EB93 – Simon Dixon: How Bank To The Future Is Rethinking Finance

Transcript

[Music] this episode of epicenter Bitcoin has brought you by Ledger makers of The Ledger Nano Hardware wallet have peace of mind in knowing your private keys are protected by industry standard physical security go to ledger wallet.com to learn more and use the offer code eb09 to check out to get 10% off your first order and by Vol toro.com the gold to Bitcoin exchange trade gold to bitcoin instantly and securely starting at just 1 milligram go to volt.com to deposit some Bitcoin and start trading

[Music] today hi welcome to epicenter Bitcoin the show which talks about the Technologies projects and startups driving decentralization and the global cryptocurrency Revolution my name is sebest kuo and my name is Brian foran crane we're here today with Simon Dixon many of you will heard of samon Dixon he is the author of a book called Bank to the future he also is the founder of bank to the future.com which is a sort of an alternative Financial Service Company that likes to do things very differently and he is the fund manager of Bitcoin Capital which is associated with that so excited to have him on here he's he's been uh he's been doing some important

project actually also in the context of this podcast because uh or one of our sponsors is shapeshift and uh they've they've done they've rais some funds through Simon and his Enterprises as well just recently so Simon thanks so much for coming on yeah thanks for having me delighted to be here so give us a little bit of background how did you first of all get interested and involved in the finance the world finance and where did Bitcoin come in here uh so well I I was working in Investment Banking um I worked in corporate finance floating companies on stock markets as part of the team and I did a couple of years as a Trader a

market maker um and um I left in 2006 um to start because I was really interested in sustainable Finance sustainable banking um and generally just running a business in general um and uh when I I started um I started the first draft of of the book called Bank to the Future at that point this is pre- Bitcoin pre- crowdfunding these Concepts didn't exist then and it was purely on how to drive a fin a sustainable Financial system and some of the economic truths that um I wasn't taught at University when I when I did my economics Masters and things like that um so that that was really my first

introduction now as um as I wrote a couple more drafts of that book um Bitcoin came along and and Bitcoin actually bottom up solved some of the problems that top down I was saying need to be reformed by the government um and so that was my first introduction and uh I was invited to the first Bitcoin conference in Prague um and I spoke there with a gentleman called Max Kaiser who who um runs a runs a show that talks about Bitcoin a lot um and uh I've been hooked ever since actually I was quite skeptical to begin with I just went there to really um discussed the book and and some of the the the things we were talking about but it turns out that

a lot of the properties of Bitcoin um solve some of the major problems in the financial system um which we can go in more detail later yeah so what are the most uh what are these problems that you saw Bitcoin solving um so what the book is a long version of of solving um discussing how you solve three problems um and the problems are as follows um the reason that we're in you know we're we're in the financial problems we are is because we're we're trapped in a multi-decade Ponzi scheme as it were where in order to have an economy you have to have more debt um and that the reason for that is simply because money is debt um and so um when in order to have a growing and

stimulating economy you have to have governments take on more debt you have to have individuals take on more debt you have to have corporations take on more debt and then you get growth um and that's simply because economics um has made an incorrect assumption and that assumption is that banks are intermediaries between borrowers and lenders which is just not true um there's three properties that I talked about in the book that need to be solved the first is when you deposit your money with a bank they become the legal owner of your money um and so the people in Greece at the moment have experienced what happens when Banks take your deposits and in Cypress they experience what happens when they take their deposits and every other country is about to experience what happens when

Banks take your deposits the second property that needs to be solved is that when Banks become the legal owner of your money they can spend it as they wish um so what tends to happen is they spend it on things which help their shareholders in their bottom line which aren't good for the economy so A banks were originally around to you know make loans for businesses businesses could then produce something they create some job jobs and they could repay the loan um and It produced some value in society what's evolved is that it's the loans have always moved to the least risky um and the most profitable things to do the most profitable things to do is

financial speculation which adds no value a problem in Bitcoin Financial speculation adds very little value um to the economy and the second thing is it always goes for the least risky asset class which is always property and so the only reason that property prices continually increase is because it's bank's favorite asset class um and therefore you know take an economy like the UK which I know well 40% of all the the money that's yours that's spent goes to financial speculation the other 40% goes to pushing up property prices and only about 13% of the money that's created by Banks um goes to anything productive that creates jobs and so which wouldn't be a problem if it wasn't

for the third the third Pro um problem which is that banks are actually the creators of money um so people think economics assumes that a bank is an intermediat between a borrower and A lender that's not actually true a bank is actually the creator of money supply so whenever you have a positive balance in your online banking um that's simply somebody else's debt and they created that money into existence at point of issuing Al loan and so 97% of every penny in the economy is created that way which which means that the only way to drive sustainability if you want an economy to grow is you have to have more debt if you want less debt then you have to have a depression and that's why we

have boom bust boom bust boom bust it's just simple economics that the science of economics has forgotten or not incorporated into their models um and so all of my focus at the time was how do you reform that top down what Implement what changes need to happen to make it illegal for banks to to create money to make it so people own their own money and to make it so that money is directed in um the interest of the economy rather than just the interest of the bank's balance sheet um and that's what the original book was about and I hope this kind of Segways into why Bitcoin is interesting because when I first saw Bitcoin I realized hey everybody owns

