E10: Crypto

Transcript

Machine-generated (Whisper). Download: VTT · SRT

0:00 All right. Welcome to the Frankly Speaking podcast. Today, I am joined by my friend, David. We were previously co-workers. Dave is excellent at board games, specifically strategy games. Every time he destroys us in Splendor and whatever other random game we play. So welcome, David. Thanks for joining. Yeah. Thanks for having me on, Frank. I know you kind of introduced me to crypto all those years back when you asked me if I wanted to participate in your ICO all those years ago. And I never really quite found out how that journey ended or went for you.

0:42 Yeah. Well, basically what happened there, I convinced a couple of my friends to quit their jobs and move to SF. And I had already quit my job at that time, I was working on a project by myself for like, three or four months. And originally, I really only wanted one friend, but he wanted his cousin as well. And like his cousin is completely useless. And I knew it was a bad idea. But at the time, I'm just like, yeah, whatever, I guess more people, even if he's useless, it's better than like, not having him, I guess, which was a mistake. So he ended up just being like, worse than useless, effectively.

1:19 And so like a couple other people joined. We never really got any traction. So we got like a couple hundred people on our newsletter. And we built a thing. And then we also like, we had a meeting with john McAfee as a potential investor, he did not invest. And basically, it was just like a failure to launch. So like nothing really happened. Yeah, I mean, the entire experience really just taught me how marketing is extremely important. We're a bunch of like engineers and product people. So we built the thing, we built the website, wrote the white paper. And then nothing happened. Like, we just thought, Oh, people, like, they're gonna look at us and be like, this is awesome, right? But yeah, nothing happened.

2:01 So that was a great description of how 99% of crypto projects go. Yeah, not just crypto projects, but just like new tech startups in general, even from like YC companies, like I had people from YC contact me, who asked me to like, promote their products. And I'm thinking in my head before that point, I thought like, Oh, once you get into YC, then you're, you know, you're set, you're gonna get tons of money and succeed and whatever. But even if you graduate, so for YC, for people who don't know, it's a prestigious startup accelerator, Y Combinator, it was started by Paul Graham, a lot of really big companies like Airbnb have come out of their Dropbox.

2:49 And yeah, I mean, it's, it was fairly, it's really, really hard to get in, like, it's harder than getting into Stanford or Harvard or something. But the people who come out of there, it's like, before you were guaranteed to get funding. And now it's not even guaranteed anymore. So they can like choose to give you funding if they want to. And they also started accepting way more people than before. So before the class sizes were probably like dozens, and now it's like hundreds, which is crazy. And they're like trying to scale it around the world.

3:19 Like, it's almost like they're becoming a normal company where it's like, Oh, they're focusing on growth. Now they're like, Okay, how do we deploy more capital? How do we get more cohorts? And I've talked to several people who've been through it, all the more experienced entrepreneurs are like, Oh, yeah, if you haven't started a company before, super useful, highly recommend it. If you're more experienced, like probably don't bother because you can get better funding terms on your own. Interesting that you put it that way, because don't you see the parallels and almost every kind of market we have today, especially crypto, where in the beginning, it seems relatively easy to get started and make money.

4:04 But then once the word gets out, suddenly, you got so many people coming in with intentions of just making money, that it kind of ruins the whole, you know, poisons the well, so to speak. Crypto is like more egregious, though. So like for normal startups, they have to have like some semblance of trying to make money eventually, like maybe not immediately, but have a vision of eventually capturing some sort of market and extracting value from it. So as crypto, a lot of the ideas were simply like, here's this normal website idea, but we're going to add like blockchain technology, or they'll like introduce a coin that essentially has no functionality, but it's like a tax to use the technology, which doesn't make a whole lot of sense in a lot of cases, because it's like, well, someone's going to build like a free version of that.

4:52 And because all of your code is on the blockchain, like the only unique code really is the front end stuff, which is why you see like so many different skins for various financial aggregate systems. And like what happened to Uniswap essentially, like once Sushi forked them and they introduced the coin, like Uniswap originally did not have a coin. But then everyone started going to Sushi, they're like, oh, well, we can farm coins, we can make money from like using this ecosystem. And Uniswap's like, oh, crap, like now we have to, we're forced to introduce a coin.

5:26 For startups, I think a lot of people are in it for the money as well, but probably less as a percentage, just because like the success comes a lot later. Like crypto, you could probably make a lot of money if you're lucky within a couple of months, like definitely less than a year. But like for startups, from what I understand, it's like you're able to cash out at specific funding stages. So like once you cash out your series A, you might be able to take out a couple hundred K for yourself. And series B, which is like more substantial, you might be able to take out a couple million for yourself.

5:55 But otherwise, like most founders, I think they pay themselves a yearly salary of a hundred K or less. Whereas crypto, it's like, sure, you have vesting schedules for the coins, but it's like pretty loose. And in general, it's like you cash out immediately. And we saw that happen all the time with like Solana and ICP and all these other projects that like, you know, they were pennies or sub pennies per coin. But then the founders and the VCs and early adopters, they're basically able to cash out immediately.

