DeFi by Design EP#93: Mass Exodus of 2022: What’s next for DeFi & CeFi? w BitGo

Transcript

welcome to D5 by Design where we talk all things blockchain and cryptocurrency while striving to educate Empower and enrich it's your boy Andy and welcome back to the D5 site YouTube Channel smash the like button on this video that really helps us out and sit back and enjoy the content thank you very much guys welcome back to the D5 by Design podcast episode 93 in the books today with a crypto OG who has probably seen more pain than you could even imagine and we're here today to talk about the state of things and what is going on in the world so much uh has kind of happened in the last two months really it's felt like an eternity um yeah I mean we're defy slate so we've

been super D5 focused this entire time always about you know self custody and using these new products that come out and I mean we've had our fair share of rugs and our fair share of just crazy things um but I think that our kind of prophecies started to lean to come true but Mike might have a separate opinion on this or might have a different opinion so we're going to dive right into C5 versus D5 what's going on with FTX and finance um and kind of the evolution of what the space is going to look like over the coming years so before we get over to Mike we'll uh say good morning to Rob and good morning Rob what going on Andy and Mike it's a pleasure to be here with both of you guys yeah I'm super stoked to uh to talk to a Bitcoin and uh

blockchain OG uh we have Mike on the podcast today and we're gonna be talking about all things uh self-custody uh and otherwise right so we'll we'll dive into kind of the recent gyrations of C5 um how they've you know started to blend with uh traditional finance and the future outlook of defy and self-custody um of Bitcoin and blockchain applications as a whole I'm really stoked to talk to Mike about self-custody um and the path that we can uh take to mass adoption of self-custody um if that's really in the best interest of individuals and the industry as a whole and as well as touching on uh rap Bitcoin um as bitco is the uh is the

main C5 to D5 Bridge of rap Bitcoin I'm pretty excited to talk about that as well and the custody solution that bitco has built so without further Ado Mike good morning how are you doing good morning thanks for having me guys great to chat with you awesome it's always busy in this space so um we're gonna have a lot to talk about and happy to take it any any direction um I have been in uh in the space a little longer than most um back 2013 is when we we got started I guess we got interested in crypto a little bit before that uh it was all Bitcoin back then um a lot has changed and there's a lot more to change um I think D5 has been a phenomenal Innovation kind of 2018 and later uh we

did the rap Bitcoin product because we wanted to create a way that you know people could have the biggest value kind of operating on that Network um I think it's run pretty well just did a I think it was an hour and a half session uh with you know folks really poking at every risk of you know what goes into a product like that you know is a centralized custodial you know rap Bitcoin the way to do it should we be decentralized et cetera and just real quick like um maybe clarify something you know people think of bitco these days you know because we do this regulated custody and that that is what we're most known for it takes a lot of heavy lifting in order to to make that work and we're regulated in multiple jurisdictions and um obviously some of the big institutional money comes through that

that venue but we started in 2013 with a hundred percent decentralization it was a technology platform my background as a technologist I got excited about Bitcoin and what can this technology do to change the way Finance Works globally um so we we innovated uh sorry we pioneered this early multi-sig component it was buried inside of Bitcoin under this p2sh pay to script hash feature that hadn't really been um utilized very much up until then and you know today we do you know two out of three multi-sig we do two out of three MPC and threshold signatures we do multiple blockchains to all this stuff um but at our core the technology is 100 this decentralized wallet well as a service platform I mean we pioneered

that before before anyone else was thinking about it um anyway I think that centralization uh in terms of holding custody through regulated parties is a necessary thing in terms of building out the whole ecosystem we want to deliver trust into glasses we want to make it so that digital assets are ubiquitous like whether you are an individual whether you're a business whether you are an existing trade fine Bank whatever you are able to participate in digital assets and so we think we have a big role there but we do train uh we do transcend across you know everything from completely D5 you hold it yourself all the way through to uh to centralized custody very cool very cool yeah and the uh the proof of liabilities and and reserves I think was

one of the things that is like most uh timely at this point with kind of the runs on C5 um and you guys have had that going on on rap Bitcoin for quite a quite a while now um which is telling that you know it is truly transparent you guys are are you know firmly within the ethos of decentralization and the blockchain um levels of transparency that that it provides I'm I'm curious kind of like going back to uh to like how you first got involved could you tell us a little bit about like you know kind of how the how the era has changed you know with you know what seems to be the new cycle kind of rising up you know now through uh we had D5 summer kind of like the