their own money so my money is stored on my phone my iPad my laptop wherever it is um in a cold storage or at a bank if we wish um the money is directed person to person so the way that the money flows is actually a reflection of society um and thirdly Satoshi Nakamoto created an ingenious way of money being created which is that the profits of money creation are distributed among the miners and the people that are actually adding value to the network and providing it security so if you think about it money can only be created in a few way either governments create it which is how notes are created so the way that notes are created is um the way A1 pound

note in the UK it costs 3p to create and 9.97 is profit for the government so you sell A1 pound note to a bank bank gives you10 pound and that profit goes to tax revenues and it reduces the amount the consumers need to pay in tax it's scage it's how um it's how governments make money out of money creation but that's only 3% of money so when people talk about governments printing money like crazy it's a lie it's insignificant compared to Banks created money why do you think that this has gone as you say UN untalked about by uh by economists and economic theory um well the first thing is that it's not untalked about anymore so the bank of

England for the first time in his 360 odd year history just released a video for the first time explaining how money is created um and as as a result I believe of Bitcoin where people are questioning um the roots of money more than we've ever seen before and the financial crisis and a lot of circumstances but in my experience um firstly it's it's it's pure ignorance so you know um a not for-profit organization did a survey on all the MPS I talk about the UK because I was there for so long I don't live there anymore but um and of the 640 odmps only four of them knew how money was created um they thought that they had all control over it or the bank of England did or whatever the Central Bank um and so

there's there's there's a lot of ignorance there and the two reasons really firstly the academic institution um simply made that assumption that banks are intermediaries between borrowers and lenders and created economic theories called multiplier effects and all sorts of stuff um and those theories have gone through to build the foundation of all economic science and economic thought and all those models that we use to build to to to use our monetary policy our fiscal policies and build our economy are based upon these outdated Concepts um and economists have been very resistant towards um uh accepting that there's that money is important in their economic models how money is

created which is the foundation of all the models really um so there's that and uh there are economists out there you know doing some great work on this yeah it's it's interesting that you mentioned that because I I said the econom as undergrad and I did a Ms in economics and philosophy so I I spend a lot of time looking at sort of economic theory and where does it come from how does it work I I always I focus on microeconomics so decision- making and utility Theory rational Choice Theory but it's similar there I mean the the the the theories underlying economics they're just disproven right there are countless experiments showing that people do not act this way and people do not make decisions this way so it's

interesting because you have this whole big science and research and models all based on something that is just clearly wrong and it's not really clear what the implications are for you know all the things built on top but it's certainly not a good thing when the things underlying it just is it's wrong and kind of the main difference is that in microeconomics it's built upon a theory of utility maximization that we all try to maximize our utility and we use equations in everyday life to figure out whether we take an action or don't take an action um but luckily those theories are not really used in the by the corporations or by businesses but on the macro scale the Assumption of how money is created which is incorrect on most

models um is used to actually run our entire economy it's how we determine our monetary policy and it's actually whether we decide to bail out a bank or not based upon um these actual theories so it affects all of us in a major major way so economics has got a lot to answer for now can we extrapolate here and perhaps assume that this is not just a problem with banking but that it it it it expands and it actually is a problem with capitalism perhaps I would disagree totally um I believe the the financial crisis was a banking problem it wasn't a capitalism problem um capitalism in my opinion is is not

the crisis yes there's problems with it I believe it's one of the best ways of organizing um structures I think that you know um yeah the the problem right now is that the the capitalism is built upon an unsustainable banking system where the petrol the fuel of capitalism is money and money is built upon a process whereby in order for it to be created it has to be created as debt and therefore that completely skews where money is allocated who can access Capital um and the size of certain organizations that have access to Capital so I believe that we have a banking problem and that then leads to a

corporation problem because corporations have access to finance that small to mediumsized Enterprises don't have access to and therefore you get skewing of the economy and uh we've never had capitalism to actually test now if you look at countries like Iceland right now they are testing capitalism in its true extent um they've sent the bankers to prison they've sued them for counterfeiting their money supply when they issue loans um and they're looking at cryptocurrencies as a foundation for their economy um and you know they can do that on a scale of 160,000 people or whatever the population of Iceland is um and it's one of the most Innovative um places in the world and I believe you're

going to see a real example a first case study of capitalism um what it can actually produce and then we can decide whether capitalism is a problem or not you know we'll talk about Bitcoin in a second but assuming Bitcoin wasn't here do you see some ways of changing that personally I'm from I'm from Switzerland originally so uh there's actually a referendum right now that uh wants to uh prevent Banks from creating money I don't know if you're aware of that but do you see some ways that the government would change change the financial system would change uh from within or maybe because of a a crash or if we have a huge depression that then

some change would come yeah um the only the only way you will ever get the government to change um is a complete meltdown they will they have no appetite to change prior to any kind of meltdown um unfortunately necessity is the the mother of all invention um Banking and government are completely entrenched um and no you you all you've seen and we've already we've already seen an example of meltdown with um post the subprime crisis um and we saw exactly what they will do they'll create another Central Bank which um puts together more control um they'll look up more control currencies and it will

