Welcome back everyone. I am Cass PNC and I'm joined as
usual by my partner in crime, Mr. Bennett Tomlin.
How are you today? I'm doing OK.
How are you, Cass? I'm doing great.
We're joined by a very special guest today, Peter Ryan, who
we've we've known for a very long time and who has his own
consultancy firm and a sub stack Ryan research.
You can look it up. That covers history, economics,
tech, everything you can possibly imagine.
But we have yet to have you join us on the show.
Peter. So first of all, welcome and
second of all, how are you? Great.
We have been colleagues, I dare say friends for a number of
years, especially kind of the heyday of the late 20 tens of
crypto journalism and and content.
And yeah, it's great to be on the show.
You guys are a. Huge.
Influential assemblage duo in the space and so I would have
loved to come on earlier, but as I was telling you in the pre
show, it felt somewhat like stolen valor to like on the same
plane as you guys. So I'm happy that I can equate A
slight niche to you guys at this point, and I feel humbled to be
with you. Well, it's, yeah, it's a little.
Bit sorry cast, but Peter, that's a little bit of a funny
thing to say considering your history and in the industry was
leading research for coin desk and Catherine my history in the
industry before we started this podcast was tweeting at people
angrily. It's not by the title, it's by
the content. So actually I'm just trying to
flatter you if. That's it.
Actually, the best meme about Crypto Critics Corner is by
Peter, in which he shows a guy saying, oh, crypto critics
Corner, it's about crypto criticism.
And then over his head it's like, no, it's about it's about
best friends. But yeah, that that's all
besides the point. Peter, we've been talking to you
for a really long time and I think most people are probably
unaware of the first thing we're going to be talking about.
So what the reason we crossed paths originally was because we
were covering, we were all talking.
The main thing we were all talking about back in 2017, the
end of 2017 was something called the Block Size Wars.
And I think we've maybe gone over this a little bit on the
podcast, but really we've never gone into a deep dive about it.
And your recently published work, which is fantastic money
by by all means am I getting, am I getting that right?
So your recent piece goes over the block size war.
And yeah, I would, I like, I maybe just can you describe what
the block size war is and what it meant to the history of
Bitcoin? Sure, so money by vile means.
I have an abridged version in Compact magazine and the
extended version is on my sub stack to get all the juicy
details and extra sources. But what the block size were
was. It forms an essential piece of
the yes, I wrote and it is so important because it intersects
many of the core myths of Bitcoin and how those myths
became debunked in the process of going through that block size
war. And so the way I would frame it
is that in many ways it should never have been a war as far as
I see it. And I think there's there's
definitely a faction that sees it that way, is that Bitcoin was
always meant to go down one side of that war, which was
increasing the block size in the blockchain.
There's blocks. Blocks contain transaction
request. The more transaction request you
can fit inside a block, the more fees miners can generate, the
more efficient and productive each block is for the
blockchain. And so this is the natural way
that the blockchain would scale and get into actually competing
with Visa and other major payment processors.
So this seemed to be what everyone will say, you know,
this is the way Satoshi envisioned it.
This is the way a lot of early developers always talked about
it on Bitcoin Talk forum and other communication platforms.
And it was only into like 20/13/2014 that it emerged that
there was a deviation. And that once we get into the
sort of 20/16/2017 land, that's when there's a true break in the
community. And there is freezing the block
size faction who ultimately won the block size war.
And then there is the not even, you know, exponentially increase
the block size, but like moderately increase the block
size to proportionally keep up with demand in a very sort of
sequence events every few years. And so that occurs in about
2017. And this chapter going through
that kind of year 2017 through 2018 forms kind of the the
backbone of this critical period where all these decentralized
open source software ideas, they get tested, all these free
market ideas, they get tested. And we end up seeing in in both
ways, these sort of market failures start to emerge.
And it starts to actually get into core questions of like,
what is money? And like, how should money be
used in society? And how do certain myths of
Bitcoin get that wrong? Well, can we, can we?
Sorry, Bennett, if you want to jump in, you can feel free.
Sorry. I don't want to, I don't want to
take over here, but I just my, I see where you're going here and
you're, you're purposely being big, which is good, but I do
want to I do want to drag you into the what, what Peter is
talking about is there's Bitcoin what what's now known as Bitcoin
and there's what's now known as Bitcoin cash.
And they're different. They're different.
They're not just different monetary policies, they are
completely different currencies now.
And that was that is the split that you're talking about.
And this was a split between different factions, but also
just completely different interests within like what makes
the Bitcoin blockchain, which is like, I know that all of this is
we've talked to enough people that I think most people
understand how a blockchain works.
Now, I think it, it might be annoying to go over that
exactly, but I do think you're talking about some very specific
interests here and they're opposing in different interests,
right? So we're talking about miners
and like their role is to hash a number using computing power to
get the next Bitcoin out of a chain of bitcoins.
And there are reward like Bennett, do you want to do you
want to help me out here? Because there's so many
different factions, basically. So Peter, can you maybe talk a
little bit about how Bitcoiners self selected into like small
blockers and big blockers and what the different interests
cast Cass is talking about looked like on the different
sides of that? Yes, so the important thing to
remember too is that Bitcoin Cash became eventually the
banner which the big blocker faction rallied around and you
know, like I made it known in my essay if anyone checks a few
Google searches like it's no surprise I was partial to the
Bitcoin cash big block side. I don't make any bones about
that. I think like I checked myself in
that bias by kind of criticizing them as well and the sort of
general concept and sector of crypto.
But I would say that the easy way to like slice this is that
like I said, there was an original road map for bitcoins
upgrades to be. And a lot of people, you know,
were actually like, I would say like the dominant position in
the community was this sort of Satoshi inspired way of
upgrading the block size. Now I would demarcate that
opinion by looking at like the New York agreement and the
spring of 2017. And I know people can like make
points about this, but like near 80% plus of the mining hash
power at the time was on the side of this moderate big block
upgrade within Bitcoin BTC. So Bitcoin Cash wasn't even like
a figment of anyone's imagination at this point.
So the miners were dominantly for upgrading the block size.
Now within that New York agreement, there was also the
nominal signing of like a petition in support of that,
which many of the original Bitcoin businesses.
And you can say what anyone wants to say about their
oligarchs, they're not oligarchs.
You know, a lot of these were start-ups at the end of the day,
but a lot of the business community supported the big box
side. So in the only ways we have to
kind of actually measure this consensus, this rough democracy,
we had 80% plus of the minor hash power, which is very
quantitative and then we had more, a little bit less
quantitative, but nonetheless like a bunch of the businesses
signing. On to the agreement.
And then so that's like kind of the original conception.
A lot of these people too. A lot of the vocal people.
Where I would say these libertarian Bitcoin idealist
Rodger Veer is sort of an obvious one that comes to mind.
These were a lot of people that go to Cork Fest in New Hampshire
that liked Ron Paul, that were into Austrian economics.
And so I would say there was actually more of this idealist
strand inside that big block community while it was dominated
and LED, But well, I would say like the miner community and a
lot of those miners were based in China at that time in the
market share of Bitcoin. Now we get to the small block
faction and a lot of the small black faction was more led by
Bitcoin Core developers and they're sort of interlocators
like nominally like exchanges like Bit Fenix, which probably
will come up a lot later. They were in support of that,
that small block Bitcoin Core kind of lead faction.
And what I will say, and I document this in the essay in
terms of quantitatively measuring the sides, the big
issue to demonstrate how popular in grassroots the small block
side was in terms of their argument was the user activated
soft fork kind of campaign. And so we have all the non
mining nodes out there that would raise a flag on them and
would indicate if they support this small block Shibboleth, if
you will, that would say, I I vote for the user activated
software. We don't have to get into the
roots of that. We just have to know like this
is their way of declaring. How many of them are and so they
could never get above like 20% of just the non mining nodes.
So by their own terms, they could not demonstrate they were
an actual. Significant, let alone
plurality, but not even a majority.
So this is how I would say you would want to start thinking of
these two sides and that there was the developer, there were
sort of corporate into locators to the small block side and
there was some deceptive practices there.
Not to say that the big block side was perfect in everything
they did, but generally that's the vibe of each side.
So can you, can you talk about what the reason is that there
was this because we, we understand you're, you've
explained that there was this split and that there was at
least some ideological value to this split.
But like why would 80% of minors be pro big block and then 20%
not? And why, why would you know, why
do we have bit Fenix and Tether and other or more importantly,
actually, more importantly, at least for what we're talking
about right now, more importantly, the the core devs
being into the small block stuff as opposed to the big block
stuff. And, and I'm yeah, I'm wondering
because, because I do think that most people, at least like most
people I know who are familiar with early Bitcoin history, it
sure does feel like it's very libertarian leaning.
And the concept is this should be money.
Like, I do think that it, it sounds to me and, and Bennett,
if you think I'm, if I, if you think I'm wrong here, but it
sounds to me in a lot of, you know, Bitcoin, Bitcoin talk
forum posts and stuff when Satoshi was active, that like
this is meant to be utilized transactionally.
It's not supposed to necessarily be something you just hold onto,
though I'm not sure that's necessarily even thought of as a
real use case back in those days.
So I like, I kind of like. I'm wondering, I'm wondering
where the split is, why there's this ideological split between
these two very important parties, and whether or not
there's truth to either side. Like, I don't know what
Satoshi's plan was. Does anyone?
Well, one person claims to know Satoshi's vision.
Sorry. Anyways, perhaps the best way to
come at this is were there certain groups that most
benefited from different plans, and what groups were those?
Yeah, that's that's a good way of putting it.
I mean, I think. I've written this essay and
there's a previous essay I wrote talking about the Bitcoin miner
fee crisis, which is eventually going to hit, but in terms of
the economics, because of a thing called the happening
because we have this bifurcated fee structure in Bitcoin miners.
Where there is an inbuilt default subsidy, the algorithm
gives the miners as a way to encourage them.
And then there's the market supply and demand variable fee
that they must subjectively choose to charge their
customers, transaction requesters.
And what's supposed to happen every happening, that subsidy
goes down and eventually there's an inflection point where those
variable fees are going to be all there is.
And those variable fees have to pay the miners the sufficient
amount of revenue to justify everything.
So I think from just that design principle and then like I
document plenty of Bitcoin talk form.
Post by Satoshi emails that he's written.
I bring up my kernel lot as a character that spoke a lot with
Satoshi. And use his sort of, you know,
you have to sort of default to his conception of a little bit.
But I think there's enough evidence of Satoshi's own words.
