Welcome Sally. 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 has your ear?
Tiptoe 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 I've kind of sight
without no coin do that? Yeah yeah the 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 Really bad crypto markets that
have crashed. Not only in tandem with the
equity markets but far far worse, Bitcoins down 37 percent.
Year-to-date Luna, obviously collapsed.
What's the theory am? I don't know was trying to?
Yeah, 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's been
into it and writing about it over the last year or so.
But also you are working on an upcoming book with If Ben
McKenzie. Yeah that Ben McKenzie.
Ryan Atwood of OC Fame who is also probably the most prominent
crypto critic out there these days you guys think 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 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, right? So been kind of while I've been
writing a bit about crypto intermittently.
It wasn't totally my beep, a been had some time on his hands
because Hollywood is So the shutdown, during the pandemic
and that's how he first fell down the rabbit hole and then
wrote me in. Right?
Got it. And I guess we should lay out at
the outset here, because we've talked about crypto on this show
before we probably run the gamut, I mean Eric you're
probably going to be on the moon, the more defensive side.
I imagine why I was going to 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 guys?
Jacob, his head. Jacob has had.
So little time having fun. Be my position is always just
been people have 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. Yeah, I mean 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 that 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 Madoff. As example, he was one of the
most successful investors on Wall Street for years.
So, in a sense, he succeed for a long time.
And one thing you learn is that sometimes it's not necessarily
the Tons 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's for the bill comes due a recession hits, a your customers
want to want to cash out suddenly you can't pay them all.
That's I think a common way, some of these 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 Upon the same but
there's this there's this sense that it could just be a Ponzi
until maybe it was somehow legitimized whether it was the
10 million dollars plus worth of bitcoin.
Backing that do 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 been freed right
where he seemed to sort of admit upon Z ish level of to some of
these projects and then you see the crypto people No, this world
so much better than I do but like they talk about like dgeni
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
while it's working. Yeah.
That seems to be the sort of the latest term or framing for some
of these D5 pools and protocols and stuff like that.
I mean the it would be, it's pretty complicated describe what
just happened with Tara and Luna.
I'm not sure if I even fully. I understand it really but you
know but basically it was a way of creating a stable coin a coin
that has a value pegged at a dollar of which there are a
number now of serving varying trustworthiness.
But that's how defy runs these days is on stable coins and you
stick them in you cut you stake them or you stick them in the
magic box. This is the the simplified
version and then you get insane. Interest rates.
So, in the the Tara Luna ecosystem, if you put your you
were the Taking pool was through something called anchor, and
there, you were getting like, you know, I 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%, not necessarily an anchor, but some of these
other defy. Yeah.
That was like nineteen percent at one point.
Yeah, they certainly fluctuate. But like, you know, you're not
going to 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 same Band free. Yeah, I'm Sorry that's that's
you know those of us in the know.
Yeah we vote we both Pretend This podcast is super inside
hurry but then try to bring people along and again some
balancing. Please steer me away from jargon
or her tummy to explain some other funny thing here is we've
launched so far into this immediately.
We didn't even really defined 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 as
the collapse of Luna and Tara and you sort of say that, you
know, it's pegged to the dollar, but can you explain just
Manically, 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. They're actually, if you look at
the top 10 coins by market cap, several of them are stable coins
because they've become very useful.
So the most there's about 150 billion dollars worth of stable
coins out there. These are all ones worth, at
least. In this case, we're time at ones
that are pegged to the dollar their ones.
They're Peg to other currencies, but the most popular ones are
pegged to the dollar. So tethers, the most popular.
One also, sort of the most hazardous, the one, if that goes
down some people really do think the economy will like, oh, yeah,
and tethers considered disreputable and number of ways,
they're good articles out there and Bloomberg.
I've written a couple pieces that sort of sort of explainer
type pieces, but there's been some good investigatory uses.
Definitely other shoes could drop, you know, worthy attention
to the stable coin thing because the Lunas thing isn't some
Oddity. Their You're stable prices, that
are so when people take to the Dollar, by the way, that
essentially means that the value of a single coin, should not
fall below the value 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 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
a hundred million dollars. You give me 100 million ten.