entire yield farming um cycle and now we're going to be getting this new cycle what what have you learned kind of across the the eras that you're anticipating we see more of and maybe you know some things that we might see less of well let's see right now we're we're just in the I guess the 30 days post the FTX collapse so the ecosystem today you know I don't know when people are watching this podcast it could be years down the line but the ecosystem today right now is is reeling from that and it's on everybody's mind there's a pullback from centralized entities like where is the next uh shoe going to drop uh who does not have all the assets that they claim they have and so there's a huge focus in the industry as to who's

solvent who's not um it's great actually by the way um stress testing all of the different parts of our ecosystem um and there probably will be somebody that falls and so proof of reserves come up but this isn't the first time um unfortunately we're humans and you know we go through these very short-lived memory cycles and um you know one of my fears is that three or four weeks from now we kind of all forget about FTX and what just happened the lessons that we learned the sting that we got um and we go back to business as usual um and and and don't really solve the problems this has happened before uh so back all the way to 2014 you know we had Mount Cox and you know it's it's eight years in bankruptcy they still haven't

distributed out to the creditors the results of that um that's a fascinating tale that's been well hashed you know many many times um way back then 2015 bitco actually built first uh proof of Reserve System that we had we used it with a company called change tip you probably don't remember changed it but uh they were trying to do some micro payments of Bitcoin you know they wanted to be able to make it go out to kind of Twitter type users and other things um they're not around anymore which is not not relevant to the story um there were a few others that were also looking at proof of reserves and Greg Maxwell who's one of the uh the early Bitcoin developers who come up with a mechanism for doing a proof of reserves kind of in a Merkle tree it's a complex cryptographic hashing tree where

you can kind of demonstrate the balances exist inside of a larger balance now proof of reserves is a good start you know proving that you have assets um behind it um but the problem we have today is actually the ecosystem is more complex than it was back in 2014 2015. uh that era really was kind of like okay we're dependent upon these services that are are holding Bitcoins on our behalf by the way bitco is not even a custodian then we were just a wallet platform we didn't have any custody um but we're dependent on these these folks that are holding assets we're expecting them to hold them in reserve are they doing it and that was a proof of Reserve System that we launched you can still see them in the news but sure enough you know it didn't take very long six months you know people kind of

forgot about the sting and the hacks and whatnot and they kind of moved on and and now in the wake of FTX this is again uh alive and well so but today's markets are more complex in that not only do we have assets that you have to have on the books which your users are expecting to see one-to-one but we also know that there's been a tremendous amount of Leverage in the system there's transitional lending people have not been forthright about what risk that they're taking in which entities uh that's really the under underpinnings of what happened with FTX they're taking you know they took all the money out and they put it inside of their prop trading hedge fund um and they didn't tell anybody that they did that and you thought it was one-to-one Reserve at FTX because that's what they told you and that was a lie

um so fortunately Sam just went to jail yesterday for this uh that is straight up fraud for sure but in addition to proof of reserves you also need to know proof of liabilities um and unfortunately it's impossible to prove a negative this is just a logical you know um conundrum you can't prove that something doesn't exist easily how do we do this in the traditional World well we do it through audits That's How We Do It um we do it through regulatory oversight and audits that's not a gray system um I definitely hope that we can come up with something way better maybe the D5 side will start to fix this problem over time but um we don't yet have uh as a financial system of any kind whether it's you know crypto defy traditional Finance anything

other than audits to lean on um I suppose it does make good segue to D5 but I've talked a lot so I'll hand it back to you yeah I mean there's some really quality points there first of all obviously the FCX and kind of centralized exchange um centralized lenders at such a large scale are just not gonna not gonna work out I mean there's one thing to kind of you know run a crypto fund or um offer yields and kind of um trade and do things but when you're running an exchange where people are supposedly depositing their assets it's a whole different kind of ball game than um kind of some of these other things that we've seen so yeah definitely Keen to kind of dive into how how D5 kind of

comes into play here but first I'm curious more on your mental model and ideology towards D5 a lot of the big winners in OG kind of uh people who have been around for a while have seen all of the things they've seen the icos and the and the master nodes and the passive incomes and all this um and then D5 you'll find there's a there's a small flock of people that kind of just insist that everything crypto is kind of a scam and a sham and that everything Bitcoin is is it now you've got the Bitcoin hat on but I'm I'm not gonna put you in the camp of ethereum is a scam but I'm definitely curious if you think um kind of Bitcoin is like the hard hard

solid money of the crypto ecosystem and everything else is kind of a facade or if you see some value in defy and ethereum specifically ethereum really um you know and kind of if you see a burgeoning world of nfts and Dows and D5 and if that's something that is is realistic for the future or you know you think that there's kind of a just should be a solid focus on establishing Bitcoin as kind of this hard money of digital gold um yeah I'm curious what year kind of model is in your own I'm a technologist and I want to see Innovation and Technology go forward and there's so many use cases we haven't even thought of yet that are going to be on um discovered as a result of the underpinnings that we're laying right