And what early developers around and close to Satoshi said is
that like there there was this general idea that Bitcoin was
always meant to be a medium of exchange and that it was a
payment processor. I mean, it was this thing where
it was going to compete, compete with Visa to pay for two of the
hour transactions for coffee. So this idea that there's a
store of value and there's a medium exchange that are totally
divorced. I mean, that wasn't really true.
And those were always sort of interwoven together in the early
days. So I would say even though there
is a very toxic Satoshi's vision narrative out there that really
like ruins the branding and optics around that conception of
Bitcoin like the I mean like the the backbone evidence of those
early days is like very suggestive that it was supposed
to be this way. Now once we get into like 2014
to 2016 to 2017 especially like there are contemporary reasons
and rationales why certain parties pick a side.
And so I would just say quickly, the reason miners want a big
block is because of that structure where they need to
eventually get variable fees sufficiently up to a point where
they can have a competitive and sustainable business model.
So do that you either charge really high prices for your
transaction request services that you provide because there's
a low quantity of them, or you can keep the prices of the fees
low and just have a ton of quantity of those transaction
requests. The only way to have a ton of
quantity of the transaction requests is if you expand the
block size. So it is it is very natural for
the miners to go down that path. Now when we go over to like
Bitcoin Core developers and other people around them, why
they would maybe not want that and want something that's more
the opposite is that when you freeze the block size, so
there's all this like latent transaction demand that would
have otherwise gone inside the blocks that like is can't go
anywhere or it needs to go somewhere.
So that's where we have this invention of layer twos and
layer twos are grafted onto the layer one Bitcoin blockchain as
this alternative payment rail to cover all those like $2.00
coffee transactions and things like that.
And that's where we have businesses like a block stream
that offer layer 2 products. And so it's kind of bewildering
that block stream and sort of the things around that.
And again, there, there's toxic ways people talk about block
stream and their role in the community.
But again, just I would hope people start from first
principles and just look at what they are.
They offer a layer 2 product, they have a natural conflict of
interest where they want to freeze the blocks on the Bitcoin
layer one blockchain. So all that latent transaction
demand goes to their layer 2 product and block stream funded
and supported many of the Bitcoin Core developers and
there was a natural assemblage of fellow interested parties
like for instance Bit Fenix was an exchange that did not go for
the New York agreement and supported big blocks.
They were very unsupportive and it only became like known later
down the road after denials. And I actually cite my essay
instances where both you 2 are like talking with Samson Mao and
Adam back and you're inquiring on them on certain things about,
you know, did. You invest in this company or in
that. And it wasn't till like 2021
that they completely reversed course and admitted like things
like they actually were an investor in Block Stream in the
early days. They weren't just like a
customer of Block Stream, they were like a seed investor.
And so when you're supporting Bitcoin Core developers and
you're a seed investor in like the dominant layer 2 alternative
to layer one blockchain transaction demand like this is
a really big conflict of interest.
And I'm not even. Saying that that could be wrong
in itself one of the problems. Is is that that conflict of
interest or that alternative value proposition was not
properly disclosed and not properly argued from that
standpoint? I think that's in a fair
summary, though. When I hear it, the first points
I come back to are, is there latent transaction demand,
right? Fees on Bitcoin right now are
under one set of byte, right? Or one set per V byte?
And if this was meant to benefit things like Liquid, why does no
one use Liquid? Yeah, so that's a good question.
So this is where my essay works on 2 planes.
It's one using the internal logic of Bitcoin.
And you know, sort of the free market Austrian economic
premises that go into that. And I use that as a way to like
argue these things breakdown. But then there's a second plane
of just looking at it when you're not already inside the
logic of Bitcoiners and you're looking at it from like just
anyone approaching economics from a neutral level.
And so I would say, 1, you could say the reason that there's no
demand today for liquid in the ways that we would think about.
Is because a lot of these dominant narratives took over
and a lot of the infrastructure businesses and again, like like
at the end of the day, like marketing that would be used to
communicate how you use Bitcoin. Was.
Set aside to make way for the store value narrative for
speculative trading narratives for like, you know, just throw
it in an ETF and like invest in that narrative.
So a lot of the ways in which we maybe would have seen that.
And again, there were periods where we saw surges in
transaction demand that obviously the big blocks, I
would always say when you do that and you're not increasing
the block size, you're just going to see the surging of
fees. And like, so that has been
historical episodes where we do see that.
And always because the fees rise proportional to the transaction
demand it it basically kills the transaction demand and people
stop using it. So I would say.
From the internal Bitcoin logic, it probably could have had an
alternative history. Where that demand was properly
placed inside the layer one and the narratives that could
support it would be there. But I would say from the
outsider logic, you could say that crypto, there's a
fundamental problem with crypto, is that that's not how people
use money. That's not the institutional
environment that money can operate in.
Where? People like people use their
bank accounts to move bank deposits back and forth to pay
their bills, to pay each other. And there's there's a.
Huge. Institutional level of trust of
regulation of risk offsetting that goes into that that like
libertarian oriented people like can't fathom and like how people
would prefer their banks And even in some cases more like you
could even say like people would maybe even seriously trust a
central bank digital currency might raise eyebrows with that
more if given the chance than like one of these Caribbean
island started crypto currencies.
And that's because of a lot of implicit status logic that
normal people just consider without thinking about it.
It's it's so funny, like I'm, I'm not gonna I don't want to
drive us to us off track here because I think there's more
history to to delve into about this.
But it's so funny because as you're describing this to me,
I'm thinking of I'm thinking of the discussion that Bitcoin has
in general now. And that discussion is like new
ETF and like, and oh, this much money is being utilized to push
money into a Bitcoin reserve or like whatever, whatever the idea
is, right, right, right, right, no, right.
Exactly, which is so wild when you do reflect on what Satoshi,
excuse me, Satoshi's vision, what it what it was, which is
absolutely there was the O 8 banking.
There was the great financial crisis and he saw that
happening. He saw the failures that banks
had, not not just actual bank failures, but clearly saw like a
systemic issue and was like, oh, this needs to be fixed.
And now the propositional value of Bitcoin is like, we'll just
hold the Bitcoin for as long as possible and then it's just
keeps going up in value. And then people will be like, I
don't even understand. Why would you have an ETF?
Shouldn't people just buy Bitcoin?
And I'm like, well, yes, but now I actually understand why
someone would just buy a Bitcoin ETF because like you don't need
to have the Bitcoin in your wallet anymore.
You don't need cold storage wallets for your Bitcoin.
In fact, I could really easily argue that an ETF is better for
like an old person to have than actually having Bitcoin because
you can just get fucking shot for your Bitcoin.
Like that ETF is easier to insure and deal with than the
Bitcoin in a, a cold, a cold storage wallet or whatever.
And, and I, I, I just find it, it's, it's crazy 'cause it is so
different from whatever the initial concept was behind this
stuff. I like, I just had to express
that because this was like flowing through my brain as you
were discussing this, Peter. And and I would just like add to
your statement there in thinking about these core value
propositions that everyone talks about with Bitcoin and it's
store value, which is the dominant one now it's medium
exchange, which is less so, but people talk about in terms of
like layer twos like ZAP or all this other stuff.
And then there's #3 which is like less talked about now, but
is censorship resistance. And when you?
Actually, like think through history and this is the and I
kind of came to this like in the 20 tens.
But like especially now at my kind of final conclusions, the
real out of the park stellar use case that Bitcoin gave to the
market was censorship resistance.
And it was only by providing that as the headline that medium
exchange. Medium exchange was a means to
censorship resistance. And that store of value then
becomes a tertiary property where it's like we, yeah, we
want store of value. Like in the sense that it's
stable. So.
You can transact it as a medium and avoid getting it censored
cause. Look, this is like, and this has
always been the benefit of like, like something as simple as
cash, right? Like if we want to just break it
down like that is when cash being valuable back in the day
is like, you can't stop me from accumulating cash.
You just can't do it. Like you can if I put it in a
bank, you can take away my bank deposit.
But me just having cash and using it on hand, you cannot
stop that. And that is the beauty of it.
And I think, yeah, like, clearly that got hijacked.
Wait till I fire Jerome Powell and see what your cash is good
for. Yeah.
And that's we have to get into the the deal.
We don't need to get into all the conspiracies, but but yeah,
I mean, you're exactly right. And this is where today when we
talk about ETFs, when we talk about Bitcoin treasuries, like
when I think of Bitcoin, the only reason it like halfway
makes sense is because of the censorship resistance.
And when you divorce it from that completely by having some
other third party and like a wackadoo like a Michael Saylor
managing that for you, who I think I think it was, you know,
your very own protos that documented like he's there's
like allegations that he's like doing some cockamamie stuff with
customer funds or his fiduciary responsibility.
But we don't have to get into that.
But the point is like, why would you even invest in this thing in
the 1st place if you don't even have the inherent access to it
directly? So you can have the censorship
resistance immunity. So that's where it doesn't make
sense other than the only thing people value about this is that
it's a casino token and it's going up in value.
People are gambling. It's the same principle where
you can see people talk about sports gambling addictions with
all these new apps. It's, it's the same social
mechanism going on with that inside of crypto.
And it's even you could say the larger equity markets because of
apps like Robin Hood. People are just gravitated to
this because they're addicted to gambling and a lot of them are
chumps and getting suckered by whales and they don't understand
it. They're not actually investing
in for the properties that we all thought Bitcoin was valuable
for in the early days. And it creates this really toxic
and and frankly stupid way of looking at an investment.
In your essay, you talk about how this black size were in this
split revealed certain like truths of the Bitcoiner
community to be myths in actuality.
Can you talk a little bit about what those myths are and how
they were revealed by the process of this split?
Sure. So I think, I think the big, the
big one is I'll, I'll, I'll locate it on like 2 points.
There's the software layer and then there's kind of the, the
buyers and seller market layer. So number one, we always have
this meme of. Bitcoins, like digital gold,
it's 21 million capped, it will only ever be 21 million.
There's this finance supply. No one can ever change this
supply which makes it so good. And there will be people that
talk about this in various degrees of religious paranoia.
And so you can get the sort of like cold Turkey talking about
it on a Bloomberg, but you can also go to the more esoteric
Bitcoin podcast where it's like a seance where they're talking
about this. So you have this, you have this
like different degrees of talking about it, but it's all
towards the same message. No one can touch the supply of
Bitcoin tokens out there. But that is an unexamined
proposition. And so once you start asking
critical questions, you say, well, like how, why?