always be issued as debt um and then all they do is They Kick the Can down the road a little bit further and they create projects like quantitative easing which is a new form of creating money and what quantitative easing did is it said well let's allow the bank of England to create money as debt um and will allow the large corporations to borrow money at virtually 0% interest and then what they did with that money is they ended up buying back their stocks which created a propert um not a property market bubble um a stock market bubble um a bond market bubble and then the the richest people which just redist distributes money to then use that to buy more property which then restimulated the property market so they

chose the exact cause of the problem as the solution to the problem and I believe they will do that forever um because the brave person that goes into government and tries to exercise some of the power which they totally have um to create money without issuing debt um would be met with such massive G enormous resistance um and that's what we're seeing so it just creates a brave case study like Iceland to stand up and do it let's take a short break so I can take you to Paris I dropped into L Bitcoin the house of Bitcoin in the heart of silicon santier home to many startups including Ledger and I spoke with Eric lar Ledger CEO about what we

can expect in the coming months a lot of our customers are asking for Solutions compatible with mobile using NFC or Bluetooth and we are working on that in September we plan to release the Ledger unplugged which is a Java card NFC compatible at the end of the year we will release the Ledger OD uh which is a hardware wallet with a screen Bluetooth uh NFC and the keyboard and also in September November we are going to release the Ledger HSM for Enterprises and finally The Ledger TRL which runs in The Trusted execution envir ment uh is almost available now in beta for melium and um green address and

which will be released hopefully also in September in the future we really see ourselves as the leading company in securing all the Bitcoin Solutions uh for customers but also for Enterprises we want to be the Cisco of uh the Bitcoin so definitely look forward to exciting and Innovative new Ledger products to be released in the coming months in the meantime you can always count on The Ledger Nano to keep your Bitcoin safe so don't delay in getting a secure setup today go to Ledger wallet.com and use the offer code eb09 to get 10% off your first order and that offer code is valid until September 30th of 2015 we'd like to thank Ledger for their continued support of epicenter Bitcoin before you mentioned

Simon uh the case of you know deposits when you give your money to the bank it's it's actually the bank's money and many will remember in Cyprus right when things went down in the end uh some of the money that people had in the bank I think above a certain amount was just basically taken stolen uh and I think we can expect something similar probably worse to happen in Greece um but you mentioned people are going to be experienced that all around the world what do you think where is this going what can we expect um the way if you if you model out the economics of our existing system

you only get a few results the the results that you have is a larger divide between rich and poor you have larger consolidation of assets between ultra wealthy connected people and ultra wealthy connected institutions and each with each bailout you move the bar in terms of the debt to the most indebted people um you redistribute the debt to the taxpayer and that increases the rich poor divide in its infancy but eventually there comes a point where people will no longer lend to government because they don't have you know they they just won't do it because of the interest rates um the you know um that come in the bond

markets to that country um and that's it's when when people will no longer because what happens is individuals need bailing out and so the government comes up with a scheme to allow you to buy your house get you further into debt but eventually they can't repay their interest because their mortgage becomes greater than their income and so when wages are going down and their and their mortgage is going up that's just skewing money towards the banking system eventually people can't afford it so the banking system has some kind of collapse and correction and because all money is created by a bank and the bank is the economy the government then bail it out and the government then go to a central bank and the central bank then bail out the government through quantitative

easing or whatever it is but eventually the financial engineering ends and when that is I've got no idea and how much more financial engineering they have um but eventually it does end because you can't why does the end why can't the Central Bank keep doing that um because you can't taper a Ponzi scheme um the the the money the assets underneath this have to come from somewhere at some point and there's only so poor you can make people there's only so much debt you can get people in um there comes a point when people just default on their debt and once everyone defaults on their debt the the the entire system collapses today's magic word is Crash c

r a head over to let's talk bitcoin.com to sign in enter the magic word and claim your part of the listener [Music] reward let's dive a little bit more into that I think before we move on to bitcoin so because CU actually we haven't talked about the Euro crisis on here we don't talk a lot about sort of economics and financial situation because you know we really focus on on bitcoin on the technology on where this all is going but I think it's interesting with you on here to spend a little bit of time on that so you said you know you don't know when things are going to go wrong but what do you expect cuz cuz I was I

remember in 2007 2008 I was reading uh about this all the time right there there's a Blog that I love and perhaps you know it as well and I can highly recommend anybody interested which is called naked capitalism and the person is absolutely brilliant uh in that she really really understands a lot of it and she's been writing extensively about the Greek situation as well um so I was reading constantly then and and I was sort of always expecting oh that that obviously this wasn't solved right that the what C the financial crisis wasn't solved right it was just sort of tapered and said oh we'll we'll push it further down and I was like oh this is going to

come back soon and it hasn't right it's sort of it we're quite a few years down so do you think now is a time when for example in the EU and the Europe things are starting to unravel things are starting to unravel they've got a lot more tapering to do so what you're seeing in Europe is um the consolidation of a group of countries whose economics are very different who all need their own currencies um whose interest rates and monetary policy for one country does not suit the country the interest rates of monetary policy for another country um using the central banking system on a grand scale through the European Central