now so it's kind of like back in 1975 you had you know kind of early drafts of TCP for connecting you know different internets together so that we could get the beginnings of networking and then trying to Envision like the web and what it's become today um there's just so much yet to be built I am a huge fan of D5 so let's talk about the different parts of defy though I think you can break down the defy ecosystem into a few interesting things one interesting Innovation is actually that of stable coins so again going back to like 2013 2014 we weren't thinking about how do you put a dollar on this thing yet we're thinking about how hard it was to get bank accounts and on-ramps to exchanges and other other um you know crypto service providers

and then Along Comes tether and says well why don't we just uh you know consolidate the the Fiat capability over on this one place and you can convert into tether and then you can put that as your digital side look that's a huge Innovation now there's some challenges that we have to fix in terms of like how do you do the proof of reserves on Fiat um so we talked a little bit about that already right but you can prove the uh the digital tokens when you have them so wrap Bitcoin you know which which we do is a stable coin to bitcoin so we can see the number of tokens on chain we can also see the number of Bitcoin on chain and we could really do a good proof of Reserve with Fiat it's hard but defy I think you know in stable coins uh those

are a real uh Innovation that are gonna be super helpful I think we can get to purely digital markets and pull Fiat out so that like our exchanges and our broker dealers our clearinghouses are all digital and the Fiat is only handled on the side and we use like a stablecoin um to manage you know to isolate and contain the Fiat piece then the rest of the system can be made incredibly transparent and can be made Atomic and can do all the digital things we want to do so I I think that's a huge Innovation I give that credit to D5 although I supposed to be to be truthful tether initially launched I don't know if you remember this way back on a thing called omnicorn which was a derivative of mastercoin um from you know back trying to build

applications on top of um on top of Bitcoin and Bitcoin smart Contracting is is not as sophisticated as ethereum ethereum is way way better here all right second area about D5 that I think is really exciting look at the lending platforms and automated market makers that basically can replace uh financial services that exist in other Industries these are working really well so although we've had all of these glitches with centralized lenders over the last you know six months from you know Celsius to block five now to Sam the D5 markets have gone gone through this unscathed entirely there is some risk of course on the the D5 markets

we've we make a lot of coding bugs in the software industry this is not unique to crypto so some of the smart contracts have had some flaws but we're going to get through that those are one-time things that we figure out how to integrate through and now like compound is operating incredibly well um now it's 100 100 plus percent collateralized it's Auto liquidated there's still an experimental piece of it but I think this is showing incredible promise of replacing that that piece of infrastructure on the automated Market maker side again same story like you can get into liquidity pools I've got great depth to them they're transparent um they work very well um there's some things we're still figuring out about smart contracts that aren't perfect but you know this is this

is getting getting pretty promising and then you mentioned like icos and other things look one of the challenges we have uh with crypto assets is that we now have Global access to things that look like money that go all the way out to retail in super easy ways and really this was created by first we had the internet that connects all of us we're all connected now um information we have not figured out how to mitigate truth from from fiction as what's going on with Twitter and you know all of the information Wars not related to crypto so this makes crypto potentially a venue for bad guys to you know fraudulently say hey this guy endorses this that guy

endorses could be great whatever um in general the yield farming I've not been very interested in um I do think there will be some yields that are figured out but yield farming of just like you're going to get some big return off of magic internet money look that's fake it's it doesn't it doesn't last um and we've we've seen a number of these collapse we've seen lots of pumps and dump schemes we've seen straight up rug pulls Ponzi schemes um you know the I think the challenge here is that it's Global Regulators aren't sure whose job it is Regulators are a little bit baffled by there's so much of it they can't possibly keep up and by the way I don't think they should be blamed for

that particular problem all of a sudden they're having to scale like Amazon but they're regulators and Regulators have never been built for scale um imagine having to track down you know 10 000 different projects where you've got hundreds of them launching every day um they have a real challenge in front of them so anyway I am an absolutely huge fan of D5 you mentioned nfts too let's just be clear there I think digital property I mean again fantastic Innovation coming out of you know the back of the blockchain and what you can do um actually bitco has a sub brand called Harbor which is in uh in late beta now and just be launching in January so you go to harbor.com you can see it typically bitco is associated with institutional markets so we put this out