You know what's going on there? And when I start to ask some of
these questions, it just became obvious that it's like, OK,
well, Bitcoin is not like a commodity that you dig out of
the ground. It's a software and software is
made by humans. It's also upgraded by humans.
So there's a continuum of human interaction on this thing.
So like, who are these humans? And so then you get into like
we've talked about Bitcoin Core, but as a, but as more of a
general conception of that, there's only a few elite
developers that have a role in actually shaping the code of
Bitcoin. And the code of Bitcoin is
essentially part and parcel to its definition of monetary
policy, which keeps that supply limited.
So when you think about it, it's like 90% of bitcoins code was
generated by like over 40 people.
So when you like that, that's a very different statement than
you'll hear on all those other shows that talk about the
religiosity of this supply cap. And so when you start
conceptualizing that, you say, OK, 40 people and then there's
actually like 1:00 to 5:00 depending on the year, elite
maintainers of the Bitcoin code that have the exclusive
privilege to reject and upload new code additions into it.
So that creates. Another layer of of privilege.
And by privilege, you also have increased risk of capture by,
you know, more, you know, nuance factors of that are passive and
things like that, but also of direct capture by the state or
like very bad oligarchic interests, things like that.
And so once you start to think of the developer elites in that
sense, you can see it's actually like very simple for them to
either passively or actively be influenced in a way that they
could change the code whenever they want.
And once they change the code, that means they can also change
the supply. And there has been instances
where one, they've changed the supply and people don't really
talk about it. Now, it's not in a huge way that
like causes a lot of concern, but I'm more concerned not in,
you know, like the most perfect way to bolster my side that they
change it to like 40 million. I'm talking about the claim
that's made by all those Bitcoiners is that no one can,
that there's not a single person on earth that can do that.
And my question is, well, is it technically possible?
Not only is it technically possible, it's been done before.
And then secondly, can that can code changes be enacted and
pervade the entire market? And go unnoticed.
By market participants. I And the question to that is
also yes. Yes, that's true.
That is true. But I But I also wanna I.
Is it still true? I well.
I don't know if it no, I don't know if it's still there.
I'm saying it. Nodes are running like knots
now, right? There was like a no inside
Bitcoin core over up return and stuff like that.
Like there are two pretty major node implementations running now
in the network. No, I, I, I think what I'm, what
I'm more suggesting is 2 things that he's right, that this has
happened in the past, but, but more so I was going to point out
that I think as you've suggested, Bennett, you're like,
Peter's not alone here. But as you've suggested as well,
that like this needs to change at some point in the in not our
lifetime. But if Bitcoin continues to be a
thing in whatever it is 140 years or whatever, how are you
going to pay minors? And you just eventually the
answer, sadly, whether or not these, you know, Austrian
economists or whatever they want to call themselves Sayfidine,
you know, whatever. Like if these guys want to
suggest that it can just go on without increasing supply
forever, They got to figure out some other implementation that
they can keep people in invested and incentivized to stay in the
ecosystem. Because if you don't increase
supply, it doesn't work. And and like I, that's just I,
that's kind of like how economics works.
I don't know. I don't know how you secure the
system if you don't do that at some point.
Yeah, and just just to add like and I and I don't need to like
aggrandize anyone's one statement or their position in
Bitcoin. But a character that's a
developer like Peter Todd has literally advocated for the
concept of increasing the the the supply cap to do more
subsidy rewards to make sure that minor fee crisis doesn't
happen. So if that gets implemented,
that's another question. How influential is Todd?
Another question. But the point is that this is a
conversation point inside that developer community.
And so that's where you look at that.
You look at the fact that while there are competing things like
knots now, there's like a whole funny like recreation of like
Bitcoin core conspiracy in for, for people today.
I I think the point is like it's, it's a question of like
market dominance. How do like kind of natural
monopolies form? How do competitors within the
open source software community? And the wider sort of way we
engage with open source software, which is like, we'd
love to think it's like all of the cool people that can
download this open source software and run it themselves.
But like the reality is that doesn't really matter as so much
as the limited access ramps of exchanges and the buyers and
sellers on top of that that actually determine who is in the
dominant position. So that's where you could we
could say not is it like an interesting example of people
realizing A incumbent developer group is distorting the project
in a way they don't like. So they create this competitor,
but they're just recreating the failed thinking of like a
Bitcoin Cash or some of these other projects which have tried
to do that and have ultimately wound up on the dustbin of
history. And like, it's an even I would
say it's an even more of an uphill battle today because back
then there was still like a grassroots like level playing
field to some degree. Now, like you're competing with
like the government is essentially, you know, part of
the Bitcoin elite cadre now. And I don't think the government
is really going to let like anyone, let alone the
government, but like anyone that's like doing an ETF of
Bitcoin and, and getting really involved in it.
Like there's just way too much institutional support around
this. And it's an institutional
support that's that's frankly either like, like bad people
that don't care about the values and like how it works.
They just want to make money and stupid people like there are
boomers that have a lot of money and access to capital that are
just like throwing 2% at this or trying it out because that's
what they see on CNBC and they're just dumb.
They just don't know what this is.
They don't care about the mechanics of it, why people
invented in the 1st place, why people advocate for it.
And so you just have all these lemmings that are going to keep
pushing this dominant incumbent, a Bitcoin version ahead.
And no matter what competitors like Knotts or in the past like
Bitcoin Cash has tried to do, they can't really fight that
uphill battle. So it sounds like what we're
kind of getting at is Bitcoin ends up being what people agree
Bitcoin is. And with that as the context,
you want to talk a little bit about the fight for the BTC
ticker towards the end of 2017 and kind of some of the games
the different parties were playing to be the real Bitcoin
in that era? Yes, so, so I would say, I
mentioned earlier that Bitcoin Cash was not even a figment of
anyone's imagination in the spring of 2017 when the New York
agreement was signed. And I would say from that New
York agreement through the summer into November where it
was scheduled to go live, but ultimately it was cancelled due
to allege. Lack of consensus of the
community, which was never which I make a point in my essay.
It was never measured. That was never stated in the
cancellation letter that was given out that what the numbers
were like, what percentage of the community said what.
So like there was never an argument of what is the actual
quantitative measurement of support for this or that.
Version. But besides the point, the
mimetic sphere of it, the the pressure campaign, the narrow
concentrated channels that led to that result influenced the
cancellation of and block size upgrade on the Bitcoin BTC
blockchain itself. And I would say that was the
dominant side of big blockers all through this period and
Bitcoin Cash, which was created like August 1st of 2017.
It was not. I mean, again, we'll never know.
Some of the closed door conversations that were had, but
as far as what's we can read that's publicly available, it
was a minority group of the big blockers that set that up.
And it from my reading, it is likely when I look at some of
the documentation around it, it is likely some form of Chinese
miners that that let I don't know who, but that that's my
sort of I don't. Know who?
Yeah, I'm, I'm just saying like. I'm just calling.
Like what evidence I can, but I can pinpoint when you read some
of the letters of launching Bitcoin Cash or especially the
flipping letter which we can get into later.
Like what I what I look at there is it is clearly not American
English that was used to write that.
And when I think about that, I think, OK, well, you know, it
makes sense that it maybe it's like UK English used in Hong
Kong. And so that's like how that's
one of these connections that I make of like how you might think
about that. But point being, it was a
splinter of a minority of big blockers that started Bitcoin
Cash on August 1st, 2017. By the time November hits and
the big block version on BTC is cancelled, now basically there's
no other alternative to doing this.
So the flipping letter, which I mentioned is released early
November right along the time that the upgrade gets cancelled
on BTC. And this letter is just a call
to action to say, hey, we're going to get all of our
collective mining hash power, we're going to take it off
Bitcoin BTC and we're going to put it on Bitcoin Cash BCH.
And when we do that, that's going to be a huge signal to the
market that this is the chain that's going to survive.
And by doing that one, we're going to harm the actual
operation of BTC in terms of processing transactions.
And in a very kind of like long term rollout, ultimately the BTC
chain would like freeze it would it would become nonfunctional of
enough hash power left I So by doing that on an operational
level with minor hash power, that would then be a signal to
the market on exchanges, hey, get in on Bitcoin Cash because
this is the one the miners are choosing.
This is the only one that's going to survive in the long
term. And they could use their
exorbitant holdings of different cryptos and whatever dollar
value or bond value they have and drop that on the exchanges
to initialize that that fire sell of BTC and increased buying
pressure of VCH. And so this was like the
critical moment where a lot of people kind of then or at least
on a, on a short term, like very loose connective tissue way I
think went in on the Bitcoin Cash flipping narrative.
And so that's where we see once we start getting into November
8th, November 9th, especially November 10th, they actually do
it. They flip the hash power.
So Bitcoin Cash's blockchain hash power flips BTCS and yeah,
it, it, it is, it's quite impressive feat to like do that
big switch and get enough people to to do that.
Now they could never actually make the same dent on the
exchanges. And so ultimately to your
question, the ticker, if they were able to flip the prices,
they would be able to say we have the most hash power, we are
the higher priced and like we and like, you know, whatever
other metric you want to say we have the most use, we have the
most transactions, we have the most.
This eventually that would then lead the community to have to
award the BTC ticker in some sense and kind of like the
singular name of the Bitcoin to Bitcoin Cash.
And this is something that exchanges like in their own ways
of dealing with the fall of 2017 leading up to this, they had
back and forths of how would they deal with this?
Like there's two bitcoins operating now.
And a number of them indicated that based on how Bitcoin
definitions work, the chain with the most amount of hash power
for a given amount of time that makes it like undeniable would
have to be declared the BTC, the Bitcoin, the original Bitcoin,
all that stuff. And so there there was a agreed
upon idea that that would be the way to win the ticker.
The hash power certainly went that way.
The exchange volume, interestingly enough, also the
the exchange volume for BCH actually did slightly flip BTC
at one point, but the prices could never like there, there
was this like real resistance to the prices changing.
And so I get into a lot more of the technicality of that later,
but that's essentially what happened.
And that was the rationale for why people were fighting over
this ticker. And and ultimately, if you can
win that ticker, which again, this is this is like a larger
question outside of Bitcoin logic.
This is like the ideas of natural monopolies.
This is the idea of how do market failures.
Happen. Yeah, in nature.
And like what do you do about fraudulent advertising?
What do you do about this or that deceptive behavior which if
like we were operating in a regular business environment
that most other companies have to operate in?
Maybe some of the tactics and communications would have been
different, especially in terms of companies that have
influential power from a software level to a minor level
to an exchange level. To a money printer level.
