you know, we're attention to the stable coin thing because the Lunas thing isn't some oddity, they're bigger, stable,
pegged to the dollar by the way, that essentially means that the value of a single coin should not fall below the US dollar.
So with most of these, like the biggest ones are tether, and USD see what the idea is that when you can buy them on exchanges from the exchange or from perhaps other traders, but you know, when an institution or a big client goes to tether or USD see, the idea is I give you $100 million, you give me 100 million tethers, you know, one to one, and the idea is also supposed to be that tether has one to one backing in the bank. So in case there's a bank run, or people want to redeem their tethers they have that cash in the bank, and they're there more than $83 billion worth of tether in circulation. Now the widely it's not even really controversial at this point. I mean, it's been discovered through some government investigations is that tether is not one one backed, and they've also changed their essentially their terms of service over the years to kind of all first they said they're one on one backed by dollars and then it was sort of dollars and dollars equivalents. Now it's it seems to be anything goes there's also a wide belief that some of these which essentially
means that the claim that they had that there were banks willing to redeem your your your coin for similar amount of dollars, they just didn't have those contracts or the banks just weren't willing to do that.
Yet. Well, tether has had a lot of problems with banking. You know, some of these, some of these other firms like USDC have had more successful bank relationships. I mean, people in crypto will tell you well, this is a problem of the federal government of the industry making it hard for crypto to bank. But tether has basically like a lot of crypto companies moved offshore. Most of their banking, as far as I know is done through a bank called Deltec in the Bahamas. So there's there's a belief that this bank Deltec holds most of tethers money, but as you're getting at, it's not $83 billion. It's far less. We know that tether holds a lot of commercial paper which is a type of sort of short Turn corporate debt,
which is what scares the shit out of everyone visa vie, yeah, dump all that all of a sudden, it could mess with the economy
exact and the paper is believed we've a very low grade sort of, you know, like C grade debt or whatever the equivalent might be. And also, from what I've been told, a lot of it probably is of Chinese companies. And right, there
was all this paranoia that like the Chinese, like, you know, all those empty apartments or whatever in China, or like tether was sort of behind some of the crazy stuff going on there.
And even if tether isn't deeply connected to like Evergrande, or one of those huge Chinese developers, they still have, we know they have some Chinese debt. So like, the Chinese property market and economy in general have been struggling in last six plus months. So I mean, that could be one shoe to fall, if or one catalyst if this stuff all does fall apart again. But so the reason why stable coins are useful, basically, is that they're easy to take between exchanges. Every cryptocurrency practically is priced in terms of, of stable coins. So there's like a USD t, which is tether price. And so it's really easy to make these transactions and to shift them between exchanges, it can be harder to cash out, it seems, because if
you're doing everything in crypto, you're not hitting dollars, which has right to regulate, right, you
don't touch banks as much also, as exactly so you don't touch the mainstream banking system, you can keep it on the exchanges, or even off the exchanges. And also for defy, it's basically based on stable coins. And basically you stake your tokens, you give them to some project, they stick them in the magic black box, and then supposedly an incredible interest rate comes out. But you might not be able to collect on that for a certain period of time,
which is why stablecoin collapsing is so tragic for the holders, because this position is like this ultimate secure thing. It's it's like dollars with an interest rate. And then all of a sudden you lose all your what principle basically. And so it's
right and, and also stable coins, you know, as per the name have been advertised as stable as a refuge and everyone knows the crypto markets are volatile. I mean, even crypt people in crypto may know that they're not trustworthy, and that there's a lot of scamming going on. But, you know, stable coins have been widely touted as the safe place for your money. I mean, USD C may be the safest one at this point. But people have been putting a lot of their crypto converting it into tether into USDC. And also, you know, until recently into into Tara and Luna. Yeah,
it's like it's like the T note, I guess of of the very various crypto coins. So what would you say is the precipitating event that has caused the entire crypto sector to decline in value as rapidly as it has? I mean, is it purely just the flight to secure you know, interests? And you know, interest back notes or things like that? Is it the fear that equity is falling? has just caused a panic more generally? I mean, why exactly are these things happening in tandem?
Well, I think there are a few factors you can point to, I mean, things were on the decline for several months. But before this, most of the, the currencies, especially the big ones, like Bitcoin and Aetherium reached their all time highs in November, I believe. There was also a big crash in May of last year, which I wrote an article about, for The Washington Post with my co author, Ben, but there was a big crash in Bitcoin and Aetherium. Last year, May 19, I believe, and a bunch of exchanges, including binance went down, which seems to happen when they're big price movements like this. So after May 19. Last year, you start seeing a decline in in trading volume among retail traders. So it seems that people are losing interests. Their futures
Peter Thiel said Bitcoin was supposed to be as valuable as the entire stock market.