Others, you know, 121 and the idea is also supposed to be that
tether has won 2-1 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 there are there
more than 83 billion dollars worth of tether in circulation.
Now, the Wily, 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-to-one backed. And they've also changed their
essentially, their terms of service over the years to kind
of The first they said they're 11 back by dollars and then it
was sort of dollars and dollars equivalents.
Now, it seems to be anything goes.
There's also a wide belief that some of these which essentially
means that they're the claim that they had.
That there were Banks willing to redeem your your coin for
similar amount in dollars. They just didn't have those
contracts or the bank's just weren't willing to do that.
Yeah, well tether has had a lot of problems with banking, you
know some of these some of these other firms like USD, see have
had more success. Cecil Bank relationships.
I mean, people in crypto will tell you well this is a problem
of the federal government of the industry making 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 deltek and
the Bahamas. So there's there's a belief that
this Bank deltek holds most of tethers money, but as you're
getting at, it's not 83 billion dollars, it's far less, we know
that tether holds a lot of commercial paper, which is a
type of sort of Short-term corporate debt, which is what
scares the shit out of everyone use.
If they dump all that, all of a sudden, it could mess with the
economy exact and the paper is believed to be 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 Andy Even if Taylor isn't deeply connected to
like ever Grande 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,
been struggling in last 6 Plus months.
So I mean, that could be one shoe to fall if or one Catalyst
if the 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 a lot, every
cryptocurrency practically is priced in terms of Of stable
coins. So there's like a u.s.
DT 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 as if you're doing
everything in crypto, you're not hitting dollars which has rights
of regular 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 coin, 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
stable Queen collapsing is so tragic for the holders because
it's 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
it's dating and also sample coins.
As per the name have been advertised as stable as a refuge
in the everyone knows. The crypto markets are volatile.
I mean, even crip 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 see maybe the safest
one at this point but people have been putting a lot of their
crypto converting it into tether into u.s.
DC and also you know until recently in To into Terra and
Luna. Yeah.
It's like it's like the T note I guess of the varying various
crypto coins. So what would you say is the
precipitating event? That is 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, you know, interest back notes or things like that?
Is it that the fear that equities Calling 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
currency's, especially the big ones like Bitcoin etherium reach
their all-time highs in November.
I believe there's also a big crash in May of last year, which
I wrote an article about for the Washington post's with my
co-author been. But there was a big crash in
Bitcoin and etherium last year. In May 19th, I believe in a
bunch of exchanges, including Finance went down, which seems
to happen when they're big price movements like this.
So, after May 19th last year, you started seeing a decline in,
in trading volume among retail Traders.
So, it seems that people are losing interest.
There are a few theories. Peter teal said Bitcoin was
supposed to be as valuable as the entire stock market.
Oh yeah. He said some kinds of things
he's like, juicing it right at the end.
Like yeah, yeah, he's been all over the place to go.
The calls himself a bit quite Maxi.
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.
Or systemic factors the raising of interest rates.
This is something that Ben McKenzie, my co-authors been
talking to me and other people about a lot.
He really thought that would take some of the steam out of
the markets and it seems to be the increasing interest rates
trouble in China. All the, the trading being sort
of pushed off shore though, a lot of it was being done through
vpns anyway so all that was causing months of sliding prices
and and generally things have been declining since November
and then this week you have a major stable coin a top
Cryptocurrency 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 they're sort of an outside
attack sort of like a George Soros have a right on the
current having people say, oh Citadel or whatever.
Yeah, there's that rumor going around that but like Citadel and
BlackRock are it doesn't crash. They're like Enemy Number One
for crypto and it's right want to be host.
It's very convenient for that to be the answer for why they're
yeah fail. I mean and the thing is like
everyone thought this was probably going to fail some
point. They just thought that they can
keep us spinning for long and Ken Griffin or whatever is it
can go by the Constitution, right?
So, yeah, they've been titled by him before, you know.
So yeah. So you know, there is certainly
a persecution complex or 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 Tara Luna
anchor ecosystem, they'll go for it.
I just we just don't have evidence that they did by 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 this is tragic and Museum.
The same time, I mean you see some of these threads and
they're like, you know, suicide hotlines.