Having severe conflicts of interest they did not disclose.
It's it's really, it's fun to go back over this because this is
literally when I Bennett, I don't I, I think you and I
literally got involved at the exact same time in all of this.
Like a month and a half apart is our first tweets on crypto or
something? Like that, right?
So I think we both got involved in this in the exact same time.
And what I found myself I, I was basically, I started as a troll
and I was just trolling Bitfinex and Tether employees basically
like that was my main operation and then.
Very shortly thereafter, I did Elon Carlo.
Or did Elon Carlo come? No, I started with, I started as
a Giancarlo clone and then I became Elon Carlo and then and
then I started actually writing articles.
But but I did, I did have a a shift here.
And I think what I started noticing in November, December
of 2017, I guess December of 2017 is that suddenly there were
a bunch of people involved with Bitcoin Cash who were following
me and, you know, talking to me about this stuff, even though I
was involved in something I thought was completely
unrelated, which is to say Tether, Bitfinex, like those
were the main things that I was following thanks to an account
called Bitfinex, who I don't, I don't know how active he is
anymore, but you know, was, was very important in all of this.
I think just even for calling out Tether as shady like that
enough was incredibly important. And but the stuff that he was
discussing about what Tether was doing and Bitfenix was do what
they were doing together and this false claim of not being
involved with each other, they lied about everything, right?
They lied about anyone they were involved with and they lied
about block stream being involved.
They lied about other people being involved with them.
And I think that is when I started getting all of these
people who were very worried about the block size war in my
mentions. And that's when I became even
really aware of the blocks. Like I knew about it, but I got
invested in it when a bunch of people were like, hey, Tether's
involved in this, Bitfinex is involved in this.
I don't know how much truth there is to that to this day.
Probably some truth. I, I mean, I think, I do think
Bitfinex and Tether had a, a vested interest in this for
sure. So I like, I do appreciate that
to this day. But it, it like just talking
about this, I immediately go back to 2017 and 2018 where this
is, this is what was happening Tether at the time.
For anyone in who doesn't understand where we're coming
from here, Tether at the time was worth less than a billion
dollars. It's worth almost 100 what, like
$200 billion? Now less than 100 million at the
end of 2017. Right.
This was like, this was something.
January 20, 1710 Million Tether Supply.
Right. Right by the end of the year.
Summer and was like close to 100 million by the end of that year
I think, but. Nothing compared to now, which
is just wild to think about because I like all of it is so.
We don't know why we lost our minds.
It's yeah, it's extraordinary. It's just extraordinary.
And I, I like I, I have nothing to say, like nothing to say
about it about. I think you've made good points,
Peter, but I just am like, Oh my God, it's so crazy to be driven
right back to that point where everything could be different
today, everything. And but this does talk about,
right. This talks about like tether,
you know, it's crazy. Tether is like the most
important aspect of any crypt, any chain that it's on, like the
use case for Etherium or Solana or whatever is based on how or
Tron for that matter. Like it's it's all based on like
how many Tether transactions happen on the blockchain now,
which is like, it started out as a Bitcoin, like a little
offshoot of Bitcoin, like a memo, a memo pad on blockchain
on, on Bitcoin blockchain. Like it, it has morphed into
something completely fucking different now and is a serious
driving point. And to your point, can like make
or break a blockchain, right? So, Peter, perhaps you can talk
about why these big blockers were following Cass and
interested in Tether and Bit Fenix?
Sure. So, so the problem for me in
2017 was as I laid out there was all of this market evidence that
the support and dominant position was for the big box
side. And then so you can look at it
from the New York agreement, you can look at it from the very low
support for the small blockers measured by the user activated
software, software listening note count under 20%.
It's like anyone can look that up and just like there, there
were so many ways you could say like it doesn't make sense.
This has to be the way from a from a measuring of the support
level to the way that this is designed to work in the long
term. It this is the only way it can
be. So when it ultimately like the
big box, I'd lost its first like the major battle in November
2017 and subsequently like the the sort of the, the year here
of like, like we're going to get them with Bitcoin cash of like
2018 through 2019, which ultimately was disappointing.
Like that sort of like last gasp of, of trying to win it out.
Like I, I couldn't really quite understand like how like
everything believing in free markets, everything would tell
you this is the way it should have worked out, but it's like
it it doesn't add up. How did this happen?
And that's. Where I was able to finally like
kind of put the puzzle pieces of Tether together.
And once you do that, you realize that, oh, so the markets
were manipulated. So that's where we start with
that first point that I made where there's the software
level, level of elite developers that have risk of being captured
by oligarchs or the government and could pervert the
blockchain. Now, what everyone says, and I
had a lot of criticism from the peanut gallery on my article
about this, Peter Ryan says that, you know, the 21 million
cap can be changed at every time with a click of a keyboard.
That's not true. You know, there's all this like,
blah, blah, blah, decentralized consensus.
And it's like, I realize that. And this is where like, that's
like the first section of my essay.
And then I go. Into examining that rebuttal, I
preempted that. So that preemption rebuttal is
that then the community only has the recourse of the market and
the market is defined by the few exchanges available that buyers
and sellers can interact to trade these coins and determine
what has the highest price, what has the biggest market cap, so
forth and so forth. So that is the only veto the
community really has if the software developers go off the
rails. And so once you start looking at
that, you say 1, there's not a lot of exchanges.
Like when we say the market, we always think this like amorphous
cloud that's you can never quantify.
And like there's always a competitor that can come in to
like check the, the privilege and monopoly power of someone
else. There's always buyers and
sellers coming through. And it's like 1, There's a very
limited amount of buyers and sellers to begin with.
And it's like way, way dominated by whales in the system that
could talk to each other, coordinate all this type of
stuff. Then the actual operators of the
exchanges, like at any given time, like especially in this
27/20/17 window, you know, there's like a dozen exchanges
that actually make or break Bitcoin and what everyone said
also in 2017 and, and like Nathaniel Popper said this like
Bifinex is the biggest exchange in the world.
This is the exchange that like makes or breaks Bitcoin.
And I document like quotes like that from him and others.
So like Biffinex was a very dominant player and there was
also like a just a few handful of these exchanges that
mattered. So it's like that.
To be clear to this day, right, like this is, I don't want
you're, you're making it sound like this is only back in the
day, but I just want to I want to be serious, like.
Way more than Bitfinex does now. No, that's, but that's what I'm
saying. I'm saying there are like 3
exchanges that matter to this day, right?
Like just like in 2017, 2018-2019, there's three that
matter. Now there's three that matter
then the names might be different, but it doesn't really
matter. Like the, the, you know, like
you control those 3 exchanges, you control the inflows and
outflows that or, or whatever, Like you, you are pushing the
most out of finance or Coinbase or whoever, right?
Like the OK EX or whatever the hell is in the lead at the, this
time, right? Like you, you are a market force
and you are changing minds. And I think it it like it's it
was true then and it's true now. And like the choices that
individual exchanges make that make them distinct from other
exchanges are also distortive outsize distortion effects on
the general community. So for instance, Bifinex was one
of the few exchanges that like offered a lot of margin lending.
It also offered the only shorting of the two big block
small block chains leading up to the fall of when this big event
was supposed to happen in November 2017.
And so like, these are ways in which, sure, you know, ABC
Exchange that might not have shorting, that might not have
this or that feature. But if Bit Fenix is doing it,
that creates a communication through the community that says,
well, if this is happening on Bit Fenix, then like it's, you
know, that probably shapes my opinion of how I trade on ABC
Exchange. So we should add.
We should also add for those who weren't around at this time, bit
Fenix was the largest exchange and it was also one of the only
one with anything resembling like Fiat banking rails.
There was an even smaller number who had that, and the rest were
left to rely on this other firm called Tether.
Yeah. So so this is where I start to
get into like how tethers influence, how exchange
influence like shape the results.
Of the block size. War.
And so again, like I don't need everyone to agree with me.
I might have a very unique conclusion on how I do that, but
the way that I look at it is that one from the Bitcoin
cashers, what's very evident is that they first suffered from a
like silo problem where the majority of I think their
trading volume in the flipping attack that they did was
occurring not. Uniformly across the exchanges
of the world. What ended up happening was
because they were largely led by Chinese miners and thus a lot of
their holdings and volume would be from Chinese miners.
The Chinese miners had a disproportionate utilization of
South Korean exchanges bid on. So what ends up happening is
during the flipping. All of that volume.
Goes towards One South Korean exchange.
And in the middle of them using that exchange, the exchange has
a massive server crash and it shuts down.
And so their trading pressure, their trading attack just for
no, for no other reason than a technical glitch, that's all we
can say. From what's publicly available,
it's it stopped them in their tracks.
There was no. Way that they could keep up that
pressure because they simply just couldn't trade and then
there was all of this panic around oh shoot I've I've lost
my money what's going to happen and like you know getting to the
exit door and things like that so that was an initial problem I
don't think the Bitcoin cashers with their flipping plans really
like it was actually like a glaring problem with them that
they couldn't think through like hey if we just like throw tons
of like unprecedented volume at this One South Korean exchange
is that going to create a problem versus like uniformly
distributing it and so they never no one consider that and
so they crash the servers it stops them in the tracks that
leaves the main conduit. Of the market where the Bitcoin
buying and selling pressure that was pushing up Bitcoin Cash and
pushing down BTC was occurring, which means you have the other
exchange is still alive and dominated by Bit Fenix.
And so then the unique thing about Bit.
Fenix, as we said, they had a very natural conflict of
interest because they were a seed investor in block stream
that offered a layer 2 that would be incentivized to freeze
the blocks. And they own Tether.
Yeah. And so that was the other thing.
And then it comes, then it comes out they own tether as well, and
tether being. This synthetic dollar trading
instrument that was going on in all the crypto exchanges and
that would come out later, it just proven they were unbacked.
They would have a one to one peg with the dollar that they
alleged had perfect redemption whenever you wanted for 100% of
the value of what it would alleged to be worth.
It turns out that wasn't the case.
They were fractionally reserving.
And even more egregious is that they weren't exactly just
accepting money, in my opinion, and then sort of like spending
it out and then, you know, doing it that way where they get the
money and then they drain it and that's the fraction.
But instead they were getting some money, but they were
printing and that's how they were creating the fractional
reserve. And so when you look at it from
this perspective, you have all the conflicted interest parties
in this Nexus and they have this documented unbacked money
printer that's doing synthetic dollars that is really directed
at Bitfinex specifically. And it's two other conduit
exchanges we don't have to get into.