Oh, yeah. He said, he's using it right at the end, like Yeah, yeah, he's been all over the place. He also calls himself a Bitcoin Maxy. But, you know, we saw retail volumes going down. I think some people are wising up some people have less disposable income or less, maybe I think one thing that drives people to crypto is a sense of, of financial desperation also, because, you know, there were people during the recession who got their their stimulus checks, modest as they were and then probably put that in a Coinbase account or something like that. So I think there is a degree of people not having as much money to sort of risk or play around with but also some wising up. Then there are other more systemic factors, the raising of interest rates. This is something that Ben McKenzie, my co author has been talking to me and other people about a lot. He really thought that would take some esteem out of the markets and it seems to be the increasing interest rates, trouble in China, all the trading being sort of pushed offshore though a lot of it was being done through VPNs. Anyway, so all that was causing months of sliding prices and generally things have been declining since November. And then this week, you have a major stable coin, a top 10 Crypto A currency basically going to zero. Exactly how that happened. The mechanism in which it happened is, it can't actually be fully known at this point, I think because some people believe there's sort of an outside attack, sort of like a George Soros,
having people say, Oh, Citadel or whatever, yeah, there's
that rumor around, but like Citadel and BlackRock or it doesn't. They're like enemy number one. And it's
very convenient for that to be the answer for why they
fail. And the thing is, like everyone thought this was probably going to fail some point. They just wanted to keep it spinning for longer
Ken Griffin or what is it King Dow that was trying to buy the Constitution. Right. So yeah, buy, buy him before, you know.
Yeah. So you know, there is certainly a persecution complex or a sense that and you know, if there's a lot of money to be made, I mean, there are hedge funds involved or high frequency trading firms that only do crypto. You know, if there's money to be made on arbitrage between exchanges, or trying to manipulate a protocol like, like the whole Terra Luna anchor ecosystem, they'll go for it, I just we just don't have evidence that they did buy one
view of crypto, it's all in the game, like, that's fine. You're operating on the protocol, you're following the rules, like if you find a way to like, siphon off a lot of money. I mean, it's been funny. And I want to this is tragic and amusing at the same time. I mean, you see some of these threads, and they're like, you know, suicide hotlines, getting banned dance on people who are but but obviously, there's sort of an intellectual part of it, that it's very amusing. And in the in the crypto world, you see, like, the hardcore Bitcoin people being like, you should have never believed in these stable coins. They're centralized projects that require all this sort of administration. So it's funny to watch the infighting is this stuff. Yeah. Holes.
Yeah. And I think there may be more that I mean, there's so much rationalization that goes on, within crypto in general, on all sides, I mean, but especially during these times of trauma for some folks and these dramatic swings in the market. I mean, of course, in the normal stock market, if there were 30% slide in a day or a week for the whole market, that'd be you know, that'd be historic or a huge problem. But in crypto, it's just, we've seen it before or even, you know, you guys were referring, I think at the beginning that conversation to 2017 2018, there's the big Ico boom, then a crypto winter. You know, I'm more new to this. But at the same time, I at least know a little bit of that history. So I'm not ready to call crypto dead. Even if tether collapse, crypto, I don't think we'll be dead. You know, you'll always have people who say we need to do a better this time more decentralized, more offshore, or they'll they'll have people to blame. But I don't think sort of an honest internal reckoning is going to happen.
Well, it seems like two things need to be reconciled. Here. There's one in which like, does the central thesis of cryptocurrency of a decentralized, you know, financial system based on a public ledger? Does that work as a technology? And and then there's the like, you know, is it going to replace currency? Is it going to, you know, usher in a new economy? And I think like, one can be true, with the other being false. You know what I mean? Like, well, I guess no, they both kind of the central technology has to work in order for the second to be true, but I am more willing to believe someone who looks at the, you know, who's willing to look at the current state of a lot of these cryptocurrencies and stablecoins and whatever and say, yeah, obviously, this is a horrible time. There have been a lot of failures that brought to this point, but the argument that we have as to why this works, and it's important, still exists, still still is valid. Do you agree with that?
I don't, but I hear that I understand it. I mean, I think you're right, though, to to sort of get back to first principles, like, for example, I mean, I think financial censorship, as it's sometimes called, is an issue. I mean, but I don't, to be honest, I don't think people necessarily should be able to transact any amount freely with anyone without any sort of political your
customer has been sort of a central tenant of
recycling. We've Yeah, we do need to find ways to preserve and even boosts sort of privacy and financial freedom of a certain kind. But I do think money needs to be subject to political governance. Now, that means something different here than it means in Nigeria, or Lebanon, or where there have real problems with the currencies. And certainly the Fed and Wall Street and Goldman Sachs basically running our monetary policy is not a good thing. But I do think that currency in general, if it is to act like currency, and to have the protections that currency should have, and then the consumer protections needs to be subject to some form of political governance, and I don't mean a Dhow. That's my general philosophy. As for the technology, I'm glad to talk about that. I'm certainly not an expert, but I will say this, it is more divisive within tech. I think then oh, Was any technology I've seen in a while besides maybe like facial recognition or something like that. And I talked to a fair number of people who are computer scientists, technologists, someone like Nicholas Weaver's, a very prominent on Twitter voice on this. They just think the tech isn't very good. That an immutable blockchain with very slow throughput or transaction pace is not the answer to a digital money system. And I think in some ways, the technology has been so fetishized, that the industry is almost stuck with it that I mean, there could be another way of making digital money without blockchain, right?