Getting yeah. So I cut it on the way and some
people were but but obviously there's sort of an intellectual
part of it that it's very amusing and in the crypto world
you see like the hardcore Bitcoin people being like, you
should have never believed in these stable coins, their
centralized project, that will require all this sort of
administration. So it's funny to watch the
infighting, is this stuff like? Yeah else.
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 percent slide in a day, or a
week for the whole Market, that would be, you know, that would
be historic or huge problem, but in crypto is just we've seen
before, or even, you know, you guys are referring at the I
think at the beginning the conversation to 2017. 2018,
there's the big Ico. Boom, then a crypto winter, you
know, I'm more new to this but the same time, I least No, 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 or decentralize
more offshore or 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 Knology. 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'm 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 stable coins and whatever. And say, yeah, obviously this is
a horrible time. Time.
There have been a lot of failures are brought to this
point, but the argument that we have as to why this works and is
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 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
Freely with anyone without any sort of right below your every
customer has been sort of. Yeah, Central tenant of right.
But I think we yeah, we do need to find ways to preserve and
even boost 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 they
have real problems with the currencies.
And certainly the 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 answered and the consumer protections needs to be
subject to some form of political governance.
And I don't mean add a bow. That's my general philosophy.
As for the technology. I'm glad to talk about that.
I am certainly not an expert, but I will say this, it is more
divisive within Tech. I think.
And almost any technology I've seen in awhile, 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,
very, 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 LG 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 a lot of Bitcoin people aren't
really arguing Bitcoins, some perfect thing, it's just like,
oh that's the one, that's the oh, gee.
One. I mean do you personally think
Bitcoin is ever gonna like go to 0?
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 Atkins. It's proven that it's some sort
of store value and people can own it to.
Yeah. I'm gonna it's an interesting
question. I don't think it'll I probably
don't think it'll go 0. I mean, who is seen a couple
things go to zero. Typically this week but you
know, Bitcoin has been around for a while since was it October
2008 or 2009? I was forget if it's 0 8 or 9.
But so it has it has a certain amount longevity in terms of in
Tech terms. I think crypto in general and
certain star the crypto currencies that have followed.
In the other block chains that have followed have have almost
been. I don't know.
They've had their time in a way I think.
Like we haven't, we've had 12 plus years of this stuff and
there's isn't really serve a Inge crypto economy, without
these glaring, security holes and wild volatility and really
difficulty transacting widely in those currencies.
I do think Bitcoin especially because its first and 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 learned that in the last
year they're people who dabble there.
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 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 y?
Well, I mean, a lot of them would admit the cult.
Peace. Yeah, I talk to people, they say
they're willing to admit that sometimes.
Yeah. Well that I mean that becomes
very Roll with the nft crowd as well.
I mean it's it's not a it's not a very far jump to see the
group's 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 that things
are give are valuable because humans attach value to them more
than because they produce cash flow at least in the recent
economy now. Yeah, 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 are making a killing on Tesla because it was
going up, why not abstract it a level further?
And just say we can. Yeah, make money on monkeys or
whatever that all. We have influence that we can
convince people that their value.
I mean, to some degree, their being They were being more
honest about the economy, we were living in them.
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, was it? Yeah, I think it's interesting
because, you know, we had maybe 20 years plus, we're, 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, the potentially infinite abundance because any file can
be replicated Added with perfect Fidelity easily.
And then you had things like, DRM and other sort of systems of
try to deal with this, with piracy infinite, abundance, and
all that. And now this is in some ways,
what's happening with n ftes and digital assets and stuff like
that. And blockchain base assets 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.
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.
At least that's how it appears to me.
Yeah, I mean the funny thing about NF TS we laugh at, 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 this like yeah, the the
clear use case of blockchain in any sort of besides Financial
speculation is remains like a total mystery and at least n FTS
were Like okay yeah you could I mean I can see why you might
want to own objects and games and blah blah blah but I mean
that market I think it's howling.