Bank which is essentially Germany uh um and if you look at the the charts essentially it's just been a massive redistribution of wealth from the smaller countries in Europe to Germany um and that's essentially what's happened with the European experiment and so now you're seeing Greece fight with Germany Germany as the the banker as it were um fighting and um you know with with Greece and Greek just they just need to right off the debt um crash the bond markets the pensioners are going to get hurt unfortunately because they're the ones whose money the banks are investing um and the asset managers

are investing um and they need to rebuild their own economy and they need to rethink it from scratch they don't need to build the same mistake again and they can become the most financially Innovative place in the world much like we're seeing in Iceland okay let let's move on to bitcoin where where does where does that come in so we we we spent some time talking about government and macro and and top down and things that are quite scary for for people to consider on the flip side we've got one of the most exciting times in history um and the reason today is so exciting is because a series of Trends have all come together whether that be social media whether that be the internet whether that be decentralized technology um it's

really really exciting times in the entrepreneurial space so bottom up entrepreneurs are creating um amazing things because they're not just sitting back um and Bitcoin to me was um you know we call it epicenter Bitcoin it was the epicenter of financial Innovation for me um it was something that I could never have dreamed of being created um and it got created and it worked and it's now become the largest supercomputer in the world on a scale we've never seen before and it's just completely bucked the trend so you know it's just such an exciting Financial Innovation to now say that yes there's a

lot wrong with Bitcoin there's a lot strange about Bitcoin there's a lot that many people don't understand and can't use but we now have the rails to build Financial Innovation completely outside of the existing Financial system so that you know people in Greece If Only They were watching this podcast they would have had their Bitcoins they'd be exchanging them for gold they'd be using them on their Bitcoin debit card um they'd be sending them abroad they they'd have freedom as it were um yes they you know have to accept some kind of volatility and lots of the things but remember the thing with Bitcoin is that now we have programmable money a service like bit Reserve can come along and take

out volatility uh from the equation other entrepreneurs are coming along so what I love about Bitcoin is that you don't have to to Lobby a government and persuade massive vested interest uh to change things because it's being changed anyway at lightning speed um and you know applications are just being built so whenever someone comes to us with a problem about what Bitcoin is you can come along and you can find someone that's trying to solve that problem interview them on this podcast a community gets built around it and the Technologies built is rolled out and the problem solved so every problem um that you can think of is solved one step at a time um which is just is just such an

incredible Innovative environment and something so exciting so so if we project this out and let's say we're optimistic and things go right and Bitcoin doesn't run into serious problems Etc where do you see this going I see a serious integration between the traditional Financial system and the cryptocurrency when whatever we want to call it blockchain ecosystem um we're already seeing that um fortunately the traditional system is on a path to however long it takes um there is an implosion and we're going to see that in on a scale because it's just going to get bigger with each

crisis um which means that now rather than everyone having to accept um the their wealth might be wiped out at any point they can start hedging their financial system they can start hedging their personal portfolios they're going to lose money Bitcoin is a wild crazy asset class it does things very strangely it doesn't work like a traditional currency um however it will and I believe in the future what's going to happen is that many many many different things will work the same way that the blockchain actually works and the Bitcoin Works um but in the future thanks to Innovations like Crow funding like

peer-to-peer lending like Bitcoin what gets funded will reflect the values of society rather than the appetite of governments and Banks so we talked about how money always goes into property because it's bank's favorite asset cost well in the future people controlling their own money means that they'll be directing flows and what gets funded will be the reflection of what's on a transparent Network and what people want um the second thing is that um with money also being FL in the direction that people want it to go um the you know the the whole blockchain concept means that in the future people will be using currencies and asset classes that reflect their values so rather than if

you use Bitcoin that will be a value choice if you use US dollars that would be a value choice if you use some obscure coin that's being used just for charity um that would be a value's choice so I think in the Future Finance is going to get more complicated there's going to be lots of different currencies lots of different things going on and the currencies and products that people use are going to be a reflection of their values and that's really exciting because it brings more personal choice in what what are your thoughts on uh some of these some of the banks now uh moving towards cryptocurrency and even U announcing that they'll be uh issuing their own cryptocurrencies I've got a bit of a a

LoveHate relation ship is great for for Bitcoin and the decentralized cryptocurrencies and blockchains uh because unfortunately even though banks have committed crime for so long the world still looks at the banks and trusts them and looks for them for validation and so this year has been the year where every Banker comes out and says hate Bitcoin love the blockchain um let me retranslate that for you what that means is that I thought that Bitcoin was some kind of crazy Ponzi scheme I didn't get involved and I don't want to lose face so therefore if I say I love the blockchain then I can be involved um is the translation of that really um now Banks getting involved I think it's great

because it adds validation to the technology um it it helps people get involved more because they're large networks and people are all still using their Banks and they trust them even though what's happened over the past um but at the same time they're creating worse verions of what Bitcoin has already been created so City Coin comes out um City Coin you know if you're a consumer and you're looking at right how am I going to use my money am I going to use a network whereby I own my own money it's not censored I can send it um really easily really fast and I don't need to answer questions of everybody um to to that or am I going to use a coin where every transaction I make they're