6:22 Sometimes they're not and they have like the vesting schedule, but the vesting schedule is like four months or like a year or something like super short, right? You talk about some of these founders cashing out. How do you track these? How are you aware of these things? You know, how do you stay on top of all these news to make sure that your project is still something that the original team or whoever is in charge of it is devoting all of their attention and time on it? There's a lot of websites that basically allow you to more easily see the blockchain activity, more user friendly than you having to do it yourself.

6:58 But basically, it's like you are able to see the coins move from wallets and typically the largest wallets are the developer wallets. So this is actually how tech lead got exposed. His story is kind of sad. He like got fired from his job for making like a misogynistic video. And then his wife left him with his kid to Japan. So now he's like single living with his parents and just like generally depressed. But he made this coin and made a lot of money from it. He called it like the million token. He's like, oh, yeah, this will always each coin will always be worth at least one dollar like I am backing it with my own money and stuff.

7:38 But he didn't actually back it. He only put in 50k because people just looked at the blockchains like, dude, you're lying. And then like as the price is going up, he kept on like selling his stake. So he made like I think a couple million dollars from that project. And some other people also made a lot of money. And I actually regret not getting in because by the time he announced it, I think I saw his video a couple hours after it come out. And the coin price had already spiked from one dollar to five dollars.

8:04 And I thought like, oh, I missed the boat. It's too late. But then like a couple of days later, it spiked to like over a hundred dollars per coin. And it was like the most popular coin on Uniswap that for like a couple of days out of shit. So some people made a lot of money and him. He obviously made the most money. Like not only did he cash out a bunch of coins, but he also was able to collect rent for like the fees. Yeah. Yeah. Well, let's call this what it is. It sounds like basically a scam, a short term Ponzi.

8:38 Right. Yeah. Yeah. Like most projects don't have any intention of like carrying out their original goals or purpose. And like they have nothing binding them either. Unlike normal tech startups. It's like, oh, well, if you don't hit these guidelines, we're not going to give you more funding. You're not making any money. But for crypto, it's like, you know, all all rules are off. Do whatever you want. Yeah. Yeah. Yeah. And earlier you were talking about how startups that you see more people are in it because the maybe it takes a longer time to pay off.

9:13 So more people are actually in it to see it through. How do you where do you stand on this? Because, right. You were talking about getting in this clear scam for the express purpose of, you know, adding to your stack. Right. So how do you feel like that can hurt the overall crypto industry by taking its reputation? I think this will never go away because like even in the penny stock market, there are serial scammers like those startup companies that are clearly fake and then even really high profile scams like Nikola.

9:50 Right. Which Nikola is like basically a knockoff Tesla that never had a working product really had no intention of ever making one, but they were able to become a multi-billion dollar company. And the founder now has been charged with fraud, had all of his assets frozen. To kind of answer your question. Yes, it obviously does make the public kind of have a negative opinion. But I think in the long term, it doesn't even matter because by the time crypto is mature, it's going to be in the background. Like it's not going to be at the forefront anymore.

10:20 It'll just be kind of like, you know, something like HTTP or like, you know, the cloud. It's something that people will kind of just use to make their products better rather than having it be a focal point for the market. And so it seems like a lot of people attribute coins associated with these projects the same way they would think of stocks to companies. Right. You're saying that that's not necessarily the connection between these two entities. And I mean, if that's the case, then what are we doing right now by buying these coins?

10:55 What is it if all of this technology is going to move to the background? Then what exactly are these coins going to be worth? Yeah, I think there's a different narrative for a lot of the coins. So like for the older coins, like OG for Bitcoin, everyone calls it digital gold. So rather than seeing it as like a expendable resource, it's more like a rare metal. And then they say like, oh, Litecoin is like digital silver. And then depending on the project, like other projects, their coins are purely like coupons, essentially.

11:29 They're like, hey, you know, if you have this coin, you can use our project. But most people are just speculating like they're gambling effectively. I'm like really, really highly risky, volatile assets for a lot of companies. They're actually doing like blockchain as a service now. I didn't know about this until recently, but, you know, like Alibaba and Alipay and Ant Group. And for those that don't know, Ant Group is the parent company of Alipay, which is like the PayPal equivalent in China. So Ant Group is transitioning beyond just a payments company.

12:01 It's also having a strong focus on digital technologies like blockchain. And in 2021, they had a market of $188 million, up almost 100% from the previous year. In 2021, it was the highest, most used, like highest transaction and value worth blockchain as a service, like surpassing Amazon, surpassing other legitimate companies. And so China is actually going pretty deep into blockchain technology. And they're really moving away from crypto. Like, so their thing is more about like, okay, how do we provide this technology to people rather than like, oh, how do we extract the most value from consumers via coins?

12:41 Which I thought was pretty interesting. And they already have a bunch of like real life use cases to other projects per port, like they promise, but they don't implement. Ant Chain actually has a partnership with an entire pair production county in China, Dongshan. And with Ant Chain, the pair's production source is actually verified on the blockchain and ensures that consumers can actually get the pairs that they bought and make sure that they're genuine Dongshan pairs. Just the beauty of watching an emerging product, right?