But what you basically have happened is that these unbacked
printed dollar instruments were used on the very preferential
interested exchanges for Bitcoin BTC in the small box.
And so I think you can look at it from an acute way and I
document like how tethers supply and trading volume, how it
actually operates in the specific window of the
flippining in those few days of November.
And it kind of seems like there is this like mad dash to print
tethers to create like combative selling and buying pressure to
stop the flippining. But I realized like that that's
a harder pill to swallow for people and might show more
scepticism. But I would say even if you
don't want to look at that as like a very reactionary use of
the unprint of the unbacked printed tethers, there is still
the obtuse argument of looking at it where at the end of the
day, they started in January 2017 at like 10 million supply.
And then by like February 2018, you know, they're at like 200
million, maybe something like that.
And. When you look at it that way,
you see this it, it, it's just like crazy growth.
And when you? Just see that whether it was
like a reactionary short term combative burst that they did to
stop this flipping or it was in actuality more of a passive.
Way in which they they they didn't excuse them of anything,
it's just they were able to print these unbacked reserve
tethers. That would bolster their side in
a very steady and long term way. That would whether Bitcoin Cash
emerged or not, it was always going to prop up their chosen
Bitcoin small block BTC. And and any.
Other challenger like Etherium or this, even though tethers
would naturally spill over into inflating the wider crypto
market. And so that's where I think you,
you could argue from both perspective, the acute or the
obtuse way, but the, the more, the, the easier argument is the
obtuse way and that still doesn't excuse anybody.
So I, I think that gets to this point of the market basically
had a failure there. There were these manipulators
that were fraudulent, that were lying about who they were.
Partnered with who their investor in lying about their
reserves and and basically using this counterfeit mechanism to.
Distort the market where, you know, a dozen people decided who
won the block size. It wasn't like the myriad of
millions of Bitcoin buyers and sellers.
And I think that is the real window into revealing how
everything then cascades from that.
The dominoes fall on all these myths of bitcoins start to fall.
I, I, I, I do. I will say I find it very
fascinating that I, I, I don't know how this has never come to
to my own brain, but I do understand a, a kind of
conspiratorial idea of like, well, the people involved in
tether, of course, are going to want not cryptocurrency to be
super easy as a, you know, Moe like they don't want this to be
like, because the more they're able to establish themselves.
Yeah, but Omni, back then, they needed low fees, you know?
Yeah, that's true. You know, you know, it's, yeah,
you know, it's just funny. While I was writing these essays
this summer, what was what was hilarious is like it started to
dawn on me. Too, It's like, well, what is
like, what are what are stable coins?
They're medium exchanges. So like one, it's like they're
like whether they. Are investing in like a layer 2
that has more of an inherent utilization of crypto tokens and
decentralized principles. Like they themselves are
centralized third parties that operate medium exchanges.
And then it was like June, I was like blown away.
There was a story that was released like Tether is actually
pioneering their own native blockchain for Tethers.
And then it's like holy crap, like they don't even need crypto
anymore. They don't need to run on top of
native blockchains. They're working on USDT 0 and
stable. Yeah.
So, you know, probably there's like ways in which they haven't
revealed yet like exactly how they work.
And they might still like operate on top of crypto rails,
but it just goes to show like, wow, like from just a use case
perspective, they literally are medium exchanges that compete
with player 1 blockchain transactions.
And two, they are actually like. Doing away with the necessity to
exist within a layer one decentralized blockchain
paradigm. And so like there's a day in
which you you can you can hypothesize.
I'm not saying like this is what's going to happen.
I'm just saying it's easy to see a scenario where these
stablecoin native blockchains exist as layer ones and it just
becomes this obsolecion of like. Why do you need like?
Decentralized non stablecoin crypto especially like, you
know, hey, the government is all supported of stable coins and
it's this perfect crude, you know, right winger argument that
somehow like makes sense in people's minds that well, yes,
the government totally supports this thing and is in bed with
them, but also it's like the exact opposite of a central bank
digital currency. But in reality, it's like it's
essentially that. Yeah.
Can I jump in with an alternate explanation for Bitfinex and
Tether during this era? Because like September 15th,
2017 is when they open their account at Noble Bank and
Friedman does their attestation showing that in that account
they have all the dollars they're supposed to to back
Tether. We don't definitively know
they're unbacked again until like March of 2018 based on the
New York Attorney General report.
So during this period, there's at least some evidence they have
at least most of the assets they're supposed to.
The split between Bitcoiners and Bitcoin Cash is in some extent,
and it doesn't cleanly map onto this, but a split between like
holders and transactors. And holders tend to have more of
the currency than transactors do, right?
Businesses have to pay out their payroll and things like that.
And so they're not keeping as much on hand.
You have this split occur and across the various exchanges,
you have the Bitcoin people who received their Bitcoin Cash
selling their Bitcoin Cash, but the Bitcoin Cash people don't
necessarily have as much Bitcoin they can sell.
And even among the Bitcoin Cash people, there were a variety of
people who were willing to hold on to their Bitcoin Cash, but
we're not fully willing to part with their Bitcoin, at least
until they had a better understanding of how the next
few weeks, months or years were going to shake out.
And like that to me provides a lot of the same like price
dynamics we ended up seeing on the exchanges.
Explains why Bitcoin Cash's volume went up, but it's price
never seemed to compete with Bitcoin and doesn't involve at
all a money printer or unbacked dollar derivatives.
Yeah. So I mean.
That's that's plausible. And like I'll say that happened
like that, like that's a part of the reality of what happened.
And I would say like I made this criticism of miners before as
well that like again, because like miners are an argument, how
miners are defined, what they're proposed to do in the community,
like they're a very central part of how Satoshi.
Cryptocurrency miners. To be clear, we're not.
Yeah. So, so the point is like, and
that's where like I overly focused on Bitcoin in this essay
rather than talk everything about crypto because like if
anyone is into crypto, like it starts with Bitcoin.
And really like the only way that I think makes Bitcoin
unique is the way in which this incentive structure and and
technological constraints that are placed on miners like that
is the true innovation that makes Bitcoin worthwhile.
Again, I'm not saying that as a neutral third party, I'm saying
that like within the Bitcoin logic paradigm.
So what ends up happening is that like you said, like there's
a lot of BCH supporters that like are too scared to part with
BTC 'cause they want to hedge if something goes.
Wrong. And so even though I think there
was a lot of miners that did the hash rate switching, which is
like not that hard in reality, I mean, it's hard to get the.
Community consensus on that, but it's to flip the switch.
It's not crazy. So they did that and I think
what ended up happening was because the South Korean
exchange goes down with a server crash and because they see the
activity on other exchanges where they can't move the price,
I think basically after a few days.
They just, they literally like get scared and they they don't
have the tenacity to keep this going because and it would be in
their long term incentive to push and hold out to do this.
But they could not fight a war of attrition if they sell all
their BTC and they hold this BCH and they can't move the prices
because then they would they would be screwed.
And ultimately, miners are caught in the incentives of not
so much. The abstract notion of
everything internal Bitcoin. But they got our pay, short term
bills, electricity, rent, so forth so forth.
And they got a convert from Bitcoin or other Kryptos.
Into whatever home Fiat they need to pay those bills, that
that's how miners operate. And once you realize that, you
realize miners which are held in this lofty position.
And if you read the white paper, you read all the Bitcoin talk
form stuff. This is undeniable.
But miners are supposed to play this very dominant role.
They are actually super subordinate and passive to other
players that can exert influence and dominance in the industry.
And so basically what you said, Bennett, is very true that they
were skittish. They did not want to part and
they didn't want to use the full extent of their muscle to push
things over the line. And I would say that that's
that's a contributing factor. But I but I still say the ways
in which when you look at all these things together.
And again, I'll, I'll revert to just the obtuse version of over
the year, like you, you still don't have the dominance of BTC
and those people without Tether printing that money.
And even though there's attestations and snapshots in
time where we do see that there is backing some backing of of
tethers reserves, like I don't have to tell you guys, snapshots
are not indicative of the day-to-day reserve holdings of
these types of stable coins. And that's where I point to like
a academic paper like Griffin Shams and Bennett, we've talked
about it. You may have some doubts about
Griffin Shams paper, but as far as their argument goes, I think
it makes sense that what ultimately Tether does is that
like in the front of the month, they do all their printing, they
send that out, that raises the crypto prices, raises all boats.
And then once those inflated prices are there at the end of
the month, they start to sell, get some actual Fiat back and
fill that gap of reserves they created for themselves.
And they just keep doing this process over over again and in
the long term trajectory of this.
They they keep increasing prices at a rate where they can
proportionally backfill gaps in that reserve and at any one
point in time when they want to show a snapshot, there's a
mechanism where they can do that.
Yeah, yeah. And the the Griffin and Shams
paper is interesting in this discussion because one of the
biggest reasons I'm skeptical of its conclusion is because if you
take out the two most important months in terms of the flow, the
two largest, most aberrant months in terms of flows, the
relationship goes from like large enough to obviously be
able to backfill the reserves to a much smaller relationship that
makes it a lot less clear they'd be able to backfill the
reserves. And like the two months in
question are December 2017 and January 2018, which is funny in
this context that those would be the two most aberrant months
because those are pretty close on the calendar to the period we
were talking about. But like that broadly for the
audience, that's one of my critiques of the Griffin and
Shams paper is that eliminating the two most extreme values
really weakens the relationship they.
And just to to really dig into basic stuff in case anyone
watching doesn't understand this.
The idea with accounting in general is that you should be
able to account for the money throughout every day and every
hour. Like you should be able to know
how you got the money, where the money went, who had the money
before and who you gave it to. Like these are basic accounting
principles. And once you start to deviate
from those accounting principles, like we're just
going to show you how much money we have in a bank account once a
month, there's start to be problems with that, right?
Because now you're, you're literally finding out by the
accountant, we're going to check the account on March 1st or
whatever. And as long as you have the
right amount of money in that bank account on that day, I
guess everything is fine. Well, you can do a lot of things
to make sure there's enough money in that bank account to
make it look like everything is fine.
If you're told when that is going to be checked and you have
some reasonable amount of heads up, you can get a loan, you can
do like there's any number of things you can do to, to change
these numbers. And what we're talking about
here is that, yeah, there there's issues with this study,
but like if you can't follow basic accounting principles,
there's just a general problem, especially if your main goal is
to be a stable coin, right? If your main goal is to be like,
I can prove how many assets I have, where they're located, how
how much is in my possession specifically and how much I can
give out to customers, and you can only do that once a month.