I mean, Bitcoin is certainly not a perfect system, but it's just sort of now like this almost historic artifact that we have. I mean, it's somewhat random, that gold is our favorite metal, like, Sir, there's underlying value, but it's sort of like that's the one we've decided and a lot of Bitcoin people aren't really arguing Bitcoins, some perfect thing. It's just like, oh, that's the one. That's your OG one. I mean, do you personally think Bitcoin is ever going to like go to zero? I mean, I mean, maybe it loses value when, like, if the US says you can't have it, I find that unlikely. But to me, it's sort of like, it's so far down the road, that like some people will see it as a cause. It's proven that it's some sort of store of value. And people can own it, too.
Yeah, I mean, it's an interesting question. I don't think it'll I probably don't think it'll go to zero. I mean, we've seen a couple of things go to zero practically this week. But you know, Bitcoin has been around for a while since. Was it October 2008, or 2009? I always forget if it's Oh, eight or nine, but so it has it has a certain amount of longevity in terms of in tech terms. I think crypto in general answer answer the cryptocurrencies that have followed and the other blockchains that have followed have have almost been, I don't know they've had their time and way I think like, we haven't, we've had 12 plus years of this stuff. And there's isn't really sort of a functioning crypto economy without these glaring security holes, and wild volatility, and really difficulty transacting widely in those currencies. I do think Bitcoin, especially because it's first and seen as rather innovative and seen as more decentralized. So there are certainly people working on the Bitcoin protocol, but I think Bitcoin would have more staying power. I also think Bitcoin, I mean, one, this isn't a monolithic industry. I've I've learned that in the last year. They're people who dabble. They're people who believe all kinds of things. But bitcoin does have sort of the strongest or most, yeah, perhaps the strongest culture, which in some forms is a cult, I think, or an ideology. I mean, I don't think that's everyone who, who likes Bitcoin or invest in Bitcoin, but, you know, that core of true believers is strong. And I think that might help, you know, sustain it in some form for why? Well,
I mean, a lot of them would admit the cult piece. Yeah,
I talked to people they say they they're willing to admit that sometimes. Yeah.
Well, that I mean, that becomes very literal with the NFT crowd as well. I mean, it's, it's not a, it's not a very far jump to see the groups built around worshipping of, you know, digital artifacts, into something that has like a religious fervor behind it.
But I mean, there's a general broader truth that things are good are valuable, because humans attach value to them more than because they produce cash flow, at least have in the recent economy. Now, maybe we are about to see the day where we revert to ability to produce cash flow is the main thing that drives the value of things. But we exited that period for a long time. And so if you observe that and realize that people were making a killing on Tesla, because it was going up, why not abstracted a level further and just say we can, yeah, make money on monkeys or whatever, we have influence we can convince people that their value, I mean, to some degree, they're being they were being more honest about the economy we were living in, and people who are sort of saying it wasn't going to work, because it should the world should work on cash flows. But you know, it
was Yeah, I think it's interesting, because, you know, we had maybe 20 years plus where we're of this new digital economy, I mean, not not to reduce it too much or oversimplify, but where there was digital abundance, you know, potentially infinite abundance because any file can be replicated with perfect fidelity easily. And then you had things like DRM and other sorts of systems to try to deal with this, with piracy and infinite abundance and all that. And now this is, in some ways, what's happening with NF T's and digital assets and stuff like that. And blockchain based assets is is almost a new form of DRM or perhaps a new way of trying to more thoroughly apply meatspace property rights you might call them in the digital world, which in turn leads to the ability to produce cash flows, rents, royalties, on digital assets, so you can kind of, at least from that's how I kind of see it. Whether that's possible or can be successful is another question. But I see the the sort of the model or the economic angle being run here. And or at least that's how it appears to me.
Yeah, I mean, the funny thing about NF T's we laugh, they're the easiest to laugh at. But I also think they were the clearest, where people actually said, Oh, maybe this is an actual utility of blockchain, right? I mean, I do, even though I'm probably most willing to defend all of this, like, yeah, the clear use case of blockchain in any sort of, besides financial speculation is remains like a total mystery. And at least NF T's were like, okay, yeah, you could, I mean, I can see why you might want to own objects and games, and blah, blah. But I mean, that market, I
think it's telling, I think, it's also telling that if you were to explain this entire world, to someone, the one like a regular person, the one that I think would have the most purchase with them, that they would understand would probably be NF T's, you know, just digital rights ownership over digital goods, or rights ownership over digital goods, that makes sense to people to a certain degree, whereas, you know, the full critique of the capital system that, you know, crypto is supposed to be representative of, it gets, like you say, so abstracted, that, you know, the value is truly going to be in the people who want to take the time to understand this, and convince other people of it.