going to ask me a ton of question questions um and if they decides that they don't like what I'm doing with my money they're going to take it um and use some of the properties that we talked about where they become the legal owner of your cryptocurrency um and they can direct it if they don't like the way you're directing it they can spend it as they wish um and now they're get involved in the money creation process so I believe that it's a worst version of what's already been created but I also think it's good for the sector and blockchains can be used to solve more problems add more transparency layers to existing Financial systems like um you know Securities and and security transfers so yeah it's a bit of a funny one because

when you've been around for the from from early on you you have this kind of growing pain of being involved in a niche being involved in what what you know and then suddenly it actually gets where you want it to go um and you lose a bit of the attachment to the niche and suddenly all the banks are getting involved which um I would hate for the end result of this entire Financial Revolution to be that we found a cheaper way of banks committing crime and that could happen yeah I mean so there was one thing relating to that is that of course you mentioned uh you know people would either choose one or the other there's the question of consumer protection and ease of use and if

Bitcoin doesn't provide those things then certainly people would choose the the coin that the bank is issuing because you know people continue to Trust Banks even though they continue to commit crimes as you mentioned so but um so I I want to ask one more question and then we can move on to Bank to the future we had David andato and alato on this podcast he's uh a VP of research at the St Louis fed and you may have heard he proposed uh the idea of a fedcoin where essentially a government would be issuing cryptocurrency uh under you know his idea of what this would look like it would look very much like Bitcoin in the sense that it would be

uncensored um with no kyc and if you take that model then essentially Banks start losing their legitimacy because you can transfer money um you can transfer this fedcoin without having to go through a Bank Of course banks are still useful for Lending and things like that but they seriously lose their legitimacy for payment transfer um what do you think of that idea I I I'm all up for for financial Innovation I don't think it will work um so you know I I guess they're just lending their brand to if it's what works exactly the same of Bitcoin then that's a very interesting idea but what does

that actually mean does that mean that there's um some kind of Deposit Insurance does it mean that it's not decentralized and there's a central point of failure that hackers can attack um what does it actually mean so you got you got to dig deeper into um the details but if it's simply lending uh their brand to it then I think it's a good choice well actually I think the the idea that David talked about is a super revolutionary and interesting idea right the idea that oh the government now because you you talked about you know money being debt well this wouldn't be debt right so all of a sudden the Central Bank could could issu in large scale money and

uh and you know you wouldn't have to go through the banking system wouldn't be this the question is is the devil's in the detail when the central banks issue it um is it mind into existence is it pre-ind um I I think it would just be issue yeah I think well to be quite Frank um personally I was very I am very doubtful that this is going to happen in particular because the way he talked about it and what he would like would be like an open system that then people can build all kinds of applications on it and you know there's no kyc and it works like Bitcoin in many ways right and and decentrally validated and all but governments are never going to go for that I mean if you look at Bill license

and stuff there's no way uh a Federal Reserve would create a cryptocurrency that they don't control you know down to the user level so personally I think it's an interesting concept it's actually a cool concept that would be uh it would be good to have that there's a competition to bitcoin along and all but I don't think it's going to happen I think if governments are going to create a cryptocurrency it is going to be more like you said right where they're going to do kyc and everything and it's going to be a pain and it's going to be uh full of surveillance and things like that and so all that's done is it's created less security for what what was a very secure idea um and it's also

created um you know more risk um into the model so you know Regulators have got some interesting challenges ahead um kyc and all these um you know storing documents on a large scale that can be hacked and distributed is not in consumer protection um at the same time and it makes it less secure so the regulations that Amen to be you know you used for Consumer Protection work in this system completely against what they're originally trying to achieve so a bank to the future we have to store details um we have to do kyc it's part of the um our requirements in order to operate um

but you know what what that does is it just puts our consumers under an additional risk that we don't want to put them under um because they're deciding that consumer protection is not as important as their agenda for anti-money laundering and to protect crime so what they're doing is they're weighing up is consumer protection more important to us or is anti-money laundering more important to us um and these are all decisions that the governments are going to have to make and decide at the moment they're deciding that control is more important than consumer protection um and they're dressing it up as consumer protection in order to remain control so you know it's very interesting digging deep into these policies and what they're what they're

looking to do yeah so let's talk more about Back to the Future the the company uh so how did you start did and what was the original idea so um Bank to the Future um was really a bottom up um entrepreneurial venture that I co-founded with bliss Dion um in 2012 and um it was just simply a vehicle to get a lot of this Innovation funded and moving um we wanted to create a place where um you know businesses funds um we could increase more liquidity into to the alternative Finance sector um so there was things like Equity

crowdfunding that were coming around it started in the UK we had to spend three years lobbying Regulators just to allow that to exist and then America copied it with the jobs act um many years later um and so laws are being changed to facilitate this the reason being is because getting more money into the small to mediumsized Enterprise and sector has been top of the agenda for governments as a recovery mechanism for the financial crisis um so therefore it's been supported in in many ways um now Bitcoin and cryptocurrencies are being seen as a new sector with a billion pound of venture capital invested in which is a job creating sector and therefore it's