Well, there's a big fucking problem.
So I like these are these are issues that play a role in all
of this because it means that the money is probably being
utilized for other things at other times and you have no idea
what for. Well, I'll say this as well.
I don't think Griffin and Shams in their original writing of the
paper were saying so much as like we definitively prove.
That tethers were unbacked in the fashion that we write what
they were, they were more so laying out was the hypothesis
like if they were doing it based on the data we can grab like
this is how it would go down. And so I think that with the
Griffin Shams paper comes in as most useful is understanding the
concept of how a stable coin like this would undergo, you
know, this pump priming the pump of the crypto coins, of how they
would do that, how they would print, how they would backfill
reserves. And so you start to understand
that. And so where you get into more
definitive evidence, this is where like we get to 2018 to
2019 of these actual legal cases where like tethers lawyers
admitting like, like, yes, in an affidavit, like we had unbacked
reserves. So again, that becomes a
question of when in the timeline did that occur?
How long did it occur? How are those funds distributed?
There's the, you know, someone could even, I'll use the devil's
argument of, you know, yeah, but like maybe Tether didn't have it
in their bank account, but they were utilizing bit the Nexus
bank account and like technically, OK, that wasn't
their reserves, but like they had access to money that they
can move around. But you could, you know, there's
ways that you could then rebuttal that.
Yeah, the point of the matter is like we have the concept through
Griffin and Shams of explaining how this could work.
We have more so the legal cases and the settlement with the New
York AG that that really like, you know, no one can say
otherwise. Like even though it was a
settlement and all this type of stuff, you know, that's kind of
an open shut case. Like they at that time through
the 2017 to 2018, they had periods of time of having
unbacked reserves. This is from what the New York
Jay found. This is also from what their
lawyers said. One of the things also that's
very interesting that as just a community participant that I was
and going through the process of just conversations and comms and
all this type of thing and research.
One of the things that seemed like concerning, but like no
one, no one kind of made it into a bigger issue than it was, was
people start questioning the redemption window of Tether.
So if you had Tether tokens, there's the implicit
understanding I should be able to go to Tether and just like
cash out one to one. But then it became an issue when
I believe it was that that community manager, Zane Tackett,
that was the like the mouthpiece that was actually kind of doing
them a disservice. People were.
Communicating. Played a role Who played a role
in FTXI? Just want to say this, this lad
was involved in FTX when FTX went down as well.
And just one mouthpiece that Juan Carlo wishes would stop
talking in whale pool chats. Yeah, I think everyone wishes he
would stop talking. So there you go.
But the point that I'm trying to say here is that for the first
time, this mouthpiece of tether was like indicating like, well,
you know, not everybody can redeem their tethers.
It was like, wait, what? Like that That was AI.
Remember that being a reverberating vibe through like
that era of. Some crypto participants like
thinking like, how can you be 1 to 1 and then like have a clique
of like whitelisted people you redeem for?
But if I'm just, hey, maybe I'm not just an individual like
schmuck. Maybe like I'm an institutional
investor that has 2% of my my shit in Bitcoin and I'm using
stable coins to trade that, Hey, I got a decent amount of
holdings. Maybe I wasn't like, you know,
at the latest Bitcoin conference, but I got enough
money and I'm using this this stuff.
I deserve to go to Tether and get this redeemed.
That's what's on the tin of Tether.
I should be able to redeem this one to one, but when?
That starts to happen. You say.
Oh no. No, no, no, we, we can't redeem
you. That is a huge red flag that
indicates, well, if they're not redeeming anybody but they're
whitelisted clients, that means they likely can't sufficiently
provide the withdrawals for the reserves they claim to have.
So you have that. You have the not so much as like
you said, Bennett, it's not so much they are saying this is the
definitive evidence, but more so using Griffin Champ to say this
is a way of explaining a concept of how this stuff could work.
And then you go to the New York AG and others to show like, OK,
like really open shut case. There was unbacked stuff going
on. You know, it's, it's pretty.
I think when you combine all those things together, it's a
pretty. Clear case that there was some
version of this that was going on and again if we look at from
an obtuse way so. The passive way that they did
that regardless of whatever competitor came from Big blocks
or even Vitalik with Ethereum or any other coin, they had the
passive incumbent privilege using this money printer that
was directed mostly at their coin to keep them in incumbency.
So, so I, we're already at like 130 into this and I know we
could probably go for like two or three more hours without an
issue. And I mean that not
hyperbolically, but I do I, I. So a question for you right here
is, you know, earlier we were talking about free market and we
were talking about like the, the, you didn't use this term,
but like the bastardization of the free market that that this
is not a free market, right? Like you're talking about all
these, these actors who have their own agendas and are
pushing the market in the way that they see fit.
Whether it is the big blockers using using one exchange in
South Korea and hoping that it'll suffice to push their
agenda, or it's small blockers using Tether and Bitfinex to
push their agenda and hoping that that that will suffice,
right? Like you might have any number
of people using any number of agendas.
Isn't that kind of like, isn't that the free market?
Like, isn't the argument here that that is in fact what the
free market looks like? Is a bunch of Wild West scumbags
shooting each other in the chest until one of them wins?
You. Know in a way, like, yeah, like
that's what the market is and it really takes us going back.
To our foundations of like what are our first principles of how
we we come to understand these things and we come to advocate
for these things. And so that's why you know, I
made a big hub blue like when like everything kind of clicked
for me. Like I literally had kind of
identity crisis of being part of this industry, of being a
promoter of this industry in whatever, whatever way I was
doing it, even though like I was maybe.
On the boat of being cryptic, critical of obvious scams and
things like that, You know, I was still in foundation
supportive of this idea. But once all these things
clicked and I started understanding again these first
principles and like, how does the market keep failing?
And what is money? And how does money interact with
the state? Because ultimately it's all
about the state. Bitcoin is a shadow of Fiat
currency. Like everything about it is
informed by how we look at how the state uses money.
So like I, I basically wrote a little article where I said I'm
leaving crypto and I had, you know, research clients and other
sort of business clients that were crypto companies.
I just had to like, you know, cut ties.
I sold all my crypto for me. I just couldn't stomach
everything that I knew then about it.
Just advocating for this thing and profiting off it.
That's just how my ethical stand start to arise next.
I then get into like I need to really deal with my libertarian
priors and read a bunch. And so I like, I did a master's
program. I had the, again, sort of the
time and space and capacity to just go and say like I'm going
to do a master's program. I ended up going to Ireland to
do it. I'd really good professors
there. They exposed me to a lot wider
scope of readings that were not Mises or, you know, Rothbard or
any of these types. But but it what I valued the
most was it wasn't something where I was picking a
perspective and then, OK, well, that's my oppositional thing.
I was really trying to read from the ground up.
It's like, well, like, how did we like?
Get to the origination of central banks.
How did we get to the origination of the stock market?
How did we get to the origination of, of money as a
Fiat currency or what are these ideas where, how do we prove the
case that money was a commodity in the 1st place and not
something inherently linked to the state?
And so these were all things that I was really trying to go
all the way back to the source and read my way through up to
the present. And that's where I've now come
to the conclusion that how we think about money is, is in a
much different way than the nominal Bitcoiner narrative.
And that in actuality, like the state is really the only way
that money can exist and the state's passive allowance of
like a private currency. Is not so much like that means
the private currency is thus more productive or efficient
than the state. It's like the state is allowing
it and thus the state allows it. You know, it's in fact, it's
like a shadow Fiat currency. So this is where you can go to
guys like old 19th century economists like George Knapp who
talks about Chartall ISM and this is like a a proto version
of MMT modern monetary. Theory and and modern.
Monetary is just like, that's just one lane of thinking about
money in this way. But this is where I cite a lot
of economists that can like get at this and one of the
economists I like. Is David McWilliams, who's an
Irish economist? I highly advise people to check
out his book Money he came out with last year.
He has a great chapter about crypto and Bitcoin.
And he has a lot of great phrases where he's explaining
this thing of like ultimately like private for state money has
always been the battle that's being waged for like hundreds of
years to some degree. And the issuance and control of
money is like the the biggest weapon in the state's Armory.
And why would the state give that up?
So it's either the state. Using that, whether it's an
authoritarian or more of like my ideal version, the only way to
deal with this and actually get some of the ideals, if you
disconnect the means from the ends, the ideals of Bitcoin is a
more democratic utilization of the finance system.
Of money and it is only possible now my final conclusion to get
those ideals we all thought about in like 2013 in Bitcoin.
Through actually making the state more democratic of going
directly through the state and using those institutions and
tools to actually create that type of system.
Otherwise, you only have like the oligarchic captured state,
as I explained, that will use the state as a security force to
bolster its control of money at the exploitation of the
populace. One of yeah.
And this is a bit of a non sequitur, but I want to get to
this before we start wrapping this up.
One of the things that you talked about that was really
interesting is the sense in which like stable coins and
tethers specifically, is like a private money pegged to a public
money that has received in some sense a bit of a blessing from
the government, from the United States and stuff like that.
And there was one quote from your longer version of the
article that I wanted to pull out here for the audience.
The Dirty little secret of the US government stable coin
strategy is that it vacuums up global dollar flows that would
otherwise stay outside of the domestic borders of the US
because they would never pass regulatory scrutiny.
To whatever degree a poor third Worlder uses stable coins, as
self-proclaimed humanitarian stablecoin advocates suggest to
get the benefit of the stability of a dollar financial
infrastructure, they can only do so because stablecoins don't
provide the same level of regulatory scrutiny the
traditional dollar financial infrastructure does.
This humanitarian argument is an admission of the regulatory
evasion. So I wanted to kind of bring
that up because I thought it was one of the important points and
one that like Cass and I have talked about a couple times on
here, like I think we talked about this a little bit when
Boaz was on here in that like these stable coins, the, they do
provide a valuable service to people who otherwise might not
be able to access dollars. But then you have to open up the
question like what regulatory structures were preventing those
people from accessing dollars and why did those structures
exist in the 1st place? And so I thought it was
interesting how you walked through how like this
infrastructure exists is kind of a way to repatriate and almost
kind of this isn't quite the right language, but kind of like
fencing or still get some of the advantage of the untouchable
global dollar floats. Do you have any thoughts you
want to add to like the this shadow dollar infrastructure?
So this is where Bitcoin and wider crypto has evolved to.