13:08 Watching something trying to become viable, fighting to get through the gap, right? Crossing the chasm. Yeah, it's kind of interesting to see that there are companies out there that have started utilizing the technology. And another pretty interesting use case for Ant Chain, they've actually been working with various artists and institutions to create digital collectibles released on their top non platform. This allowed a lot of Chinese museums and galleries to actually authenticate their items and also show it off to the general public.

13:38 They said like, oh, okay, yeah, here's how you can verify like this art museum is legitimate. And they have like a online exhibit where you can check out verified assets. And I think Ant Group in general is really trying to go deep into blockchain. But like here in the West, not as many people know about it because like, yeah, they're a Chinese company. Yeah. And also, when we talk about cryptocurrency and blockchain, we're always talking about the three main tenants of it, right? Being security, scalability and decentralization.

14:15 And when you're talking about these blockchain as a services, this sounds all very proprietary, all controlled. The nodes that are generating the blocks, these are all centralized, right, by whatever company is providing the service. Does that still deliver on some of these core goals that cryptocurrency initially set out to solve? Yeah, I mean, I think the initial goals and like the current utilization is completely different. Because like you mentioned scalability, that was never one of the core tenants.

14:51 And it can only become a core tenant through private blockchains. So like, or at least heavily centralized ones like Solana, right? You know, the like cap theorem. So it's like consistency, availability, partitioning, and you can choose two out of the three for like a database. The trilemma. Right. So throughput and then like consistency, which is, or like, basically, it's like, it's, you can't, it's, as far as I know, impossible to have all three. There are some blockchains that claim to have it. But like, you do have to sacrifice something.

15:24 So like to get the really high throughput, you either have to centralize it, or like a private, so like BNB is a great example. It's like Ethereum, public, slow, couple thousand transactions per second. BNB, you know, tens of thousands, if not hundreds of thousands, because they control all the servers. And so I think in the case of these blockchain as a service, it'll be great for startups, or other people who don't have the resources to really manage their own blockchain. But they're like, Oh, well, I'll just want to use like, if you're in China, or somewhere else in the world, like, I just want to use ant groups, be it blockchain as a service, because like, I'm still interested in the technology, but I don't want to roll my own blockchain and worry about all the technical implementations.

16:06 Like, I just want something that works, I think that people, a lot of people don't understand how like, proof of work, or proof of stake works. But like proof of work, you actually need a bunch of miners or hardware to actually verify the transactions. And then you have to worry about like, 50% attacks, which is like, if over 50% of miners decide they want to be bad actors, then they actually rewrite history or rewrite history going forward. Like, regardless if it's private or public, you can make sure that your transactions are verifiable.

16:34 And then you don't have like one helps to get rid of fraud, but also to helps to make sure that there's one consistent ledger. So like I worked at a basically like a PayPal clone, but it's all much smaller, it didn't make any money. And we actually had two different ledgers internally. And we didn't know which one was real. Because like, and that's like a huge, huge problem, right? Like some people don't, you don't know how much money some people have, because like, there's two trails of truth. And how does that happen?

17:04 How do you end up with two different ledgers? So if you think about how like, transactions work, and say like someone does like a chargeback, or there's fraud, or there's like a security issue, or your software just messed up, right? It's idempotent, which means like, it won't always have the same result every time you run the software just through like logical inconsistencies. You're running a quantum computer there, Frank. No, I mean, you don't, you don't need a quantum computer, but you just need to like, make sure.

17:32 It's a non-deterministic outcome. Right, right. Like, however you set up your database, or like your programming logic, and like, I doubt that's a unique problem. Like, I'm, I'm absolutely sure that other finance payment companies, especially if they're smaller, especially if they're startups, they probably have the same problem. Like they have different ledgers, because they messed it up. I'd be surprised that the larger banks have that, because I think they're using super legacy software that kind of enforces the single ledger, I assume.

18:04 I don't know. Like, if they also have it messed up, I wouldn't be surprised. So that's another benefit of like, having blockchain technology. And blockchain technology is such a wide concept now. Before it was just proof of work, and like Bitcoin, and then everyone copied Bitcoin, their forks of Bitcoin. I think Solana has something called like proof of time. And then, you have directed acyclic graphs with like, whatchamacallit, they keep on changing their name. Avalanche. Avalanche. Yeah, Avalanche. And then, it wasn't the one I was thinking of though.

18:37 I forget their name. It's their own fault for changing it so often. But like, so they had a, it's funny because I remember their like meme coins called Banano. Nano, that's right. Nano. Nano. Yeah, yeah. The main issue is like, how do we keep a single ledger, verifiable ledger? And like the Bitcoin, the novel idea there was like, oh, well, you can verify this ledger with many different actors who don't necessarily trust each other. I believe it's called like the two Byzantine general problem, where it's like, if you have two people fighting on a hill, and then the general can't communicate with like his soldiers.

19:12 Like if he sends a message to his soldiers, like if he sends a message to his soldiers, informing them of new orders, how do you guarantee that the message is not intercepted along the way and then changed? And that's the major problem that Bitcoin managed to solve. But if we kind of talk about the origins of Ethereum, it was literally because Vitalik had his favorite class in World of Warcraft changed. So like, he played Necro in World of Warcraft and Blizzard changed the Necro, like nerfed one of its abilities to make it worse.