getting more support now um so in a sense for the for the last what we wanted to create is an online investment platform where people that were legally allowed to invest can invest in financial innovation and we've got lots of different products for example we raise finance for companies in the alternative Finance space uh we've raised Finance for exchanges we've raised Finance for crowdfunding platforms we've raised Finance for um people creating alternative banking um systems um and uh the existing regulation says that we can only do that with a certain type of investor but all around the world rules are changing whereby more and more people can invest

um and they can invest smaller sums and so uh we're we're kind of in the middle of that so the long answer to a short question is we're an online investment platform that allows um qualifying investors to kind of hedge the situation invest in financial Innovation and hopefully build a portfolio that would perform counter to um how the traditional Financial system would perform so as the financial system gets worse in theory um these investment should perform better oh that's that's fascinating I wasn't aware of that so CU I saw that you know Back to the Future you guys do equity crowdfunding and some different things but I wasn't aware that you specifically look for projects that will do well when the sort of General

Financial system will do badly yeah so we do we do fintech and financial Innovation only um and that's that's our Niche really we we're trying to drive forward um you know many of the changes that we wanted to originally create with government in the original version of bank to the future but luckily the bottom up reforms came along where Equity crowdfunding can exist Finance can be raised online people can use cryptocurrencies to invest um people you know the the internet allows for you to to reach out to a global audience where it's compliant um and uh you know the blockchain is creating many many interesting applications that are very

disruptive um and can potentially be you know the next Googles and and Facebooks in a in a decentralized way and produce hopefully um similar returns for investors in a highrisk high return environment so you mentioned the jobs act which is changing some of the rules around investment investing um who can invest today like on bank to the Future and in what countries are there restrictions still um so we we focus on on a niche audience we've got a very Niche investor base so we've got people that really want to inv in fintech financial Innovation they're wealthy people they're high net worths they're sophisticated investors um each country has their own definition so we've read

literally 50 versions of financial securities act and services act and spent lots and lots of money um on legal fees compliance and we've created a structure whereby um people around the world who are either accredited professional sophisticated and each country has their own definition um can invest in these companies and they can build a large portfolio so they can invest as little as a thousand dollar which um you know in some cases sometimes it's $500 um they can invest in any currency that's allowed to operate in a compliant way um they can invest in cryptos um they can invest how they wish um into companies and they just have to make

sure they're the right type of investor and every time a regulator releases a new act such as the jobs act the increases the the ability for people to invest then our platform will adapt um and make sure that only the correct people invest now how do you uh filter those people because I mean so I we both created accounts on bank to the Future and we were quite easily able to get into the platform because there's some sort of self-verification or self-checking uh Is there further verification of that investor uh yeah so we you know the people have to check the make sure they're the right things we have quizzes to make sure they can demonstrate they understand it we have to do um you know

kyc requirements we have to get documented evidence when people invest certain levels um and it also depends how they invest so is a very simple process on the front end um for for people to make sure they're going in the right direction but we also have products which anyone can can can back for example you know people might be simply backing like a Kickstarter project something that they want to see and anyone's allowed to do that um the only restrictions are where we can take payments from but Bitcoin solves those as well um and so you can only get to the place where you're allowed to get to in a compliant way um and yeah we we have to we have to comply with various other V all the financial services acts

of the country where the person's resident it's time for a word from our sponsors Vol toro.com the go to Bitcoin exchange now we all know there's been no shortage of Bitcoin exchange scams and hacks in these recent years and that's why when Phillip and Josh the two brothers behind volto decided to start that Exchange in the wake of the mount gaau disaster they wanted to do things differently so they're really pushing the bar forward and innovating in terms of security transparency and auditability to ensure that customer funds are safe secure auditable and so there's no there's none of this Mount go you know stuff going on it's all on the

up and up so if you've been listening to the broadcast of course you know volor and perhaps you like volor and you like what they do well something new is happening something really exciting is happening and that's volor is doing an equity crowdfunding campaign through back to the future of Simon Dixon who of course you know as well by this point uh so if you're interested you now have the chance of actually owning some equity in a startup which is sort of a new thing equity crowdfunding and not just a startup but a great Bitcoin startup a great startup in this space and you can even invest with Bitcoin so if you're interested check it out that's on bank to the Future so bnktothefuture.com and of course we'll put a link in the show notes and we

would like to thank volur for their support of eps Bitcoin and hope they're going to have a fantastic crowdfunding campaign tell us about some of the companies that have raised money through Back to the Future um so we we've got we've got a a number of different models um some some examples are um the the sponsor of um this podcast I believe shape shift so um what we did is we invested um in shapeshift because we also run a venture capital fund called Bitcoin Capital that raised Finance through bank to the Future um and we invested in shapeshift um and then we have the ability one after we've invested um to allow people to invest in the

the The Entity that we set up to hold those shares um so people can get exposure to the Venture Capital round so what happens in most cases is people read coindesk or they read something and they find out hey um Shape Shifter has raised $2 million from VCS and there's no way of actually getting involved well with our model we're getting because we've got a very high profile in the blockchain cryptocurrency space we get invited to most of those funding rounds um and so therefore we can invest a block in those funding rounds and then after the fact give um you know other investors that weren't necessarily a venture capitalist or an institution the ability to to get involved if they're a qualifying investor so um you know