onto the um uh onto a separate brand so it doesn't doesn't confuse like what we're about the goal of that is to be a showcase app of all the stuff that you can build kind of on defy and web3 using the bitco apis and the Bitcoin platform hopefully bring some security and safety to that industry which is you know pretty pretty early stage I don't want to say week I mean it's just it's just in a it's just an early stage so it's not as robust um and we've done some enough details we did an nft deal with Nike which we announced I think just about about a month ago so we're very big fans of what's happening with nfts and I think more broadly digital asset property rights that that could be fully online

yeah we were talking to the founder of pudgy Penguins yesterday and um they're kind of blowing up and he mentioned IP so many times and it's just like that's it for nfts It's that kind of Ip that brand um that Community we've never really been able to have the online really I mean we've got like businesses online and websites but to be able to own something like that and be able to use it for licensing and for different things where you can uh basically monetize the IPS it's pretty pretty uh pretty awesome and yeah I think Rob and I both agree on the points amms and um the over collateralized uh lending protocols in D5 are pretty uh pretty awesome

um they've said they've been very steadfast and have worked out quite well um you know and then of course in the contrary the kind of over exaggerated Ponzi aprs is also kind of a facade so um I'm very curious about rap Bitcoin I know I think Rob might have something as well but just briefly could you establish uh the prominence of rep Bitcoin what it's backed by and kind of uh reassure our audience that using rap Bitcoin and D5 uh is you know legitimate and of course not Financial advice but I would like to kind of understand the uh why it's legitimate um to be to be using that rap token in particular sure and like I mentioned earlier I I just finished an hour and a half uh

Twitter spaces call with uh Chris black okay um who's you must have gotten hit pretty hard with some questions pretty reasonable look like the community is kind of in charge of uh helping make sure that we're being really transparent about what's going on with these different systems um not everybody is as transparent and you know I think all of us as uh community members are still learning like how to how to make sure we get the message out so by the way unwrap Bitcoin if you want to see some information go to wbtc.network um since its Inception we put out proof of reserves on on Route Bitcoin we put out a lot of documentation we list who the parties are you know there's a lot

of complexity behind it still takes time to digest but um we're trying to be as transparent as possible so so real quick dial in the clock back to 2018. you know d5's kind of taken off um but you know a lot of the value in the crypto ecosystem is behind Bitcoin so uh kind of back to bitcoin versus you know other other assets where Bitcoin is great the property that Bitcoin has I think none of the other assets really have is the is the property of immutability um and if you want to have a value store you know the one thing you need to know is that the rules of the value store are not going to change behind your back you can't have the supply inflated you can't have control by anyone party it has to be resistant to adversaries from every every angle and that's what Bitcoin is

focused on so the core feature of Bitcoin is that it does not change and uh that's what allows you to say hey you know what I've got 100 million dollars I'm going to go put that into Bitcoin and nobody's going to change the rules on me tomorrow so I still have you know 100 million dollars and I know that Bitcoin is really volatile but you understand what I mean like you can't have people changing the rules in addition to kind of the regular volatility that that happens um so because of that Bitcoin attracts of course the largest Value Store behind everything and uh as we build up defy markets people want to be able to use that value and participate now in some of these newer markets that are more experimental on Smart contracts on newer Technologies Etc

so in 2018 along with a whole bunch of others kyber and a number of of Industry participants we created a Dao and architected this model to take wrap Bitcoin in a you know semi-decentralized semi-centralized way um so that people could start to use Bitcoin value inside of of defying smart contracts and you know we launched it for the first year and a half by the way it was really small I think you know a million bucks 10 million bucks is really quite small and then all of a sudden as D5 started to hit its stride it grew tremendously so you know sometime last year it was 15 or 16 billion dollars of size it's the largest um uh Bitcoin stablecoin in existence as of right now it's it's down to about

three billion you know due to kind of what's going on with the normal Market ups and downs um and uh so far it's it's held perfectly fine actually there's been in the post FTX world there's been a everybody fly off of everything uh um uh centralized and which is great uh you hear exchanges saying it I'm gonna say it right here as well like if you're not using your rap Bitcoin you shouldn't be holding it right if you're using it within a D5 project of course you need it you're using it but as soon as you're done with it get rid of it right you know send send it back and it will get burned um back and it will get released back as Bitcoin that's happened um so in the last

four weeks I think we've seen the total size of Rapid coin drop from about 280 000 Bitcoins down to around 200 000 Bitcoins again it's all on that wbtc dot Network so with the system we created you know bitco does act as the custodian we are not the owner of rap Bitcoin that's owned by the Dow we don't control the Dow we can't burn your tokens or anything like that all we do is the custody and the the mints and burns we don't own the smart contract uh we do hold in one-to-one reserves we hold proof of reserves for that and you know when people come and ask us to to burn it burn it and distribute it back so I think we've been pretty reliable on that uh and it's uh it's it's held held