And I think also, that's why, you know, if people are interested in this stuff, I, I see crypto in general, a lot like gambling, and I have no problem with gambling, I do it occasionally. But you know, the general rule is gamble only as much as you can afford to lose. And people should know the risks. And I don't think people know the risks very well in crypto. But I also think that what you're talking about with that explanatory, and so the gambling side is one reason why I see crypto maybe as staying, or at least becoming somewhat niche in the future. The other or not receiving mass adoption. The other part is sort of the explanatory factor that that you were just getting at Tom, which is that it's hard to explain this stuff to people. I mean, certainly, you know, the elderly people in my family, it's kind of hopeless, even if they have their faculties, which they do. But, you know, it's just, it's hard to explain, it's taken me a long time to understand how some of this stuff works. And I'm still learning more. And that's the difference between something like Uber and Facebook, which, I mean, I've criticized those companies plenty, but the service they provide is clear, it passes sort of the grandma test, as I've heard a call back in from startups years ago, like, you can say, in a sentence or two, what this thing does, what I think might what crypto might need, if it survives, the various hurdles that it's facing, is actually sort of speaking of abstractions, maybe like another layer above it, of an interface that so people don't know that they're, that they're working with a blockchain, they don't really know they're working with crypto, for example, on, you know, their all these issues on open sea and these other NFT platforms where people are sent NF T's that they don't want, or they click, they, they they click the wrong link, and then it's over. Because you can't really reversing decisions, you know, their permissions that are involved and things like that, if the everyday user didn't have to deal with sort of that technical complexity. And on a day to day level, I think that would actually solve a lot of the the onboarding issues, and also the security issues, too.
I mean, that that's sort of like a reason of optimism to me for this whole world, right? I mean, to like it. Yeah, like Facebook, Twitter, users don't need to understand machine learning to know that the services serve up people that they want to see or, you know, especially tick tock now. And yeah, so I totally agree with you that a lot of the technical stuff needs to be abstracted for it to work. But that's, that's why it's like, it's very believable to me that right now in crypto, we're in the.com era, you know, like, most of it's totally useless is all going to blow up. But like so like Amazon merges from the.com era, like the key like, I just find it hard to believe that everyone is so attached to these various ideas that like, nothing good comes out of it. And that like in 100 years, we don't say wow, like that, that, that people don't really care that there were all these like frauds
and there's Jesus, that's a long timeline to prove out.
20 years, I think, yeah, crypto will be but I mean, yeah,
that's like leads to like my next question then. For both of you guys. I don't have an answer to it at all. But like, where do you see the current state of the broader legitimate tech industry when it comes to continuing its fascination with this space? Right. I mean, like, we all know tons of people that had really great jobs at tech companies that bailed to go work at old can see or Coinbase, or any of these other companies that are predicated entirely on the furtherance and existence of this technology. So many VCs that we know have shifted their focus entirely tobacco and crypto startups. That's their that's their MO. Like, what happens to that now there's a huge amount of money still, like leaning on the fact that this will persist. Are they going to back off it? Like, where are their heads at right now? No, I'm sure there's been stories written about it. But what are you what are you gathering?
I'm not well, Eric could probably speak more towards, you know, where where people's heads are at perhaps. But I mean, I think part of it also depends on how big the the next crash is, whether it's the ongoing slide that or pseudo crash. So we have gone now like, does that keep going? I mean, that notice about bankruptcy that Coinbase put up? I mean, they say, Yeah, they just had to do it to fulfill some legal requirement. But is that a sign of things to come? I know, you're pretty
well, capital.
I'd be shocked. I wouldn't be surprised to but I mean, yeah, I think there's a question of how much of this stuff sort of crumbles and do major companies fail? It's certainly possible. And then in the next couple of years, it is interesting, because as you've both gone out, there is so much money coming in. I mean, I think Andreessen Horowitz is ready to pour more billions into into crypto startups. And you have a proliferating number of firms. And besides the already established ones, or paradigm and these others, and Katie Hahn leaving a16z to do her own thing, like, there doesn't seem to be any lack of capital. One question might be, does rising interest rates cut off some of that capital, or at least, you know, some of the institutional investors get a little more skittish and want to put their money in something that seems safer? So I'm of two minds almost like, I think there's been a lot of money put into this stuff. I frankly, don't see as much use case. But there is a sense in which parts of the tech industry and certainly the VC industry are almost like pot committed to use a poker analogy, like, you know, they put a lot of resources into this, some of them have probably done pretty well by selling tokens or whatever. But, you know, I'm sure lots of we would like to see something sustainable come out of this.
Right. Yeah, I agree that there's a lot of money out there, I think, you know, a lot of the firms that were sort of dipping, their toes in crypto are certainly going to get even more skittish about it. And I think, you know, the crypto funds will slow down the deployment. So it'll certainly hurt sort of the companies that are even more peripheral. But uh, yeah, it doesn't seem like money is going to dry up overnight. But that was sort of true of the.com and 2008 crashes, where it's like, it's not like the money disappears right away. Because just like the nature of startup investments, you know, there's still there's still like these funds that have been raised the deploys. But yeah, the valuations for
talent is an interesting question there too, right? I mean, they've been these huge talent magnets at the major companies, all of these all of these crypto companies, and I don't want to be too far down, like the valley mindset of saying, like, you know, talent is enough to create a product and a positive result. Like I think good ideas are probably more important, ultimately than that. But it will be interesting to see if there is like a rush back to traditional tech companies, by a lot of these people that saw it as like a new frontier, and now are disillusioned by the state of affairs. And, you know, that could have cascading impacts on the industry,
Jacob, this sort of a different direction, but I just want to make, what is your sort of moral project on it? Or like, you want people to be aware that this is like gambling, or like, but But are you sort of, do you have this personal stance on like, I want government to ban XYZ? Or, I mean, where do you sort of see or like, I don't know, this sort of ideological, political sort of part of this intersecting with what's happening in there for you having some sort of perspective on sure what should happen,
the usage of Ponzi scheme is like a pretty loaded moral term, like those are illegal.