19:41 And he was so upset by this. He's like, wow, centralization is terrible. Like I cannot deal with this. So he made Ethereum. And what's hilarious is like one of my coworkers actually was at the meetup when he was trying to scrounge up Bitcoin to like fund Ethereum. And so like he had the opportunity to be an OG investor. But he actually passed because he's like, yeah, there's no way he's going to fix the scalability problem. Like this doesn't make any sense. And it's still not fixed to this day, right? Like still a problem.

20:12 Yeah. It's crazy to see how far we've come. Because I remember in college around like 2013, 2014, there was huge news because someone bought a 10,000 Bitcoin pizza. And that was huge for the time because like no one cared about Bitcoin. It was like worth pennies, if not dollars. And it rose to like $1,000 in 2014, maybe early, late 2014. And that's when it kind of got initial media buzz. Average annualized return, it's like one of the best performing assets. Only outperformed by stuff that's like Ethereum or like other cryptocurrencies.

20:46 And just taking a step back, it's interesting because from the technology's point of view, like you're saying, none of this is proprietary. Anyone can take it and do a better job at marketing it and rebrand the coin under a different name. And boom, you got a whole new project. And 99% of people are not the wiser and you can, you know, sell as this whole new thing. Whereas is that possible in the real world where you can completely steal a very successful product with almost no backing, financial backing of any kind and reproduce it even better, even more flashier than before with minimal effort.

21:28 Yeah, it's a lot, lot harder. It's like, I think the key point of what you said there is easily steal or easily duplicate. And you cannot easily do that for anything that with scale, because most of these businesses are grounded in some sort of tangible asset, whether that's like even ride sharing or renting out your home or buying a physical product like sunglasses or pills or something. All of these involve like actually getting an end product to the consumer, which means that you have to have a supply chain of some sort.

21:59 And so if you think about digital products, the only thing I could think of there maybe would be like selling information of some sort or whether that's like a course or some sort of marketing material. But even then, you typically need to have some sort of credibility already. So you need to have like your own personal brand. And this is interesting because then we can kind of pivot into NFTs after this. But it's essentially like, I can't think of any other industry where you could just blatantly rip people like IP off.

22:34 And without any recourse either, right? Right, there's no legislation. Because there's other industries, and there's usually some kind of, there's usually some kind of arbiter where you can make pleas for them to, if you're stealing someone's music, someone can, you submit a request DMCA or something like that, right? And then they'll be forced to remove the video from their website. Otherwise, they'll face legal consequences. Yeah, it's funny that you mentioned DMCA, because that's another thing that the Ant Group blockchain, they have some AI that can detect if people have copyrighted things, and then they'll, like as part of their platform, they'll be like, okay, you know, we've noticed that this is copyrighted, or they'll be able to track it with their technology to see, okay, yeah, this other video is infringing upon your rights, or they have some sort of copyrighted information.

23:30 So another use case where, like, there's some real world usage, finally, compared to, like, 2017, when everyone was just making promises, and nothing really got built during that time. I think that legislation is coming. So we saw, I think the trial is still ongoing, the SEC sued Ripple for being a security. And I think some influencers actually got fines. So like Kim Kardashian got fined for promoting Ethereum Max, which was pretty obvious scam. I think Floyd Mayweather got, he promoted several scams, and like all the crypto influencers, they were promoting scams and like dumping on their followers.

24:09 I think it's definitely kind of like the Wild West right now, where a lot of people are trying to get wealthy, and they are getting wealthy. But then there's also a lot of people who are kind of striking out. And when you say a lot, why don't we put that in percentages? What percentage of people do you think are, you know, making a huge return on investment versus what percentage are doing all right? And what percentage are losing everything? There's a saying is like, it takes three bull runs for you to have life changing wealth. So anyone who got in during 2014, so that was the first bull run, where Bitcoin was only like 1000 back then, Ethereum didn't even exist then.

24:49 My coin is probably like four bucks or under or something like that. It's like that's kind of life changing amounts of money, assuming you had put in a decent amount, like 100k or so. But as far as percentages, I have no idea. But like, I'd say the majority of people are underwater, because they got in late. And then a smaller piece of the pie is doing all right, like they're at least profitable, just because they got in 2017, assuming that they held and didn't sell. And then the people who are basically retired, which I know a couple of people, they got in early in like 2013, 2014. And they've been like dollar cost averaging, meaning like they'll put a percentage of their paycheck, every single paycheck into Bitcoin or whatever other cryptocurrency, like they're doing extremely well for themselves.

25:32 But now I think a lot of companies and hedge funds and private equity, like they're all getting into crypto. They're all trying to like find the next big thing. And it seems like they're a bunch of kingmakers nowadays. So people will choose projects to artificially pump up effectively. Because now that a lot of people know it's like all marketing. Well, these large established companies, they know how to market. They like all these people, it's like churning out businesses, but hyperscale. Talking about the state of the MTS, geez, and that basically goes hand in hand with you're talking about these crypto influencers, finally, basing the music a little bit. Is that also happening with the NFT influencers that we've seen pop up all over Twitter in the last few years?