through all tests over the last four weeks yeah there was uh there was a shock to the uh to the system after that FTX collapse you know Alameda had their their hands in in Ren Bitcoin and then that caused some confusion and I personally was doing some due diligence I discovered the rat Bitcoin proof of reserves and I realized like this is you know uh the most uh comprehensive uh reserve and liability proofing mechanism that I I had seen from any Central custodian exchanger otherwise um and it just kind of reassured my my belief that rap Bitcoin is not only solvent but liquid transparent and and you know functional for its purpose on uh ethereum and decentralized uh money

markets um which was really really encouraging um I I you know totally align with your topology that you that you laid out in decentralized finance and how rap Bitcoin fits into that um and I think we you know painted a really interesting mental model of how uh the decentral lies ecosystem is is functioning with all of the um you know what we might consider New Primitives but ultimately kind of a recreation of traditional Finance um you know there there's been plenty of Ponzi schemes and rug pulls and and so on and so forth that have kind of made that made their way onto uh decentralized chains um and and what we've realized is you

know if it didn't work or if it was illegal in traditional Finance it's also not going to work and be illegal in in decentralized finance um so you know we're not really recreating the wheel in that in that sense we're just kind of uh bringing what does work and making it better with these uh newer and more efficient Technologies and kind of continuing that thread of you know the new technologies that are that are exciting and interesting that that we're seeing arise I'm curious how how you see cryptocurrency and blockchain fitting into maybe some other technologies that we haven't seen and enter the ecosystem yet like Ai and chat GPT have been getting you know tons of attention you know and just as a technologist do you

see cryptocurrency interweaving with those other pieces how generally how do you see the combinatorics of like the newer Technologies emerging and combining with one another to to create like this uh future of the internet yeah well let's see responding a little bit to what you're saying and then talk about the future um I think when it comes to money you know people get uh ahead of ourselves a little bit you know seeking big yields um we're building a new Financial system here and we need to build kind of block by block and build it and build it up remember the existing Financial system which you know I think is terrible it could be way better but it's been built

up over decades um in in fact hundreds of years and it's it's established over a very very slow period of time um crypto has emerged incredibly quickly um and and is still evolving and we really need to kind of build the basics before we can get to the advanced features so you know when you talk about all the different bad things that can happen out there you know one of the basic ones is like a rope um and you don't tend to hear about rug pulls in the traditional asset on the traditional Financial system um and kind of have mostly figured that out not saying it doesn't happen it does um but can we just solve that one please like you know I think as soon as we get it into uh in into crypto that the base layer we're not going to be subject to

to basic rug polls then I think we can start talking about some of the more advanced topics there's a bunch of new problems we have to figure out to solve like you know how do we do great auditing of smart contracts so that as new projects come out you know we can count on them or ease into them in a responsible way but if we've got basic rug polls are still happening um we're going to continue to have events like what's happened with with Sam bankman freed here um so I think we're getting there to some degree but I think this is going to be a cooperation among you know Community industry and Regulatory and then when I say regulatory that's not just us it's like Global Regulatory and Regulators have never had to solve things kind of at a global level before and by the way I don't even know how to

how to do that this incredibly tough problem um what we see here with again with FTX is operating out of Bahamas and now you've got some disputes between the the two different locales as to like what should have happened or not here and if we end up with a world where you know companies can kind of just disconnect into the the most lenient uh regulatory system you know we're still going to have some right poles and all right so maybe this is going to mean some more monetary education for for the users of it but let's switch to the Future side that you're talking about the the fact is is that money and software are intersecting and they're going to intersect in every single industry that we have um and I think nfts are a great example

of this so let me give um a little background of you know how how did bitco go from decentralized wallet platform to custodian and why and then it's actually the exact same thing that's happening now with nfts so you know we started out with this decentralized notion you know we got a Grassroots industry that's wanting to be able to not your keys not your coins um we build these decentralized wallets they've got multi-sig capability for security people like that um great they start to use it in in businesses well as we get deeper and deeper into businesses around 2016 we signed up CME Group if you're not familiar with them you know the largest Commodities derivatives exchange you know in in the United States in the world um and they were they were working on

strategic projects so they were able to work with us even though we still weren't regulated in any way but they weren't alone what was happening is businesses were starting to get to the point where they wanted to participate in digital assets and these are fiduciaries these are guys like they're holding money for maybe it's a hedge fund maybe it's Ria it could be a lot of different cases but they're like I can't hold the keys myself if I if I accidentally screw up forget about you know malfeasance if I screw up and lose these keys I'm going to be held as a fiduciary I'm never gonna be able to get a job again so the smart guy said look we need to have somebody that can hold custody of these Assets in a regulatory Safe Way bicca responded initially we had thought that existing custodians and Banks would