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 purchased with them that they
would understand, would probably be n FTS, you know, just digital
rights ownership to over digital Goods or rights ownership over
digital Goods. That makes sense to people to a
certain degree. Where is, 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 the 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 size, one reason why I see
crypto maybe a sting or at least becoming somewhat niche in the
future, the other or not receiving Mass, adoption the
other part is sure that the explanatory factor that you're
just getting a tan which is that it's hard to explain this stuff
to people. I mean, certainly, you know, the
elderly people my family its kind of hopeless even if they
have their These, 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 the 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 called 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
The various hurdles that it's facing is actually start.
Speaking of abstraction is maybe like another layer above it of
an interface that so people don't know that they're that
they're working with the blockchain, they don't really
know. They're working with crypto.
For example on you know they're all these issues on Open Sea and
these other and ft platforms where people are sent and of
teas that they don't want, or they click, they click the wrong
link, and then it's over because you can't really reverse any
decisions. Their permissions that are
involved in things like that. If the everyday user didn't have
to deal with sort of that technical complexity and a on a
day-to-day level, I think that would actually solve a lot of
the onboarding issues and also the security issues to I mean
with that, that sort of like, a reason to have optimism, to me
for this whole world, right? I mean to like, yeah, like
Facebook, Twitter users don't need to understand machine,
learning to know that the service has survived.
Up people that they want to see, or, you know, especially take
talk now. And yes, 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 are in the.com
Era, you know, like most of it's totally useless is all going to
blow up. But like so, like Amazon and
emerges, 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 a hundred years, we don't say wow like
that, that people don't really care that there were all these,
like frogs and there's Jesus Christ.
That's a long time, line to prove out.
So sure she wasn't 20 years I think.
Yeah. Crypto will be.
But, I mean, yeah, that's like leads to like by next question.
Then for both of you guys, 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 open sea 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 to
back in crypto startups. That's there that's there.
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, where, where their
heads at right now? I'm now I'm sure there's been
stories written about it but what are you what are you
Gathering? I'm not a well are could
probably speak more towards, you know, where people's heads are
at perhaps, but I mean, I think part of it also depends on how
big the next crash is, whether it's the ongoing slide that or
pseudo crash that we have going. 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
cattle. I would be shocked.
I would be surprise to you, but I mean, but I don't think that
they happen. 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 got 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 Han leaving a 16z 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.
Like I think there's been a lot of money, putting the 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 people 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
firm's that We're sort of Dipping their toes in crypto or
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 yeah, it doesn't seem like money's 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.
Employees. 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. Buy a lot of these people that
saw it as like a new frontier and now we're disillusioned by
the State of Affairs and you know, that could have cascading
impacts on the industry. Jacob, this is sort of a
different direction but I just wanted me.
What is your sort of moral project on it?
Or like are 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?
You're like I don't know, the sort of ideological political
sort of part of this intersecting with what's
happening and therefore you having some sort of perspective
on sure what should happen if 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 think people should be bad.
Scheme is typically like not a word association.
Date with that security man. Defensive is it creates a bond
co-produced bonds that throwing her out.
Anyway 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 also
just everyday folks who trade and stuff like that.
So I 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 The more
sort of guardrails introduced to the system rather than it being
just you know, smashed at a smashed wholesale a necessarily
but I think that most cryptocurrencies should be a,
most token should be treated 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 and some of
their enforcement. You have, 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 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 my sort of left
the politics come in, I would say, it's when I hear people
from crypto companies, saying, we are, Loading Financial
inclusion or word-for-word democratizing, the economy or,
you know, those sort of the fact that idea that crypto somehow
emancipatory or Liberatore, 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 healthcare,
you know if I had if I perhaps had postal access to postal
banking or a local credit union or something like that, like the
things that would if I had stayed Sighs childcare.
Like, that would offer me a lot more Financial Freedom than
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 enhance that project, the the
SEC and the federal government's are regulation of crypto.
I find it extremely disillusion until like the Democratic
project to me. It is done a poor job of it,
that's for sure. It is similar to the scc's
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
fail to like adhere to, like, sort of the liberal utopian like
Vision that they would promote. So to me, I don't know, all this
stuff makes me, you know, as sort of a die-hard Democrats
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 those are like, the Sloan This has been an embarrassment
for the Democratic idea of govern, but you've also seen the
ability of regulatory bodies to when they make strong moves to
have cute 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, Anjali a basic rejection, this packs, get out first.