Well, they are at the same time you see it being used sometimes by people within the industry. I mean, I would say that it's like, you know, I don't necessarily people should be banned.
I mean, scheme is typically like not a word associated with security
thrown around anyway. Yeah.
You know, I do think that, you know, I'm trying to talk to as many people as I can from all facets of the industry and and also just everyday folks who trade and stuff like that. So I have managed to talk to some folks who are true believers, who are executives at crypto companies, people like that. And then a lot of skeptics like me, or or outright critics, a few things that I think could help I would, I prefer to see more sort of guardrails introduced to the system rather than it being just, you know, smash that smashed wholesale unnecessarily, but I think that most crypto currencies should be most tokens should be treated as securities. I'm not an expert in securities law, but from what I understand they seem to pass the Howey Test, which is sort of the standard for whether these should be treated as securities. I mean, the SEC has done a little bit of this in some of their enforcement, you have the other issue with Bitcoin being officially classified as a commodity, I believe through the CFTC. But in general, I think these are securities. And I think the SEC has a lot of authority to do some things now, that would make for a safer retail environment for consumers. So I do try to approach this mostly from a consumer protection standpoint, I think. I mean, I, I'm a person of the left I think that's so when when my sort of left the politics come in, I would say it's when I hear people from crypto companies saying, we are promoting financial inclusion or we're forward democratizing the economy, or, you know, those sort of the fact that idea that crypto is somehow emancipatory or liberatory. I think financial freedom is a real thing. But I think like for me, I would have and I don't claim to speak for everyone, but I would have my more financial freedom if I had universal health care, you know, if I had if I perhaps had postal access to postal banking or or a local credit union or something like that, like the things that would if I had state subsidized childcare like that would offer me a lot more financial freedom than the opportunity to speculate on wildly volatile cryptocurrencies. I mean, so I think about in some ways like that, like, what should the government, what should the government's role be in sort of providing for people's economic opportunity and freedom? And I don't think that cryptocurrencies necessarily enhanced that project,
the SEC and the federal government's sort of regulation of crypto, I find it extremely disillusioning to like the liberal democratic project
committee has done a poor job of it, that's for sure. It is
similar to the SEC is failure to hold Elon Musk accountable to any of its own rules, or just sort of like, you know, the fact that California and New York are like Democratic controlled states and failed to like adhere to like, sort of the liberal utopian like vision that they would promote. So so to me, I don't know, all this stuff makes me you know, as sort of a diehard Democrat, somewhat disillusioned with the left, given that they, it's like you have to act in a, like technology moves quickly. Like, I feel like I on the one hand, appreciate that. Like, I don't have full conclusions about crypto. So I wouldn't, if I were in charge, just be banning things left and right. But but not taking action is is a policy decision. You're basically like letting it happen and sort of yielding sort of any sense of control over over what happened. So like, the slowness has been an embarrassment for the Democratic idea of government.
But you've also seen the ability of regulatory bodies to when they make strong moves to have a huge effect. I mean, I think about what they did with Spax. In the last couple of months, like by raising the requirements and stopping companies from making on, you know, on, should they basically check
to the specs get out first. Yeah. Why?
There's no question that like, the window,
yeah, there's this big appetite for speculative companies to get out. We're gonna let them all basically get out. And then right, we're gonna say, you know, like, no more like, it was obvious from the beginning that the projections is you should have like, on the first day, they could have said, Oh, you can't just like give wild projections, because you're doing this weird loophole trick, like it was self evident. I don't know why, that I, you know, I reported on him for a couple of days. And I like wrote that. I don't know what, why it takes like months. And
yeah, there's no points for being here. Right. My point was just that like, and when they make a decision, they can do it. They have the ability.
Yeah, they shut down the telegram ICO. And that was a big one. Yeah, right. I hear different things. I mean, I have a lot of frustrations. And, yeah, this is I mean, it's certainly a bipartisan problem. I mean, and also, when I raise this stuff, people in crypto are like, well, about Nancy Pelosi profiting off of insider trading. And I'm like, Yeah, that's horrible. Like, I'm disgusted by that, that sort of an argument. So we get off on a lot of tangents about like, well, Wall Street does XYZ. Yeah, wall does a lot of horrible things. I don't think crypto is necessarily response to those. But as for the SEC, I think, you know, there's a problem of lack of political will. They don't want to be seen as popping the bubble. They don't want to be seen as anti innovation. Some of these cases may take a while. But there also is just a question of why Why isn't more being done. Gary Gensler talks a big game at times.