take on this role but it was too difficult for them at that time so we built bitco Trust Company to take on that function and of course that helped the industry by the way grow um because now all of a sudden fiduciaries could participate and previously they really couldn't do it in a responsible way and those fiduciaries care about okay how are you regulated are you abiding by sanctions and BSA and AML kyc you know what backstops you have like Insurance what technology do you have who's the management team how do I know I'm not going to get rug pulled um what risks am I taking um that's what they want they want to generally know now let's come all the way forward I'm going to skip a bunch of things coming to nfts um and you know we've now got big

corporates that are really excited about building customer loyalty programs ecosystems communities like Nike like Disney Etc and what they're really interested of course is engaging with their own their own customers and and their their their their their ecosystems um and they get really excited about what they can do with digital property rights and be able to you know create new Innovative products and they get about three steps in and their attorneys come in they're like wait wait wait these are going to go into markets you know these nfts can sell for money like this could be a lot of money is this money transmission wait what happens if we lose the keys like what is our responsibility to our customers now that this is overlapping with money it's actually the exact same conversation

that we were having back in 2016 as fiduciaries were trying to figure out how to deal with digital Assets Now that's happening at the corporate level with nfts and so it's an example finally answering your question of money just intersecting with software um and this is going to happen in taxi cabs right where the taxi cab is going to be directly interfacing with money this is going to happen on every website today you use this credit card system which you know it actually works fairly well um surprising how rickety the overall system is but it does work but you're gonna have money straight in your computer you'll be able to make payments direct without having to go through intermediaries um and there's going to be much much more to come so um we are definitely in a new era of

Finance where money intersects everything yeah that's it that takes fintech you know to a whole new level uh Financial technology right is you know well this means like you know I mean you hear about money transmission to fair amount in the crypto spaces it's probably not something you heard about you know prior to crypto and and why is this I mean before that you hear about Banks you probably don't know what's the difference in a bank and a custodian you know kind of the financial system that exists around us you know pre-crypto um a lot of it has been built mostly retail doesn't have to uh know how it works you might have a brokerage account you sort of understand that's the place

where you trade stocks but like you know what responsibilities what connectivity does it have to the exchanges how does that clear and settle how am I guarantee I'm going to get what what I'm supposed to get you know it was it was built over so much time and so long ago that we don't think about those things and all of a sudden all of this is being thrust into the Forefront you know with with crypto where we don't have a lot of these pieces and it turns out that the subtlety between a custodian and a bank uh is actually pretty important and what protections do you get or not get so again people are getting a little bit uh overexcited about the monetary possibilities as causing these big spikes and run-ups where we're going I

think frankly too quickly um in in terms of offering it out people getting excited about yields and things but they don't understand um all right but building the building blocks we'll get there and then yeah money is intersecting with everything we do money transmission as a concept which has previously been is something that Banks had to worry about now becomes like wait all these service providers and every type of software has to worry about it Regulators also need to think about this like do they want to be regulating you know taxi cabs taking payments no not really and yet because of the way it works it's certainly going to collide with the existing rules where it could be classified as money Transmissions so these are all being figured out right now and it's

it's going to be a big overhaul yeah this intersection of of money and software is kind of creating a world where money is is as transferable as information and you know the the information ecosystem was built you know using the internet where we had kind of like the uh the web one era and I was just kind of like you know uh the readability of it not really the right ability to the internet and now you know fast forward web one to web 2 there was I think of Wikipedia or email where we can transfer information you know just as easily as you know pressing a button and uh sending it over the internet and now money is taking on the form of Simply like monetary information and it

has all the same capabilities and transferabilities as um information um just with the fact that people value it that's right and you know all data has some amount of value um and now that you can move that around and maintain ownership of it that has uh monetary properties it may not be currency like issued by by the the government but it very much is money and when you look at money transmission laws um you'll see different different definitions of money by the way in every state um a lot of commonality but but there's some differences and there's the notion of money and monetary value

um so once you make it so that digital property can be sent around which does have value well it's monetary value so much like if you tried to pay for something with potato chips let's say you want to buy a car with potato chips a lot of potato chips but um you know technically you could do it and that does hit money transmission laws if you've done it just happens to be so impractical and stupid nobody would do that but now all of a sudden with digital assets okay well now any two parties can decide to engage in a transaction where you know these things are kind of monetary value and if you start doing that as a business that starts to get money yeah and and this this reminds me of uh a podcast I was listening to recently it