So we we walk through this history, the original
prototypical version of Bitcoin, the scaling war versions of
Bitcoin battling it out. The kind of in between Bitcoin
getting through some bear market territory like the rise of FTX
and like kind of like 2021 through 2023 and that kind of
boom happening. And now the recent boom, which
is very like government related and so like the final crescendo
of Bitcoin and crypto is that it is like a tool of the US
government. And so that operates on 2
levels. The 1st is exactly what you
described from my essay is that there are all these dollar and
dollar like instrument flows going on around the world that
cannot access the traditional U.S. financial system because of
like you know, they would not pass the mustard of screwed like
if they could, they would. So like it's it's self-evident
and because it is too Arduin a fight to go in and face off
against Elizabeth Warren or something to deregulate.
The existing traditional financial sector.
Why go through the fight when you can just make this parallel
system? And say, Oh no, no, no, no,
we're going to keep all the regulations, but we have this
parallel system where we don't have anything or we have very
limited things that we're also not going to even enforce or
like look into. And then in aggregate, that full
system is net deregulated. So like it's actually quite an
ingenious way to get financial deregulation and pull the wool
over 1's eyes. So then once you have a
deregulation you can use as your marketing tool, which I can
picture a very specific individual that always talks up
the humanitarianness of of stable coins and things like
that. But it's like.
It like it is an admission that like, OK, so why can't someone
in a South American country that's, you know, facing
hyperinflation and, and that already like utilizes have
dollars for remittances per chance because of their family
networks in the US or they want to save in dollars.
And, and there's already like a shadow dollar system in a lot of
these countries. While that person might be the
case, like why does that person not have access to the existing
U.S. financial system? And however, like best case
scenario, we can paint this type of individual the the the
argument still. Allows for because that
individual cannot access that it admits that it's like.
It's because that person like can't offer the levels of
identification or other. I'll be I'll be even more basic
about this. Like you need to abide by US
rules, laws and regulations to have those dollars in your hand,
right? Like if you're AUS citizen, you
meet the you meet it, you'd like you're good.
But if you're if you're an Iranian citizen, you definitely
don't. And it's not because maybe you
want to. I'm not, I'm not suggesting your
intentions, but like your government, your state doesn't
want anything to do with this. And the ability for the US to be
like, hey, fuck you, you can't do that.
Like right. Like if you, if you just decide
velocity is the only important thing.
It just it it this this argument drives me fucking crazy, Peter.
Because. I don't think it was Iran's
choice to cut Iran off from Swift.
I don't. Think that's no, but but but but
I but the dollar even right, Like the idea that they would
not use the rial or whatever. Like, I don't know what they
use, but like the fact that they wouldn't use that instead is
like, of course, in a, a world where there is no sanctions or
like, it's all so insane to me because a huge part of the
dollar, like the importance of the dollar mechanism is your
ability to stop people who you don't want to use it from using
it. And if you go like, well, never
mind. The most important thing is
literally the velocity of money. It's just how many transactions
are happening all the time with the money that we have.
You have defeated a large benefit of what it means or or
detriment to what it means to be a part of your currency.
So like, if if you're a sanctioned country, it's a huge
detriment to you that you cannot access U.S. dollars anymore.
It is a huge detriment to North Korea that they cannot access
U.S. dollars. They have to invent new ways to
counterfeit money to have access to U.S. dollars.
But it's but it's not even like those are very like unique,
like, you know, adversaries of the US state interests.
Type of examples, but like there's a lot of individuals
nexuses of, of money that are just kind of like in a Gray area
where it's like they're not like an an active adversary.
They're just like they could be as simple as there's some guy in
London that's like just moving like dark money around and it's
sort of it's it's not neither here or there, but he just he
simply can't get access to the US system and has to like have
all these rats holes. For the money now the US is
going and saying, how do I get how like I, I, I know there's
all this rat hole money out there that's in U.S. dollars or
U.S. dollar like instruments or that that can like be exchanged
for whatever other Fiat into U.S. dollar.
I I want that rat nest money. So they are creating like a
stablecoin infrastructure to basically absorb all of that.
And it's like, why are they doing this?
They're doing this because as we run out the clock on how our
debt is paid, how our debt is financed, and how the rest of
the world is growing, it's my opinion.
I believe in the multipolarity thesis.
The rest of the world is growing while the West and the
traditional incumbents are declining.
And this adversarial competition is creating decoupling across
many different layers of the international world.
And so namely, the most important thing is that the US
has relied a lot on foreigners to fund its deficit and its
debt. And so as you can see uniquely
with China, because China's the biggest adversary, China has
said, look, we're done. They are constantly decreasing
the amount of U.S. debt they hold.
And so that is naturally going to start happening with a lot of
other countries, as they say, you know, rightly or wrongly,
you just have to understand like they are adversarial with the
US, why are they going to fund their adversary?
So that's happening. There's no way around that.
So the US has to come up with a way.
How do they? Fill that gap because they're
not going to be able to fund their deficit.
So stable coins have become this very interesting conduit to
offset the declines of state actors like China decreasing.
That amount of money going towards the US.
Treasury market and instead getting one as we talked about
all of this dark. Pool.
Money that's out there that can now be flowed into stable coins
and those stable coins then and now with the Genius Act
mandated, they have to buy U.S. Treasury bills 90 days or less.
So this is becoming a huge part of how the US thinks about its
debt. I trace it all the way back to
we can look at guys like, you know, Mr. Nick Carter of Castle
Island talking about this like in 2019-2020, the sort of
initial conceptions and then we can see this, the Bitcoin Policy
Institute. This is all from within the
Bitcoin like insider discussion. You can even say safe Idina
Moose was like critical in using the way that he conceived of
Bitcoin as a settlement layer instrument for central banks
exclusively as a way of folding this into the absorption of like
AUS state interest. And so that's where we Fast
forward. And the first real indication
the state is thinking this way is that Paul Ryan comes out like
about over a year ago in a Wall Street Journal op-ed.
He says all this. He says stable coins are
supplying new demand for U.S. Treasuries as we see China and
other countries declining in their appetite to buy our
treasuries. So this is like GOP stalwart
Paul Ryan, no relation saying the quiet part out loud, Hey,
stable coins are a great way to do this.
Let's keep this going. And then all of a sudden what?
And this, this is one of the most like interesting inflection
points for me is that not, not saying Donald Trump is, is like
good for doing this, but I'm saying his position always was
that crypto is bad for the US dollar.
And that was his position from 2015 to like 2024.
And so he he was saying this constantly, even though within
the first term you could say like his underlings were doing
things to aid in the bed, the crypto markets.
But then like in 2024, like he starts this like complete 180
pivot where he's all in on the crypto.
Maybe you could say that's just him doing a very trivial, you
know, lobby, like the crypto people lobbied him, they gave
him money. He said, fine, I don't care.
I don't have real authentic positions.
I'll now take this position because who cares?
But the reality is, I think not so much him, but the collection
of people around him basically won this argument that Paul Ryan
made that stable coins are needed to fix this problem of
people, not of us not being able to fund the US debt.
And so now you see this. Huge.
Groundswell of Republican argumentation for this.
And so now we have the Treasury Secretary, Scott Descent.
All this guy can say now is that stable coins are going to bail
out the US debt. We're thinking stable coins as a
total supply. Are going to go to like 3
trillion by 2028. I believe.
That's a citation he's using from like a Citibank report that
made that claim. I looked at all like kind of
different researchers. Financial institutions, I've
made my own bottom up, top down analysis.
I think on like a like if the government keeps supporting this
as it's doing like 3 trillion to 5 trillion by 2030, like that's
not crazy. And when you think about that,
that is like it's not that we have to replace 37 billion of US
trillion, I mean of U.S. debt overnight with stable coin
supply. What we have to do is the delta
that we lose each month. We have to turn that over into
stable coin demand. So that's a much more doable
strategy. And when you think about that
trajectory from now to like trillions and stable coin value
that that is doable based on the run rate that all these guys are
talking about South one, the dark pools and pushing that in
to treasury demand is the reason the US is so supportive of this.
And, but I would say #2 and this is where I get into my more
speculative territory of of forecasting is that I think
there is a real parallel. To what we saw.
In the scaling war and where I argue the printing of unbacked
tether tokens was a was a real thing that actively or passively
helped the parties involved with that.
And that that mechanism can still be used in the current
more government infused system that's being done.
And now you have a system where, as I described, one, it's a
shadow central bank that can shadow money print.
And then number two and three, number two, it can shadow
monetize the US debt, which is doing.
And then #3 it can shadow quantitative ease.
And so this is where like the third leg of the stool comes in
where if they can push that shadow printed money into the
equity markets, well now you just create a really perverse
incentive for all the corporate incumbents.
To back this strategy, because hey, we might be facing a
situation where PE values in the US are so high that everyone's
saying there has to be a correction.
Everyone's saying the AI bubbles going to correct.
Everyone's saying a lot of these tech stocks are overvalued.
All this stuff is pointing to the degree to which let alone
the trade, the trade wars, and how that has a depressive effect
on the market. There are so many indicators
that the US has to go through a correction.
And why would these corporate incumbents want to deal with
that when they can get in bed with what the government is
doing, taking advantage of the shadow money printing and get
access to that, to shadow quant AVS to fuel and prop up the
market. And that's where we can see
what's Tether doing today. They're investing in everything
under the sun from AI to biotech.
They're an investor in Rumble. What does a video YouTube clone
app that actually doesn't work really good.
What does it have to do with the stable coin?
No one will know the president's son.
The president's son is the link there.
But this is, it goes into this thing where it's it's this Nexus
of interested parties coming together that are creating these
these very strong ties. Short term incentives, short
term gains over long term reality, right?
Like ignore long term reality, focus on short term gains, focus
on short term whatever. And hopefully you can scrap
scrounge and figure your way out of it.
And I like, I do, I think that this is a conceit of capitalism.
I'd like this is not a just a crypto thing.
This is not just a like this is a conceit where it's like, yeah,
well, that's always going to be the case is that you are going
to put short term goals and gains over the long term,
whatever you might imagine, cuz you don't know what long term
actually means. None of us do.
And short term, like you have a pretty confident concept of what
that will look like, right? And if you can gain that in any
way that you can get away with, it doesn't matter ultimately.
And I think like this is a perfect symptom of everything
wrong with the stock market, cryptocurrency, like every,
every coin like this is this is the tether is this.
But like it's so far beyond tether.
It's it is the Bitcoin forks. It is the it's, it's the fact
that micro strategy does what it does.
Like all of this is a symptom of something far broader and sicker
in this system. And I think I'd like, I think
we're already there, Peter. Yeah.
We, I, we have kind of crossed the Rubicon not entering this
like shadow central bank system whether we like it or not.