He's like an expert in crypto. Yeah, he
taught a course at MIT on blockchain. He knows this stuff. I mean, yeah, he's a Goldman guy. So you have to keep one eye open for that. But, you know, I've talked to people in in sort of, I guess you'd say state law enforcement or state regulatory bodies, who are baffled that more isn't being done on the phone. Federal level, they've, some of them have sent information to the SEC, huge files with the essential parts marked. And still you don't have I mean, the SEC doesn't do criminal prosecutions, but some of the stuff is going to DOJ also and like, you know, the summer of 2021, there was an article in Bloomberg saying tether under federal investigation for bank for criminal bank fraud, which is which if you read the reports from the New York ag and the CFTC, into tether, they probably committed bank fraud. So there's a lot of questions, I think, you know, it goes back to some of those things I just said, but it is a failure of sort of the administrative and regulatory state. And the judicial process that we don't prosecute any form of white collar crime that Ilana we've all seen that Elon Musk broke securities laws this year, when he was accumulating his his Twitter stake. So it's deeply frustrating from sort of top to bottom.
Right. And I, I don't want to come off, like I'm saying I want to freeze everything. I just think I'm very straightforward stuff. I mean, the SPAC sort of projections issues, so easy to say, but you know, are in crypto world, you could just require, like disclosures for stable coin holdings. Like it's not like you have to ban things, you can just say, Oh, we're going to create reporting requirements, you know, if you're claiming X, Y, Z,
and I think disclosure is huge. There's actually another thing my my co author, Ben McKenzie talks about is like, you know, it's a basic fact, usually of doing business, and especially investing in companies and stocks, you know, who you're doing business with, there's a person and company and a legal entity on the other end. I mean, we don't even have to get into the debate about quote, unquote, Daxing, the board eight people, but I do think it is ridiculous that like, this was a multi billion dollar company in the making, and they thought that they could be anonymous, like, if we just had more, if that would be a great start is to have more disclosure, knowing who's behind these companies. So people also can't rug pull and then pop up again, under another student and rug poll.
Exactly. I mean, I was going to bring that term up. I mean, just the idea that it's sort of like par for the course and crypto world that basically, you know, somebody will announce a project, raise a bunch of money and then just disappear with the money. That's a rug pool and come back later. Yeah, people like, Oh, this guy did a couple rug polls already, you know, but this time, it's a good project. Right?
That's the rationalization that factor I talked about earlier, which is that people make excuses. There's such low expectations that they're like, he apologized, or he did produce some value for a lot of people. Let's see what he's got next, or the person just disappears and comes up under another pseudonym. But, you know, when I go to conferences and things like that, and I and and Ben and I interview people, nearly everyone we've talked to has been scammed. And a lot of them have rationalizations. Usually it comes down to Oh, it was my fault. I didn't I click the wrong thing. I didn't do enough research. I didn't realize that this risk XYZ, but it may because it's somewhat of a libertarian unregulated culture, that sense of responsibility comes back onto the individual. And I think that's also very unfortunate and not a way to build a sustainable industry, you need not just these guardrails, but a sense of accountability within the industry, that they're that people shouldn't be scanned, left and right all the time. That shouldn't be just sort of the cost of doing business or the cost of entry. It's such
a bizarre world, I just realized, the more you talk that you have both the people who are so openly cynical about things that they're happily willing to accept a rug poll, or a scam or somebody you know, a pump and dump is like not even considered a criticism. They're like, Oh, yeah, it's a pump and dump. It's one of the pump and dump coins.
Yeah, we had Dogecoin. And then we had a billion iterations of Doge. It's like, Oh, what a great pump and dump idea. Yeah,
yeah. And it's man, it's still one of the saddest things. So I write about the gig economy. And one of the saddest things that I came across was a driver for actually go puff, who was telling me that she had done the research and was investing in not cheap II knew, but as she bought a new knockoff, and she was like, I've done the research, and, you know, I went to a conference in Vegas, and I feel really good about this. And I mean, I'm assuming that's all gone to zero at this point. And she sounds like yeah, 1000s in that,
I mean, there are people who managed to sort of ride the volatility or you know, a coin might be worth period seven zeros and then a number they're these basically worthless coins but sometimes people buy a million of them and then and then ride a 10% increase and suddenly they've made some money. But yeah, generally in those kinds of cases, you're not gonna make a profit part of the reason is like there's not much to differentiate a lot of these coins. Yeah, there are different prices and and some of these projects are better funded than others. But a lot of the utility I think is also outside of defy Elise is like, is sort of promised for down the road like this is going to get you into certain events or contacts with these people or you can get a letter from this celebrity or whatever else. But on a fundamental level, a lot of it is number go up. It's speculation that's built on hype and froth and Perhaps disinformation and celebrity endorsements and all those kinds of things. That's not universal across the board. But I mean, certainly at least 95% of coins probably fall under that.
So you're working with on a book with Ben, right?
Yeah, we're frankly, we're hoping to have some other multimedia projects in the future. But the book is definitely happening.