Yeah, we're late. Why there's no question that
like the window? Yeah, there's this big appetite
for speculative companies. You know, we're going to let
them all. I basically get out and then
right, we're going to 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 days and I like wrote that, I don't know what, why?
It takes like months and yeah, there's no points for What's
Happening Here, Right? My point was just that like and
They can decision. They can do it, they have the
ability, they shut down the telegram Ico and now that was a
big one. Yeah.
Right II. Hear different things.
I mean I have a lot of frustrations and yeah, this is,
I mean, certainly bipartisan problem.
I mean, I also when I raise this stuff people in crypto or like
what about Nancy Pelosi profiting off of insider trading
and I'm like, yeah, that's horrible.
Like I'm disgusted by that. That's an argument.
That's a, we get off on a lot of tangents about like.
Well Wall Street does x y z. Yeah.
Well that does a lot of horrible things.
I don't think cryptos 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 is it 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 golden 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 federal level but 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 that's easy, doesn't do criminal prosecutions but some
of the stuff is going to the doj Oh in 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, right? And the judicial process that we
don't prosecute any form of White Collar.
Prime. That'll on.
We've all seen that Elan musk broke Securities laws this year
when he was accumulating his Twitter steak.
So, it's deeply frustrating from serve top to bottom, right?
And 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 this back sort of
projections issues so easy to say, but you know, are in crypto
world. You could just require a like
disclosures for yes, table 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 XYZ and I think this closure is
huge. It is actually an, I think 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 on 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 doxing, the board,
a people, but I do think it is ridiculous that like, this is 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 pseudonym, rug pull.
Exactly. I mean, I was gonna bring that
term up. I mean, just the idea that it's
sort of like par for the course in 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 pull and there's like, come back later.
Yeah. Things like oh this guy did a
couple of rug poles are Already. You know, but this time it's a
good project, you know? Because I really sun, right?
That's the rationalization. In fact I talked about earlier
which is that people make excuses, they're 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 0. It was my fault.
I didn't I clicked the wrong thing.
I didn't do enough research, I didn't realize that this risk
XYZ, but it can be met 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 there, that people
shouldn't be scammed. To write all the time that
shouldn't be. He's 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
pull or, 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 up. I'd yeah, yeah.
And it's man, it's still one of the Things.
I 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 Shiba Inu but as Shiba Inu knock off 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 sound like
yeah thousands and that I mean there are people who manage to
sort of ride the volatility or you know, a coin might be worth.
Earth, period 70's and then a number there.
These basically worthless coins, but sometimes people buy a
million of them and then and then ride a 10% increase in
suddenly they made some money. But yeah, generally, 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.
They're 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 Lisa's like is sort of promise for down
there. 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 percent 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 See media projects in the future, but the
book is definitely happening is your focus on particular
characters or even independent of the book.
I'm just curious, like, who you think is, who are the people,
and sort of crypto World interests.
You the most, we definitely have sort of Heroes, villains and
victims, it is somewhat character, drip, and
narrative-driven, you know, we want to tell interesting stories
and good stories and not just browbeat people that cryptos bad
or something like that. So, I guess I'm reluctant.
I'm sorry to say sure. I don't want to actually you
know because 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 son.
Who is the head of Tron? Big Block Chain.
That does a lot of business with tether Justin's.
I'm not writing my Justin son at the moment.
I might one day, but Justin son, famously last year.
He, I believe is a Chinese National.
He sort of one, these peoples heard takes differences.
And ships. And he moved to Grenada took the
island of Grenada, the one that Reagan invaded and took Granada
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 grenet Grenada can
stand up to China or the u.s. is is probably unlikely.
But there's a great article in the in the Verge, I forget the
author's name but will include a link.
It's called like the many The many escapes of Justin's son,
this is from not that long ago and I really think that Justin
son is represented 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 resemble
who are like Justin sun and they have a lot of control over the
industry. I mean, people at tether people
perhaps at Finance 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 know, 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.
Stuff. It's sort of like I mean this is
what do you do when it's so self-evident that there's yeah
me 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.