And we have to deal with this fact that like, and maybe it's
not like to, and I mention this because the market share of
Tether and stablecoins has gone down.
Over the years, it doesn't necessarily have to be just
Tether because Trump has World Liberty Financial now and
there's other stablecoins out there.
And we can even look at. It kind of like as a quasi like
stablecoin reserve system, like the Federal Reserve System.
There's 12 banks in theory and it's like there could just be
like a collection of 12 stable coins that all operate in unison
and they all have the same modus operandi to, you know, print
synthetic dollars that go towards paying for the US debt,
that go towards keeping up corporate incumbents in the
equity markets and the bond markets.
And this is all. You know, doable because no one
has the wherewithal to kind of look under the surface a little
bit deeper and they're just fine with considering all these
things that, oh, this is innovation, this is, you know,
high tech. This is and and that's the
problem where all of our financial press is like either
talking about this as innovation and never goes.
Farther than that. And they humor it that way, or
they're skeptical people. And Nassim Taleb is a smart guy
and and. Or I won't get into that, but
let's just assume he's a smart guy.
You know, he's a big crypt critic of crypto and all he can
say about it is like, hey, I I don't really look into it.
It's like gambling, you know you can make money, I don't care.
But it's like, this is a guy with brain power and he has not
delved into these layers that we've gone to where we're
reaching the core of earth of like of Bitcoin nuances.
And so this shadow bank central bank system is just like here
now and no one's really inspecting it deeper.
And that's where like guys like who I mentioned in my paper,
Marco Della Elba, he's actually the one that coined the term
shadow central bank. He doesn't connect so many dots
that I do. I believe his first paper
coining it was in 2019. And so he's, he just basically
brings up the fact like, OK, there's like all these
properties emerging with stable coins have that are like very
emulative of a central bank. And this creates a problem for
central banks in transmitting their policy because then it
could not work. But then we Fast forward to
actually this year, the Bank of International Settlements came
out with a working paper that was actually very impactful.
And it ended up in their annual BIS report where they talked
about the way in which they don't call this out of central
bank, but they say, hey, we just like measured.
And turns out the inflows of stable coins impacts Treasury
yields. And so there's a direct
relationship here. And there's a huge problem that
as stable coins grow, they're going to suppress the way
central banks can actually communicate their monetary
policy. And so they can do whatever they
want. Jerome Powell can do whatever he
want. But ultimately, if stable coins
get big enough, whatever they're doing and the flows that they
have is actually going to be more influential on shaping our
monetary policy. So this is.
Where it's like we're now.
You know, 2019 when shadow central bank is first coined to
Fast forward to this year when the BIS is basically saying it
out loud. And they've actually taken a
very like sharper disagreement with the American way of looking
at this. They're definitely looking at
more of the central bank digital currency approach for the
European context. And they're very critical of
stable coins, but they're saying it out loud.
And so we're in the position in America where, you know, this
thing is, you know, slightly less equal to equal or, you
know, depending on how things roll out, going to be more
powerful to Jerome Powell's Federal Reserve and.
You know, does anybody want to talk about that?
I think I'm the one that's kind of vocalizing that aside from
the more academic people that are measuring this in a very,
you know, minutiae way. So yeah, so that's where we're
at. And that's like, as you say,
Cass, kind of an interesting feature of the the history of
capitalism where. We've now arrived at this point
and is it so much a feature of crypto?
It is much as a feature of the natural evolution of allowing
unchecked oligarchy privilege to conglomerate in this new
implementation of a shadow central bank.
So, like, the reason we would want additional demand for
Treasuries is to like avoid having to raise rates or inflate
and then raise rates to continue paying them.
But like, if this is like just a shadow deregulation, when did it
make more sense to do like change the bank regulations?
Because if you can get, say, 25% of stable coin demand into
banks, isn't that going to have like a larger net effect on your
economy and downstream, like, your ability to manage your debt
than like, allowing this backdoor deregulation?
Not to be glib, but if they could, they would.
So that's where it's just like, yeah, like, makes sense.
Try to get that through Elizabeth Warren or you know,
just like, not even her as an avatar, but just like trying.
To you're able to, you're able to push back against the the
real deregulation a lot easier than well, we have no control
over that Bennett, right. And even though like people are
saying like whatever way in which the government today is
overstepping. What the letter of the law says
or the Constitution says. And you could say, well, if they
can do that, they can do anything.
Like there's still ways in which they have to contend with the
institutional hurdles that are in place.
So like, it's not even like an individual politician.
Like, it could be just like a random judge out there that like
stops, you know, a deportation order.
It could be, you know, an institution of civil servants
that like just do not process and do not operate as per the
top of the government says they should.
So these are problems that however, you know, Looney Tunes,
an elected government official at the top of the pyramid could
do. Like there's still all this
inertia from other elected politicians to institutions to
lower level civil servants. That's just like, why would we
go through the slog of that when we can just do this on the side?
And it's like, we're already there.
Like I said, the BIS paper came out and it's already suppressing
yields. With its inflows, it's already
having effect. They're already warning about
all these ways in which it could also destabilize the entire
financial system because if there's a bank front on the
stable coins, they don't have the reserves, things go haywire.
I could, I mean, I could talk about too like there's like just
as a theoretical, like there's a bug that.
Freezes all transactions on one of these blockchains.
You know tethers making so native blockchain.
If that like has a bug in it and all that stops, like what
happens to the value of Tether or other stable coins?
And then how does that diminishment of value on stable
coins affect all the ways in which stable coins are now
infused into the wider private financial sector?
A lot of like Bitcoin and other things like that are being used
as collateral for loans. And so stable coins get
diminished. Naturally, there's going to be a
wider fire sell across crypto and Bitcoin's going to diminish.
And so if Bitcoin diminishes on the on that collateral for
loans, guess what, you're going to get margin calls and when.
That starts happening. It's.
Cascading and to be clear, like this has happened before, right.
We've seen the devaluation, the de pegging of Tether and other
cryptocurrent like stable coins and we have seen there like
there is a cascading effect to this type of thing.
We haven't necessarily seen it in Treasuries, but the idea that
we could like that does not. I'm not surprised by that at
all. That doesn't, that doesn't even
make me blink. I think that is very real, just.
Just add to one bullet point of that something that was an
epiphany for me of like doing the some of the deep just
research of doing this in real time in the 20 tens.
Is that like everyone's saying during the hyperinflation period
of Venezuela that like crypto became such of a big thing for
them? And when I started to like,
really look into that, it's like the narrative is that all these
Venezuelans are like, oh, bitcoins, great.
Everything, Bitcoin, Bitcoin, Bitcoin, I'm using Bitcoin.
But in reality, all they were doing was using Bitcoin as a
middle layer to get out of Venezuelan Fiat currency into
U.S. dollar Fiat currency. That's right.
So none of them were actually funny enough.
They weren't. Holding it as a store of value.
A lot of they were a lot of crypto, a lot of crypto 5O1C,
threes and otherwise we're talking about helping
Venezuelans. And I noticed that stopped and
it's exactly because of what you're talking about where they
weren't using crypto to hold value, they were using crypto to
acquire dollars. And that is a big, big
difference actually. And this is this is where when
you look at the actual correlations and, and way this,
you know, goes back and forth with the equity markets with
risk episodes, how gold operates as a counter hedge asset, you
actually find like, if everything about Bitcoin is
true, it should just be parallel to how gold operates.
And it doesn't do that. It's acts as if it's the
frothiest of the froth of a tech stock in the S&P 500.
That is how people see it outside the religious seller
tree of Bitcoins. People see it as a frothy tech
stock or something in the third world they can use to get in and
out of Fiat currencies. And so there there is no diamond
hands, there is no huddle culture when it comes to the
much wider circle of people that are interacting with
stablecoins, Bitcoin, encryptor, crypto in general.
And so this epiphany that I saw in the Venezuela case study made
me see where you could forecast in the future as crypto becomes
collateral for loans, it's like, and if stablecoins have a bank
run, like no one is going to have any loyalty to Bitcoin.
Like if stablecoins go down and all of crypto's going down, no
one's going to ride that roller coaster.
They everyone is going. To rush for the door to get
completely out of crypto. And so that is a very huge risk
that we're just sleepwalking into because of all these types
of myths and all these narratives that are out there.
I that I for me that, that sums it up quite well.
Bennett, do you have any other questions or anything you want
to throw it at at Peter? I do not.
I just want to remind people they can find Peter Ryan at Ryan
Research both his sub stack and his consulting services if you
need them. And thank you very much for
joining us, Ryan. Peter, thank you, Ryan.
Yeah, and I just want to, as I did in the pre show, thank you
guys for having me on. You guys, as I said in my essay,
have been a stalwart duo in criticizing Bitcoin, But that
almost like trivializes it where it's like you are doing real
journalism of chasing down leads, of fact checking, of
really doing the Lord's work in providing something that just
should be like inherently there, which is unfortunately not
really the case broadly. So I think people should really
commend you guys for what you've done over the years, the
platform that you provided for people.
And for being like an essential reference is like the more I've
gotten into like the study of history and how historians work,
I'll just keep buttering you guys up.
They will go back to crypto, crypto critics corner and all of
that. And it will be an essential
reference tax and primary source for understanding the history of
the emergence of this industry. Literally exactly what I would
love to hear as someone who's done this for fucking free for
way too way too long to be like yeah yeah exactly.
I want people to talk about this in 10 years and how.
You monetize that, but it's going to happen.
Peter, I did not expect this to go for two hours, so I just want
to thank you for joining us. I did like that.
Yeah, this has been a very, very long and fruitful discussion,
and I appreciate it. So thank you.
Yeah. Oh, and and last Easter egg,
part of the title of my essay is Money by Vile Means is a direct
quote from William Shakespeare's Julius Caesar because it's from
a scene that has a very apartment metaphor that is
utilized that I explained in the essay.
But as the Easter egg, when we were all meeting each other for
the first time online and and discussing all of our skepticism
and journalism around crypto, somehow we landed on our little
group chat being called Vile Gang.
I think it was because Adam Backer, someone called one of
us. We were behaving as vile and
then got adopted as the moniker. Yeah.
So it's, it was amazing how I was like, you know, history's
funny that way or life's funny that way when I could land on
this turnip. Field You're like William
Shakespeare. Yeah, that it it, it connects
all the dots together. So it's a it's a fun little
Easter egg there. I.
I really, I love this. I love this discussion.
Thank you Peter. This has been fantastic.
All right. Thanks guys.