Does it focus on particular characters or even independent of the book? I'm just curious, like, who you think is who are the people in sort of crypto world interests you the most?
We definitely have sort of heroes, villains and victims. It is somewhat character driven and narrative driven. You know, we want to tell interesting stories and good stories and not just browbeat people, that crypto is bad or something like that. So I guess I'm reluctant I'm sorry to share. You know, some of the stuff might change also, I will say this there was a great article in The Verge a month or two ago about Justin sun. who's the head of Tron big blockchain that does a lot business with tether, Justin sun. I'm not writing about Justin sun at the moment. I might one day but Justin sun. Famously last year he I believe it was a Chinese national he served one these peoples for takes differences and ships and he moved to Grenada took the island of Grenada, the one that Reagan invaded, and took Grenada and citizenship and became their ambassador to the World Trade Organization. Oh, my God, I mean, totally bizarre, but of course, it's crypto. I mean, the first thing that comes to mind, of course, is that he wants diplomatic protection. Whether that really matters, you know, whether Grenada Grenada can stand up to China or the US is, is probably unlikely. But there's a great article in the in the verge, I forget the author's name, but we'll include a link it's called like the many is the many escapes of Justin sun. This is from not that long ago. And I really think that Justin Sun is representative figure in crypto. And when I talk about the industry as sort of having fraudulent or perhaps even criminal underpinnings, I don't mean that everyone but I think there are some major figures in crypto who resent who are like Justin sun, and they have a lot of control over the industry. I mean, people at tether people, perhaps at by Nance, some of these big corporations and entities that are based in the Seychelles, and in Malta, and in the Caribbean, often through a number of shell companies, and whose operators have shady backgrounds. I mean, you can even look at the CEO of crypto.com, there's a Daily Beast article about the CEO of crypto.com. He basically rug pulled on his last company in Southeast Asia, which wasn't a crypto company. But you can see the history of some of these people. Like there's a reason why this industry attracts scammers and sometimes at a high level,
this is why the tech press sort of throws his hands up on this stuff. It's sort of like, I mean, this what do you do when it's so self evident that their behavior like what am I even going to report? I mean, it's sort of like the same like Donald Trump political reporter problem. In some ways. It's like, yeah, like, obviously, it's bad. Like, I don't know, kudos to you for finding angles into it. But sometimes I'm just like, what's? Well, that's
why the victims angle probably has to be the clearest one here, right? Because if a lot of it is just playing out in the media, or on social media, and you know, you have these ridiculous characters who were like, look at me, what I'm doing is a rug poll, then the only real way to prove impact is by showing like, well, this is who was wrapped up in this person's quest for fame, and, you know, short term fortune.
I'd also say that, you know, there's some basic things I think that people don't really realize. And this goes back to what we want to do with our book. I love for the books appeal to crypto people, including hardcore crypto people. But, you know, 80 plus percent of the American population has never bought crypto. So in a way, it's supposed to be a story entertaining one about crypto fraud, financial chicanery, these kinds of things that can appeal to the non crypto person, and maybe also make them feel a little bit better about missing out. But their, you know, their basic things. I think people don't know that, like, for example, 80 to 90% of trading on most platforms, and most exchanges is washe. Trading, it's fake. So, you know, there's an idea of of a free market, there's a
whole like buying and selling their own NF T's to the illusion that they're valuable or you own
and you drive up the prices, and you create the illusion of volume, which has a similar effect. And like the bots of social media or Wall Street, it's very similar that I mean, they all intersect to
on the stock market, you cannot like make trades, for the intent of making it seem like there's a lot of buying interests when it's just you try the stock market. And yeah,
I'm pretty sure it's illegal. Right. So it sounds
like it's not like an unfamiliar type of thing. That's why it's like, okay, yeah, you could regulate that. So
yeah, and I wish people could understand also, you can have sort of a quote unquote, free market, but right now you have a market that's free to be manipulated, and it's almost undoubtedly manipulated all of the exchanges pretty much. Maybe some of like the US based ones like MIT perhaps Coinbase is better because it is it tries to be in compliance with the law. It's publicly traded, it's based here in the US. But, you know, these overseas exchanges, there are plenty of academic studies on them, you know, read up on violence or read my article in the Washington Post on finance, it's very hard to trust that these are actually, quote unquote, free markets in the sense of kind of operating unfettered, right, they're more free for people to manipulate them. And also, I think that they're free to be playgrounds for high frequency trading firms, which are just cleaning up supposedly, on some of these exchanges, because they are work much faster and have much better information than for the average day trader.