26:23 I don't think so. I think NFTs were never as mainstream. So like Bored Apes had a huge marketing push, again, because they were picked up by a legitimate marketing agency with people who kind of knew how to work celebrities, they knew how to work advertisements. So like people probably know what a Bored Ape is, but still most people have like no idea what NFTs are. They just have a general dislike for them because they see celebrities pumping it up. Back in 2017, I don't know if you remember this, but I was super into trading like CryptoKitties at work.

26:58 I also gave like some coworkers some CryptoKitties, but back then I made like, I don't know, maybe 10 ETH or something. Actually more than that. I probably made like 20 plus ETH just day trading these CryptoKitties. And like I knew that it was going to crash. Like I knew it was speculative. I actually wish I went harder because I had a, I had enough ETH to buy like an OG Gen Zero CryptoKitties. They made like seven special ones. I forget it was seven or more than that, but they had these ones with like skins.

27:26 So there was like a leopard skin and there was only like three or four of them total existed. And I could have bought one, but I was too hesitant. I'm like, oh man, do I want to spend so much ETH on this one thing? But then it later resold for like several hundred ETH and I got, damn, like I really should have gotten onto that. But it's like independent of where you are. Cause at the end of the cycle, no one was buying and all those things are worthless now. Yeah. So OpenSea, obviously the giant in the NFT marketplace.

27:50 I worked with a founder and we actually quit our jobs around the same time to do crypto startups. Like mine, obviously we talked about before, went nowhere, but his eventually ended up being OpenSea. His original idea was to make something called like Wi-Fi coin. What's hilarious, like he had the profile. So he went to like an Ivy League. He worked at top tech companies and he then founded a startup, which got acquired by the company we were working at. And then he went to YC with a just completely different idea.

28:21 And he immediately pivoted to crypto to like his Wi-Fi thing. Cause that's what he wanted to do. But he was smart enough to know that like at the time YC was not accepting any crypto companies. And then saw crypto kitties take off. And then he realized like, Oh wait, like this, this is a better idea. I should try to make a marketplace for NFTs. Cause like, clearly there's like something here. And then like the entire crypto market crashed in 2018. And he basically spent like four years, three or four years working on this, on OpenSea.

28:48 And like no one gave a shit about NFTs at all. And then it absolutely blew up last year. And they went very quickly to like a multi-billion dollar valuation. And it's like in the beginning, during those three years of like toil, they couldn't even hire any engineers. And so they had to like give out the title of like founding engineer to their, some of their initial hires. Cause they're like, yeah, why would I join this like crappy startup that no one cares about? And those engineers are so like on paper, filthy wealthy now.

29:20 Cause they have like. Sure. One to X percent equity in OpenSea. So they're, they have like, you know, they're decamillionaires at least. Uh, and these are super young kids, right? They're like people who are like out of college, like younger than us. Right. So it's just very enviable position to be in. One thing that a lot of people don't consider when they make a startup is like, you're going to have years where nothing happens, where you're just kind of like skimping by sucks. Yeah. There's nothing going on compared to crypto where it's like, you can make and break, make and lose a fortune in under a year, which is probably a huge, massive appeal, especially to technologists, to VCs, to anyone who's like looking to make a lot of wealth very quickly.

30:05 And there were even young kids who had effectively no technical knowledge, who were still able to capitalize. And specifically on NFTs, like the whole, um, what was it like the alpha mon or the, I forget the project name, but it basically ended up being this kid who just took assets off of like unity. He like probably paid some random like marketing company to make a really, really nice Minecraft esque trailer. And it became a meme on like how bad the assets were once it released. Like there's the Kevin Pokemon or alpha mon, I forget, crypto mon, whatever the project was called.

30:42 And it was like, this is like blob green guy, like a little zombie dude. This looks so terrible. Everyone's like, imagine paying three ETH for this thing. And three ETH at the time was like $12,000 or something. And that was the mid price. And now it is memed on so hard that people started buying it as like, ironically, to be like, you know, this is part of crypto history now for how badly this project flopped effectively. But the kid was only like 16 or 17 had like no experience, um, was smart enough to get the hype was smart enough to like get this fake trailer.

31:17 Um, yeah, I mean, oh. And you never really know, right? I mean, the luck and the opportunity, um, align themselves. Anything can happen in crypto. Yeah. And just as even more likely that everything goes well is some random thing happens and you lose all your coins. Right. There are so many different ways for everything to go absolutely off the wall. All right. And you just the simplest thing can cause you to lose all your money. Yeah. And it's really interesting because like we saw the explosion of NFTs in the West.

31:59 Uh, but in the East, they actually cracked down on it. Like China made it illegal to trade NFTs in the secondary market. You cannot buy and sell them. Um, so you can still, the technology still exists. So again, Ant Group, cause I, I think they're the giant in China in terms of like crypto. Uh, they actually, like I said before, they like partner with like art museums and they're able to like verify, um, digital collections. Um, digital collectibles, but it's purely for the authentication process. Like there's no secondary market.