that's what we did in the case of shape shift in other circumstances people are just raising Finance direct um so we had one company called crowd property which um I invested in personally as well I should disclose I invest in a lot of these companies myself so um you know I've got skin in the game as well um and uh simply he was offering shares um in taking the crowdfunding concept and applying that to the real estate property markets um and allowing crowding people back into property as it were because everyone's been crowded out because of the price has increased so much because um banks are issuing loans for property um as a main asset class

which has pushed up the price and therefore you need a higher deposit it but now you can crowdfund that together where you can get involved in real estate investing for as little as $500 or say so if I can just rephrase uh so with Bitcoin Capital what what you do with shapeshift so Bitcoin capital is a VC fund you funded around in shape shift and those shares you then put them back onto uh Bank to the Future so that essentially people are funding that VC round yeah so we we we negotiate with the company and we say that we'd like to have a reallocation whereby a certain amount of the allocation um can be used for PE our investors on our platform and if they don't get

subscribed then we'll underwrite it and we'll invest anyway so that's one model we've got other models you can D you know a company can just raise Finance without that model um and we also do where um for example um we run a TV show which we just um we've recorded our first 10 episodes um called crowd factor and the way crowd Factor works is a show with Max Kaiser and myself um and an entrepreneur can come along and be interviewed live on the show um we'll invest we won't invest and it will go up on the platform and if we invest people can co-invest alongside us as a as a different you know direct investment or a special entity um or we can um we can not invest put it on the crowd and the

crowd can prove us wrong and go out and invest in a really successful business that we missed um so think of sh tank called Dragon's Den where the crowd get to prove us wrong if we don't invest and they get another opportunity so you know we're using Financial Innovation to to drive forward different models produce new liquidity that didn't exist before and give the investors that are compliantly allowed to invest the opportunity to invest where they didn't have it before so with bitco capital I just wanted to describe it in a little bit more detail right the way it works is that you Ed your own uh cra funding platform Back to the Future to raise money for a fund and that fund then works a lot like

a VC fund right in that it it invests in different startups specifically in the cryptocurrency space actually does some other things too right besides investing in startups but so it's it's it's a it's it's I guess a little bit as if an individual had the opportunity to invest in in a hedge fund that's spe spec specifically f focuses on the Bitcoin cryptocurrency space u which is of course an asset class that normal people don't have access to so bit Bitcoin Capital was a problem that Max geyser and myself wanted to solve which is whenever we go around the world people ask cuz I mean I speak at a lot of the

Bitcoin conferences and things like that but that's not my favorite audience my favorite audience is people that haven't used Bitcoin yet that are skeptical about Bitcoin and I spend a lot of my time you know trying to convert people into the benefits of being involved in this sector um and and what it actually is so I I I frequently get asked by professional investors High netw worth people you know hey you know that was interesting that changed my perception of what it is but how can I actually get involved um and then we go down this whole thing of well you got to open a wallet you got to do this and you got to do that um and then you got to convert on an exchange that you don't trust and stuff like that and you know the whole

Rabbit Hole of because this is an early sector it's not terribly easy for everyone to use yet um so Bitcoin Capital was a way for them to just simply put their Fiat money in um and we run a venture capital fund that also pays them Bitcoin so that they can start using them and so what we wanted to do is um we wanted to use onethird of the funds to invest in a process that we use so we have mining Rigs and I Iceland um and we've got a very lean um model that's still profitable for mining bitcoins and altcoins and other coins and all the others whatever is most profitable at the time um so what we do is we invest a third of their funds in

that process and we give them daily dividends every day paid for in Bitcoin um which means that they accumulate their Bitcoins in an environment where it's not like a traditional minor where they have to sell their Bitcoins in order to pay for their electricity these are longer term investors that want to accumulate their Bitcoins and then use them for the first time and start getting involved in in in the sector the other third we use to just hold positions in coins very few coins um we've only got two positions at the moment in coins that we believe in um and can you share what those are uh so we've invested in Bitcoin and starcoin we hold positions in those starcoin is a crowdfunding altcoin very high risk um

very volatile coin but it was designed specifically with the user case of um being used for crowdfunding to help businesses get funded and to give people money it was a pre-mine coin where we give people their first investment for free on the platform um and uh it's used for crowdfunding so we think that's an interesting case um and we we're looking at others but we're we're very you know we we're we're looking we've been mostly investing in the the longer term asset class of venture capital which is we've got a portfolio of companies we've invested in bit Reserve we've invested in shape shift we've invested in factum um we've invested in some others that we're due to announce as well and so the

idea of the fund was as follows it gives you exposure to the growth of the blit the Bitcoin and blockchain sector it allows people to invest in a way that they're traditionally used to they don't have to be a Bitcoin geek to get involved um we'll pay you Bitcoins for as long as the mining process is profitable they'll diminish over time um and at that point we might you know convert to some other type of coin whatever it is whatever's profitable but eventually it won't be profitable so you'll accumulate a position and you'll get short-term dividends while the long-term Venture Capital takes time to mature because that's normally a 5 to sevene time frame in order for one of these companies to float on a stock market or float on what might be a