It's funny, the term that always gets thrown around in tech in a burgeoning industry is oh, it's the Wild West. Right now, you know, that any, anytime a new platform comes up, and a number of startups go after it, you say, oh, it's the Wild West, which typically just means like five or six VC backed companies are all having like, you know, territory carve outs to see who can, you know, emerge that number one, but like the actual analogy of the Wild West, which is that there's no governance and people are getting shot, like people are getting killed without any sort of repercussions, feels a lot more realistic to explaining what's happened in crypto. And also the people that made a lot of money during the Wild West, there weren't that many, like self made entrepreneurs who came out of nowhere to, you know, ended up becoming whatever saloon owners like there was a lot of eastern capital ended up funding these things. And those were the people that made out on it all. So it's finally like the analogy rings true. And it's and it's horrifying. Well, also,
another way in which it might be like the Wild West is that in 19th century, you had private money in various forms, you had sort of corporations, especially railroads, I think introducing their own money in sort of in regions in the west and stuff like that. So there are ways in which crypto is a return to that both sort of anarchic and, and lawless quality of it. And also, these are basically corporations. And sometimes they're one or two people, but issuing their own currencies. And with all the complications that that then introduces,
in closing here, it's like, I feel like the burden at this point can be on, you know, the defi community, the crypto community to like, prove that this can work within the regulatory system, like it doesn't have to exist directly, in contrast to it and say any sort of regulation would doom it? I don't think it's a very good system, if that's the if that's the case, right? Like, find a way for this technology to further all of the goals that you have, but also do it under, you know, the confines of a normative regulatory state? And if it probably can do that, I mean, it's, it's maybe more challenging for them. But there's no question to me that it'll be more successful and more beneficial. If that happens.
Yeah, I think you'll see fewer sort of social effects. I mean, right now, crypto often strikes me as a as a zero sum or even negative sum game with because it's sort of socially corrosive, and the environmental effects. But look, if we can bring this into a more law abiding and regulate system where they're actually protections for consumers, which I think is pretty key, because most crypto buyers are now in the red, especially most Bitcoin buyers, I think that'd be a lot better for everyone. I do think including creating more sustainable businesses. I mean, some people in crypto won't want that. Because then you you miss out on some of the volatility and the crazy highs and lows, which is how some folks make their money. And it may be far less exciting. And you may not be able to go 10,000 accent in a year or whatever. But I think that's how you keep this stuff alive and bring it into the mainstream.
Are we gonna see like a series of movies? No, I just realized, you know, we've gone through the cycle of tech TV shows, based on like the last 10 years of, you know, Silicon Valley, we're probably do like a year or two from now from like, a series of TV shows about all these characters, right?
I'm sorry to say that I hope to write one but who knows what will happen?
I mean, I, I think people just need to, like the characters aren't as famous. But I mean, I think that can as I always think Balaji is interesting. I mean, they're sort of the true true believers. And then they're the sort of money guys and yeah, I mean, there are a lot of character, but it's so so evolving. All the tech shows were about scamming this crypto. I mean, getting scammed is such a big part of human nature. I don't know if I have a lot of optimism that it's like okay, we stop people from getting scammed in Bitcoin. They just like they erased to another thing. I mean, that's true, can protect them, obviously. Because it's just like, people do the terrible thing that's in front of them. And if it's not in front of them, they don't get scammed. I mean, I don't even trade individual stocks, and I cover the technology industry, just like the hubris to me, you know, that you like, I don't know, some random person thinks they're gonna be an expert on like, Dogecoin or whatever. It's like, what are you there are people far closer to it than you I? I am so disconnected from the worldview of the person like they know on some level, they're not in touch with like, power and like who's actually like doing these things, and yet they feel confident enough to like ride this like Crazy wave that they couldn't understand. Like, I don't know, it's just like, there's no humility in it to me. I don't know, do you own any crypto? Have you
like? I don't right now? I haven't. You know, it's funny, like people in crypto say like, Well, how could you understand this stuff if you don't own it or trade it. And then you know, in journalism and usually that is you don't really want to own something or be financially invested in what you cover. So that's my main reasons I just don't want to be rooting for something or, but I have been thinking about putting in sort of a small amount into a portfolio because I just I do need a little you know, firsthand experience with some of this stuff. And hopefully, I won't have it maybe next time you have me on the show have had a total change of heart. And now I'll be like, You need to invest this coin. Right, exactly. Just make up coin.
You've just been you've just been too poor for too for too long. Yeah, that's right. The rush. Well, the funny thing is that the one host on this show, who has the most of her net worth tied up in crypto wasn't able to make it today, but
100 And yeah, so now she has she bought a Bitcoin and you know, it's not worth like, whatever bitcoins worth, but I mean, yeah, I should, we should well, and but there's no true neutrality, right? There's no neutrality on like, what's okay to hold? Like, there's no objective right number on like, the percentage of your portfolio that should be in crypto, right, like, so therefore, you can't construct what a like journalistic neutral thing is, because saying it's zero is an opinion or saying it's 2% is an opinion? I don't know. So I feel like inevitably, you're trapped and having to make some sort of judgment about what a troll portfolio would be.
Yeah, I'm not sure. And I would try to focus on things that I don't I probably wouldn't write about. I wouldn't really talk about it very much. I think also, I have, perhaps I'm fortunate in that I don't have a lot of spare money lying around to play with. Yeah, there's that well,
yeah. All right, Jacob, thanks so much for joining.
Thanks so much for coming on. This
was great. Thanks a lot. I appreciate that Goodbye. Goodbye. Goodbye. Goodbye. Goodbye. Goodbye.