32:28 It's only to make sure like, oh, well, you can make, you can see this like art online and you know, it's real. And it's like a 3d scan or something, but they're using blockchain tech on the backend. And it's, it's interesting, um, because all the tech companies basically made an agreement with the Chinese government saying like, oh yeah, we're not gonna buy and sell NFTs. Like we're gonna, we'll use it, utilize the technology, but we're not going to have a lot of the profiteering that goes on, I guess, here, um, in other parts of the world, which I think is kind of interesting.

33:03 Cause like they're trying to kind of skip the wild west portion and go straight into the, like, okay, let's start using this for some real world use cases. Um, which, you know, is very, very progressive actually. Cause if you look at how slow regulation has been rolling out everywhere else, it's actually insane how quickly they jumped on that. Yeah. So they're trying to bypass the cryptocurrencies and just use the blockchain technology. Right. Right. Right. Yeah. And, and so if that's the case, aren't you worried as a holder of these cryptocurrencies, if that's how people are seeing the value in the technology, then aren't these cryptocurrencies essentially worthless?

33:49 If people slowly start creating, start trending more towards just focusing on the blockchain aspect of it and eventually finding out other solutions for the decentralization. Because to me, the currency itself, the main value of it is in the decentralization aspect, right? Yeah. Or how do you see the interaction between the cryptocurrency and the actual blockchain and the value it provides to the blockchain? Yeah. I mean, I think for us, people who are really interested in the tech or are interested in the decentralization aspect, but I think for the majority of users, they don't care about that.

34:29 And then majority of companies obviously don't care about that because they want to, you know, rent seek. They want to have that value for themselves. I do agree with the statement that like 90, maybe 99% of all crypto is going to zero. Like I see very few end winners. Um, so I think Bitcoin is obviously going to be one of them. I am pretty hopeful for Ethereum though. Again, Ethereum is like, has a lot of issues and there are also lots of like offshoots of Ethereum now that are basically Ethereum plus plus.

34:59 So like the original cast of crew for Ethereum, like core group of like 10 members, effectively all of them have left at this point, besides Veetelik, because they all went to start their own chains, like Polkadot, Cardano. Um, yeah. These people, as one of them actually advised Veetelik, like, Hey, you need to like give us vesting schedules. Like you, cause Veetelik has no industry experience. You just dove straight into like entrepreneurship. But these other older guys are like, Hey dude, you need to like give incentives for people to stay.

35:31 And Veetelik's like, nah, like, I don't want to do that. It's too like corporate or whatever. And what ended up happening is all these other dudes left. Cause they're like, well, you know, why would I stay with Ethereum when I can make my own thing? Get even more influence. And I think at that point they all had enough money. Like money wasn't really a factor, but it was like, okay, well I want to kind of decide where my own chain goes. I don't want to be like held back by the committees or the miners or whatever.

35:58 Like, I just want to make a new protocol, fix some of the issues. So like either add proof of stake or add more scaling or add more, whatever. Um, more like cross chain compatibility that Ethereum didn't have. And now it's like, it's kind of fractured the crypto scene. And I do think that like a lot of these chains are worthless. If you look at on-chain activity, like ETH is still in terms of like a decentralized computer. It's the highest by far. Uh, I think Solana is pretty up there as well, but like the Solana is effectively centralized.

36:29 Like it's extremely centralized. Like to be a validator, even you don't even break even. It's like, uh, some cost of like a million dollars just to become a validator. Yeah. And you don't actually extract enough rent for it to be worth it. So it's like, they made it, I'm not sure on purpose or not to make it like unprofitable to be a validator, effectively centralizing it. Cause like, and then they also have the power to like stop, start and stop it. And they have like, I don't know what they're calling.

36:55 It's like super validators or whatever. They're like premium validators that have more control. So it's like, at that point you effectively have like Amazon cloud. Right. Except the worst version. Cause it doesn't even work all the time. Like, yeah. Um, so it's. Yeah. And just to give a quick idea of what all of this means. And what, what the financial incentive of even, um, being a validator of transactions and saying that these transactions that we're getting from the, from the users, the people with these wallets are valid is that they'll get a small portion of the transaction fee that the users who submitted the request, um, provided to make that transaction.

37:37 So therefore the, the cheaper it is to make a transaction, the less that these validators that are approving that these transactions are going to get. But on the other hand, then it's cheaper for the user as well. But now you get this trade-off where in say, um, some blockchains like polygon, it costs a penny to make transactions. But the flip side is the security is lower because now you can have people spamming, spamming the network because it's so cheap to do so. Whereas on theory, on Ethereum, it can take $10 per transaction.

38:11 So I think that the vision might be that it ends up being in some hierarchical system where. You know, the people that. Don't want to pay as much where the less, um, sensitive transactions can happen in these newer blockchains that only cost pennies for a transaction. Whereas the finalization, the, the more, um, security, um, sensitive transactions are going to happen in blockchains like Ethereum where it costs more, but it's going to be more secure and more decentralized. Yeah, it's funny that you mentioned how like Ethereum has high gas prices.

38:46 So like gas prices are effectively, uh, for people that don't know the price that it costs to send an Ethereum transaction. So people can't just clog up the blockchain with a bunch of crap and also to incentivize miners. Well, previously to incentivize miners, uh, but now validators to confirm transactions. It's funny in the sense that one of the original criticisms that Vitalik had of Bitcoin was that the transaction costs were too high. And he was like, oh yeah, you know, look at Ethereum. We'll confirm for like a penny or less.