Bitcoin blockchain Market in the future or um get bought by another company and uh you the highrisk high return asset class that it is now with Bitcoin Capital are you going to provide other services to the companies you invest in I'm thinking for in for instance mentorship things like that so we're we're very active in the companies we invest in um you know Ma Max Kaiser's involved and he's got a very very very large following in the sector so where it's a good fit um you can you might be able to go on his show and discuss your business um you know conflicts of interest aside whatever the right thing to do is that that's his decision um and the TV channel's

decision um but we um on Main Niche is marketing so we talk everywhere around the world about all the businesses we've invested in like we're doing right now um we have you know very I have a large investor following banks of the future as a large investor base we would like to combine it with crowdfunding purely so you know for example factum they've now got 305 new investors that help them raise their million plus dollars on bank to the Future um that's 300 investors that are all Advocates all looking to support promote the business um and we talk about it wherever we go and we also co-invest with other larger investors

you might know some of the things like Barry silbert and panta capital we've co-invested with some of some of the people that most people are looking to try and get involved because we're all out there advocating and we're all looking to bring some added value and put these companies together as well to try and construct some joint ventures and share the market share that they're gaining uh one thing I wanted to ask about so with VC funds uh there's this typical uh sort of fund it's different fee structure right where the the VC fund might take like 2% per year of the total funds and and then 20% for example of all the profits being made now I get

this isn't the typical VC fund right it's quite different um but how does that work in this case so the way that we structured Bitcoin capital is we brought a load of assets to the table when we first started which is that we were running mining farms for a long time um we have the ability to scale up the mining very fast very slow and so therefore we set it up as a traditional company rather than a pure fund where the investors are getting equity in the company and the company is um getting is accumulating assets and the value of those assets pays out dividends um according to the allocation of the equity um so it's not run in a traditional fund way because it's just

not a traditional fund we have other products which are traditional funds so we've got one like uh we launched what we call a startcoin mining back secur um that purely invest just as a fund in the mining process for St coins so so let me jump in here because I saw you mentioned that 50% of the Dividends are are paid out uh to the investor so uh does that mean of of the initial funding that a money that bought all those assets uh did you guys put in some of your own money or is is those 50% sort of purely for the fund management and and all the work work you guys are doing and the traveling and the marketing and

Etc uh so yeah so to so yes we we put money in as well um that those that Farms have set up in order to leverage those so it's like a traditional company the founders have set stuff up um got some Assets in the company and then investors come in at a later stage um and uh yeah and so the the way that it actually works with the fee structure is 25% goes to um a company called startcoin Holdings which is owned by one of the shareholders is Max geyser um who's one of the co-founders of the fund and myself I get 25% as the fund manager okay cool and now another thing is that there was a Bitcoin Capital fund number

one and then there's a fund number two that I think is currently uh raising money can you talk about what's the difference here how do those two work the two two entities do exactly the same thing so when trench one is fully invested and it's um it's accumulated all of its assets um then tranch 2 will is a completely separate entity that invests in companies and does the same thing um so the they're they're complet they own completely different assets um and they're completely separate entities so many people have invested in both now what happens when because this has been the case for some companies when the the it gets over the the

funding uh threshold gets reached and even surpassed with Bitcoin Capital we're raising a maximum of $5 million in tranch 2 so we will close it there's no overfunding um in other businesses on our platform you can raise more than your initial goal um and what that means is that you just end up selling more Equity you don't dilute investors it just means that let's say you wanted to raise a million and you're offering 10% Equity if you end up raising 2 million you're selling 20% of the company and I suppose that gets defined in the terms when you first set up the the funding on the site uh yeah so every investor as they come in and invest they they sign up to an agreement um and the terms are

all outlined on the pitch and each pitch has their own terms but yeah there's no you you if we raise more on the platform the Investor's never going to get diluted it means the company selling more Equity fantastic well uh Simon I think we're sort of at at the end of our show but thanks so much for coming on and talking about it it was was very interesting of course we will put links in the show notes to bank to the Future to your book uh also to uh the site where where trch 2 is being raised right so if people are interested in in getting invested there they can they can check that out okay well thank you very much for having me and I think what you guys are

doing is really valuable work because this is a sector that needs so much education um I believe it's going to have such a big impact in the future um and any resource like this that's um helping people get involved access to information um I think is just a tremendously important thing so keep up the good work and thanks for having me thank you well thanks so much well uh you know speaking of of all of Simon's nice praise we we have started this bribing contest which is if you leave an iTunes review then we will send you a t-shirt like this uh you just need to email us at show bitcoin.com with a link to review you can say as nice things as

sign or you can say evil things you get a t-shirt in any case um oh it's so it's a it's a draw right so when actually it's one one teach a week so if if uh hundreds of you rush to this opportunity then uh well it will be a lottery just like Bitcoin mining is uh so thanks so much for joining us this week so we put out new episodes of end and Bitcoin every Monday uh you can subscribe to show on iTunes SoundCloud or your favorite podcast app and we're also by the way we're also on TuneIn now so yes it's a new platform it's important to I I guess it's the new thing it's important to mention it like I've heard okay so we're also on the new thing

called tune in and of course we on the old thing where you can watch video called YouTube and that's on youtube.com/ Bitcoin uh so thanks so much and we look forward to being back next [Music] week