was the network State uh with Balaji and um he kind of paints this picture of of commoditizing our identity um through the the transferability of that data that data has value you know right now you know I've heard arguments that Facebook Twitter social media companies are kind of ripping off that data from from ourselves since uh you know we we willingly give it to you know these social media companies and then they go and commoditize it by selling it to advertisers and and receiving some some Fiat for it um you know when when uh we commoditize that data like a bag of potato chips you know the the lines between what's money

and what isn't money are are really starting to blur between money you know traditionally as we know currency information and data all have transferable value over the internet that's right and you know apology is amazing um he's such a a deep thinker and he's gotten to a level of abstraction that you know I find hard to keep up with but he's been um you know spot on on so many different topics around how things are evolving I do think you know some of the futuristic uh things about how reputation becomes critical to our future World um susanimity becomes critical to our future world and data ownership comes back uh and we become much more

self-sovereign all of those Concepts you know he explores at a very deep level in he's right is coming I tend to operate a little bit more in the here and now we have a business to run we gotta um we've gotta you know make revenues uh and we also have to move the industry forward we also have design goals which is like you know we really want to see a better monetary system and we've got parts of it in play now where you know all of us can participate and we uh it can go head to head with banks and financial institutions and that's a New Concept we have in on the Forum we have the ability to go Global That's A New Concept we haven't really had before um and uh now we need to figure out how to refine that and eliminate risk so

that people don't get just golden ripped off yeah yeah that's kind of a good segue into onboarding the next you know user base like Bitcoin has been done a great job of providing the foundation for what we have currently to exist um and now we're going to be able to have continuous onboarding right from 2013 2014 right all the way up until now which is 2023 almost and I imagine the next five to eight years are probably the biggest onboarding years in terms of mass adoption that we'll see in crypto right like you know you can only Mass adopt everybody kind of once in a sense like you know it kind of just happens and then it's done and I think that's kind of the next five to eight years or so

what is probably that that time um so I'm curious like what what do you think is like the um ideal route for a newcomer to kind of join crypto I mean I'm saying this on the back end of a few kind of uh contradictory uh ways to hold your keys which is that ledgers and treasures are good but you have to protect your your keys and your safes and your metal keys and you gotta you know separate them and you gotta figure out how to if something happens to you who gets your keys and how to you know make sure that they don't steal them before you get them and how do you hold them and then how do you travel with it all these things and then

you've got centralized Exchange Route which is much more kind of um out of your individual control but obviously as you've seen this year so the question here is self-custody for newcomers or kind of centralized exchange or kind of splitting on across I I guess what I'm really trying to get at is like how do people kind of protect themselves from just the security risks of of crypto especially new people who who may not be so uh you know Savvy with with everything sure well look um one of the side effects of having you know the ability to self-custody is that we now have to think about Security in ways we didn't have to think about it before

um so I guess I think there's two things everyone should do number one only invest in assets so you understand um if you don't understand the asset if you don't understand why it has a yield or whatever you should probably think twice about like why you're you're dealing with it and it may mean that you're on the sidelines of the greatest you know run up in history but it's probably the smart call um then second in terms of security I think it's going to depend for everyone on what's the value what they're securing you know so just to use some analogies you have a wallet on your presence right now you probably have some small amount of cash in it I don't know maybe it's 200 bucks maybe it's 50 bucks um you're probably not worried about

losing that because relative to your overall assets it's it's small sure you could lose it sure you could get mugged but it's not a concern but you don't take all of your assets and put it into your pocket in your wallet um and if you did you would obviously take much more care now by the way what's a large amount is an individual decision right what a million dollars might be nothing to Elon Musk but you know it's all the folks here listening to this call it's like that's a lot of money we care about it right we want to make sure we don't lose it we want to make sure we can pass it on to our family you know something unfortunate happened to us you know through natural causes or whatever we want to make sure that we're not putting ourselves at physical risk to be mugged or robbed Etc

so there's this principle in crypto which is not your keys not your coins um I completely agree with this statement uh obviously if you hold the actual value it's yours and you and it's and it's yours alone and nobody can get between you and that money hopefully um and if you put it somewhere else then basically you've given it somebody you've entrusted someone else to care before you and they've given you some sort of an IOU and if you can't trust that party and they rug pull you or they take it you know they lose it accidentally whatever your IOU is worthless and now you lost all your money so look you say okay I'm gonna take it on my own and then I'll be better off I think today because we haven't built enough market structure and forced everyone to use it