39:16 But the kind of trap that this provides is that the more popular something gets, the more traffic there is. And because of the limits of throughput and scalability, you basically increase gas costs. So you increase the, how much it costs to use a blockchain. And so at some points during the last bull run, I remember I was paying like hundreds of dollars per transaction during like peak hours. And like that is just not feasible, right? That's not usable from a computing standpoint. Like if you look at credit card processors like Visa and Amex, they're probably processing like millions of transactions per second.

39:54 I think there's a lot of naysayers now thinking that everything is a scam, thinking that it's not going to go anywhere. It's going to die out. But I doubt it. Like, I think you'd have to be very foolish to think that blockchain tech is going to go away. A lot of the cryptocurrencies are going to go away, like we already discussed, but like the tech is here to stay. Like it's already being used in the real world. It's going to become more and more mature as time goes on. Yeah. Like if you are buying Ethereum hoping it'll go up, you're basically speculating on say oil prices, right?

40:22 Like this is a medium for transportation. We're a medium for getting transactions to be part of a leisure. Right. So I don't know. It is. I mean, how do we get out of this like trap of having normal people that don't understand anything about this speculating on things that are wildly. Like outside of their control and fluctuate so much. The way I see it is that it's, it's going to provide financial services right now that are only available to the richest clients. The, you know, the, you know, the, the ones that have their relationships with the bankers already.

41:02 They're getting paid a salary. If you can somehow, you know, enforce this through code, you can save those fees and have that be part of, you know, the value saved of crypto. So that's really where I see the value in crypto is the decentralization of these, some of these financial services that require someone to do it right now in middleman, usually at a bank. Yeah. I think that was one of the major narratives of like, okay, here's a legitimate use case where we can get rid of these red sinking entities, like in the financial sector, then also in the social media sector.

41:35 Like, Oh, now you can privatize your own data and then get paid to actually sell it to advertisers or marketers or whatever. Um, I think the one major hiccup for the banking use case is really, I feel like centralized entities actually provide a lot of value. So like in the case of like my credit card providers, if something wrong happens, if I get scammed or the product is damaged or it doesn't get shipped, I can actually make a case and be like, Hey, like, look at this thing I received is broken.

42:03 Or like, Hey, I never received my package or like, Hey, I got scammed by this random dude, or I lost my credit card. Um, and I think right now the usability of crypto is just absolutely horrendous. Like even sending money from wallet to wallet, it's like double, triple check. And like, yeah, there's so many security concerns because like people just don't know how to code properly. They've never known how to code properly, even for traditional applications. And then in blockchain doubly so, because it's so new, the languages are honestly hard to use.

42:33 And a lot of the programming paradigms are completely new. And so now you have like exploits of hundreds of millions of dollars and like every single year, the exploits get bigger and bigger. And just like the original ETC, like Ethereum was actually forked. So like people don't, might not know this, but Ethereum originally made a DAO, a decentralized autonomous organization. They pulled a bunch of money, they were going to do some stuff with it. And then someone hacked it and like stole all the money.

42:59 And so there's, it's still pretty early on in Ethereum's lifetime. And basically Vitalik's like, okay, let's, let's fork it. So we can reverse this transaction and get the money back. Um, and then ETC is still around and Ethereum as people know it is like this forked version. And, but like, since that happened, there's been many, many other scandals, but as the ecosystem has grown larger, people are like, okay, we're not going to do a hard fork. We're not going to do a hard fork every single, a hard fork is basically, um, splitting the chain so that there's two different ledgers.

43:29 So instead of there's original ledger where all the Ethereum transactions were, and then they decided to basically change history and make an entirely new ledger to reverse the hack. Um, and so I think that we'll maybe get to that point eventually where we will be able to get rid of a lot of the rent seekers through like contractual code obligations. Um, I think we're very, very far from that point, just from the usability aspect. Like if you send crypto to someone, there's no way to reverse that transaction unless you do a hard fork.

44:01 Um, or unless it's a centralized blockchain, in which case, like, you know, you get rid of the decentralization aspect entirely. So it's, yeah, I don't know. At first I thought that was a super cool use case as well. But then like, there's just so way too many security corners. There's like you said, there's gotta be so many entities built on top of this. Like you said, right. Just sending someone money. Now we have to consider an escrow service, right. That can hold the money somewhere for a certain amount of time until, you know, you confirm you're sending it to the right person.

44:33 And now, now that's like another aspect of it. Now, how do we make that work as easily as it does today within a bank app? Right. And like, I really cannot think of a way unless you have some sort of centralized entity. Right. So like the arbiter in some sense will always have to be centralized. Like you, I don't, unless you make the conditions via code, like, oh, if the stock price goes above X, Y, Z. So I think that like gambling is actually a really good use case for crypto. It's provably fair. You can look at the code.