I'm kudos to you for finding angles into it but sometimes I'm
just like what's? But 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 And you know, you have these ridiculous
characters who were like, look at me what I'm doing.
As a rug pull, 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 in 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 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 they're, you know,
they're basic things. I think people don't know that.
Like, for example, 80 to 90% of trading on most platforms, on
most exchanges as wash trading, it's fake.
So, you know, there's an idea of a free markets, like these bowl
like buying and selling their own NF tease to.
Yeah, the illusion that they're valuable or you own.
Drive up the prices and you create the illusion of volume
which has a similar effect. And there are like the bots of
social media are astray. 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 interest when it's just you try
that stock market. But yeah, I'm pretty sure it's
illegal and it's nice. Right.
Sounds, it sounds like just is not like an unfamiliar type of
thing, that's why it's like okay yeah.
You can 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, 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 by answer, read my article in the
Washington Post. And it's very hard to trust that
these are actually quote unquote, free markets in the
sense of kind of operating unfettered right.
There are 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, as though,
it's the wild west, right? Now, you know, that any time a
new platform comes up in the 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
emerge that number one. But, like the actual analogy of
the Wild West, which is that it, 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, you Came out of nowhere to, you
know, ended up becoming whatever Saloon owner is.
Like there was a lot of Eastern Capital than it up funding these
things. And those were the people that
made out on at all. So it's finally like the analogy
Rings true and it's and it's horrifying.
Well, also on 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
certain regions in the west and stuff like that.
So, there are ways in which Crypto is a return to that both
the sort of anarchic and in Lawless quality of it.
And also, these are basically corporations.
I mean, sometimes are one or two people, but issuing their own
currencies and with all the complications that then
introduces, in closing here, it's like, I feel like the
burden at this point can be on, you know, the defy 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 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 Like 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 regulated 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 would 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 miss out on some of the
volatility and the Crazy highs and lows, which is how some
folks make their money and they may be far, less exciting.
And you may not be able to go 10,000 x in a year or whatever,
but I think that's how you keep this stuff alive and bring it
into the mainstream. Are we going to see like a
series of movies? Now, I just realized, you know,
we've gone through the cycle of tech TV shows based on like the
last 10 years of 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. Then I mean I think people just
need to like the characters aren't as famous but I mean, I
think that can act as well. It takes time during I always
think Balaji is interesting. I mean, they're sort of the true
True Believers and then there are the sort of money guys.
And yeah, I mean there are a lot of characters but it's also
evolving. All the text shows were about
scamming this corruptive. I mean, I getting scammed is
such a big part of human nature. I don't know if I have a lot of
optimism that That it's like okay we stop people from getting
scammed in Bitcoin. They just like they race to
another thing. I mean that's true can protect
them obviously because I 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 going to be an expert on
like Dogecoin or whatever. It's like, what do you there are
people. Closer to it than you.
I I am so disconnected from the world view of the purse 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. You own any crypto, a view.
Like I said, I've been it. I don't right now.
I haven't, you know, it's funny like People in crypto say like,
well, how can you understand the 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 service small amount into a
portfolio because I just I do need a little, you know,
first-hand experience with some of the stuff and hopefully I
won't have it. Maybe next time you have me on
the show all of had a total change of heart and now be like,
you need to invest That's a coin, right?
Exactly. And just think of coin.
You've just been you just been too poor for two for too long.
He didn't 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 look 8,500. And yeah.
So now she has she bought a Bitcoin and you know it's not
worth like whatever bitcoins worth but 9000.
I mean, yeah, I should, we should one 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 I 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 is control?
Portfolio would be. Yeah, I'm not sure.
And I would try to focus on things.
Like 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 that, I don't have a
lot of spare money lying around to play with, so, yeah, there's
that. Well, yeah, all right, Jacob.
Thanks so much for joining. Thank you so much for coming on.
This is great. Thanks a lot.
I appreciate it. Silicon Valley, goodbye,
goodbye. Goodbye, goodbye.
Goodbye.
Silicon Valley, goodbye, goodbye.
Goodbye, goodbye. Goodbye, goodbye.
Goodbye.