um there's too many rickety parties out there which is causing this constant like not your keys not your coins not your keys not your coins but if we take this at you know out on some time Horizon then it gets to a different world let's imagine you know we are all onboarded right we all have have crypto if 90 of your assets your net worth or in crypto or hey 100 of your net worth was in crypto would you want to hold it yourself some people would say yes and some people on the technological level are certainly capable of that and can other people would say no um at some level you get to like how do you protect yourself from physical uh attacks what happens if someone comes in puts a gun to your head and says give me all your life savings do you want to

have a safe in your house bars on your Windows security guards I don't know some people would say yes other people say no so this is where like all of a sudden the ability for us to be The Sovereign owners of our own assets creates a new set of security questions we simply haven't had to deal with for a very long time now by the way the emergence of banks you know if you go back to the 1800s and you know why did people start using Banks and how did they start trusting Banks um and I'm not a perfect historian here but I think you look at the emergence of those those Banks there's a lot of trust issues like why uh is the bank going to disappear is it going to be here tomorrow is it going to

take my money I'll bet you there are plenty of rug pools in those early days too um it's just that we're beyond that by the way do you know why Banks tend to have like these big marble pillars and like these big you know very um kind of old-fashioned Styles when you walk into them it reminds me of like a Greek kind of like you know like um like the Parthenon or something like that like it's just like that kind of protection vibe of the reason is is because you walk in and it's permanent like the bank can't set up shop and temporarily put a bunch of expensive marble there no like if you put in you know these big expensive marble you know furnishings and all that then that can't just be moved it's expensive to put there it demonstrates a commitment to be there and also it can't

be taken away easily it's all about building trust and that kind of goes to the same thing of like how does how did a bank in those early days convince people that it wasn't going to be open today and then tomorrow you go there and nobody's there and your money's gone um it was part of building trust in those early days so we're past that now um all right so for for onboarding of people today uh again look you got to understand the risks of what you're taking you got to be comfortable with the level of risk that you're taking so if you put all of your net worth into it you know you know you are taking a lot of risk and there's the risk at the software level you know at the blockchain level I would not say that Bitcoin or ethereum or anything is fully

done um and guaranteed never to have a failure um I think those are relatively unlikely and getting better all the time but you know D5 projects of course have their own their own risks which custodial partners are behind it you know what are the regulatory behind that all right so I'm not really giving you a great answer except to maybe make sure that people getting into the space need to have a healthy dose of like what are the risks and make sure that they're they're mitigating those risks appropriately and over time as we go deeper as an ecosystem as you know Regulators as you know politicians others we need to continue to like you know make it make it safer and when not now just to make sure it's not all doom and gloom given the monetary system that we have

in front of us given what's going on at the FED with massive trillion 10 trillion of money printing over the last you know couple of years um I believe it's irresponsible for anyone in America not to have three to five percent of the net worth in crypto right now and that probably means Bitcoin um but it could mean ethereum and other things um and that means you have to answer this question of who can you trust um and so you either take self-custody which means you have to have a an element of technical Acumen that means like if you want to protect yourself from physical theft you have to think about how you're going to do backups um handing it off to your kids you have to think about that having a fire at your house you have to think about that

you need off-site backups these are hard things for most people to do and they get lazy and they tend not to do it if you're ready to do that the technology is all here you buy yourself a ledger you're good to go um if you're not ready to do that you need to find where you're where you're going to put it and look I think the answer is simple you go to the regulated entities um look regulated entities are going to see a uh a different caliber of service we have this Epico you know the management team is known we've got insurance backups we've got regulatory licenses that requires us to operate in certain ways um coinbase is another good example for retail that they can can work well we do have Solutions here but I think it's not as simple a question as just

not your keys not your coins for most people if you're talking about anything other than money that you don't mind completely moving got it yeah I agree it's a good point um the related exchanges are definitely there and exist so when I use them and then yeah I mean the ledgers the ledgers are great so um yeah Mike I really appreciate you coming on and representing bitco as the founder and CEO menu for the work also appreciate wrap Bitcoin it's been great and um yeah man um any any kind of closing thoughts from you but I think actually some of the risks we talk about in the post FTX you know people get uh a little bit a little bit

Downer uh kind of thing so I apologize for taking it that way but that's that's about highlighting the risks look on the on the opportunity side this idea that money is intersecting everything I hope people find that exciting I think it's why people should be participating um and uh there's just so much more coming um that's going to change our lives and eventually um be everywhere so uh I hope everybody is not discouraged and instead digs in get yourself educated you get a fascinating ride through like why is money the way money is and um on the other side of it you get a way healthier you know financial future cheers man thank you all right pleasure Mike thanks for

coming on