45:05 You know exactly what it's doing. You know exactly the odds that you're going to get. And essentially it's like a right. Once you leave it, anyone can go to like this virtual slot machine or virtual dice game or whatever and do that. So maybe the gambling industry is like a really good for this system, right? Yeah. But then it's funny because like, I think some of the more popular ones, people find exploits through the oracles. So like oracles, it's basically you need a way to randomly determine outcomes on the blockchain, which is more difficult than you would think.

45:40 So in a normal program, it's really easy. You could just generate a random seed. You can do lots of things to generate a pseudo random number or random enough that people are unlikely ever to get it. Guess it. Unless they're have a very like thorough exploits. Basically, it's unlikely to happen. But in blockchain, there are very few ways to generate a truly random number. So then they depend on kind of external sources. And some smart people were able to figure out that these external sources were not as random as they claimed.

46:14 And we're able to like drain these trustless gambling systems because they figured out like, OK, in this scenario, the probability would be in my favor. If people were able to write perfect code, it would work. We know that like that's not how the real world works. Like people are breaking stuff all the time, like so many releases and hot fixes and rollbacks and roll forwards and patches, etc. Yeah. And I think it's really important to mention that along with what you were saying about oracles is that they're the only way to bring real world information into the blockchain.

46:47 Right without a centralized thing. That's that's a decentralized solution for getting real world information in blockchain. And usually it's price information. So usually it's a price ticker for, say, a stock or for the price of Bitcoin. And that's how an app on the blockchain can determine the price of Bitcoin and use that to do some kind of logic, usually to make some kind of calculation to see if, hey, have you loaned too much money against what you deposited? There are ways to manipulate these price oracles because price oracles in real life, you know, they aggregate information from all over the place.

47:28 But these price oracles, because they're written in code, people can look at them and know where they're aggregating that information. And if that if that the source of the information can be manipulated, now the Oracle is also vulnerable to provide that information to the blockchain, which can lead to vulnerabilities on the blockchain. Yeah, like there's a lot of other novel use cases like that that are really simple and traditional programming that are just a huge pain in blockchain. And it's come a long way.

48:03 So I remember I was trying to build something in 2017 as well, just kind of for fun. And there weren't even really any programming tools to help you. Like nowadays, it's come a bit further. But again, a lot of these tools are rent seeking, like they'll charge you a fee for something that you would typically get for free in the traditional programming. So I think it's we're still in the somewhat early days as far as like maturity of the technology. But yeah, I guess on that same note of like acquiring wealth, if you build a legitimate project, so some of the people who are now multi-billionaires in crypto, they're extremely young for how wealthy they are.

48:44 So like Brian Armstrong, his story is pretty nice, too. Like he was working at Airbnb. He's one of a very early employee, I think one of the first 100. And so he already had it made, right? Like he had multi-million dollars in equity. And he decided to quit Airbnb and start Coinbase because he realized like, wow, it's like extremely hard to send Bitcoin anywhere. At the time, there weren't really any centralized exchanges. And so he tried to find a co-founder and he posted on places like Reddit because like no one really cared about crypto back then or was interested in building like a legitimate project.

49:20 It was a bunch of like hackers and not hackers in the typical sense, but like nerdy people who were interested, people who were like anarchists who didn't want to be like part of the government and stuff. And so he eventually found some random like business dude. They made Coinbase, got into YC, like rest is history kind of deal. And then Sam, Sam, I forget his name. Aaron Friedman. Friedman, yeah. He's one of the biggest characters in crypto, founded FTX, another centralized exchange. He made his money through arbitrage originally.

49:52 So he found out there is a price discrepancy between Western exchanges and Eastern exchanges. And he was able to make a couple hundred thousand, if not millions of dollars, just doing price arbitrage. And then eventually made his own exchange. And then even Do Kwan, like these guys are all in their late 20s, early 30s. And there's so many of them, too. Right. It's like the Winklevoss twins, you know, originally known for getting Facebook stolen from them. They founded Gemini and now they're more wealthy than they've ever been before this point.

50:26 Like even with their Facebook settlement lawsuit, like they've become billionaires in their own right from crypto. And so there's lots of, again, like Gary Vee. Gary Vee probably made more money in the past year off of NFTs than he has the rest of his career combined. So it's like a lot of people have cashed in, whether that's like their actual service to provide. It seems like centralized exchanges is a very obvious real world use case, provides value to people, effectively just replacing traditional exchanges.

50:57 So instead of selling like stocks, bonds and other assets like that, you know, they're selling crypto assets. And then I guess on the NFT side, you have OpenSea, you know, Devon, now extremely multi-billionaire on paper. So it's like I think it's we're going to see more and more of these young billionaire types because a lot of the people who are interested in crypto are younger just because the technology is very new. And I think older people have a skepticism towards it. So I've talked to older engineers.

51:25 They're heavily anti-crypto, anti-blockchain, just anti the technology, because I think they're just more established at that point. They've been working with what they've known for so long. They don't really see the potential and they already have like a lot of money, like they don't need to make it anymore because they've already effectively made it. Once you become a senior engineer or staff engineer or you've been working in tech for a long time, you're probably pretty well off. If I had to start my career over right now or if I had to choose any field to specialize in, it wouldn't be data science or machine learning, AI.

51:56 It would be blockchain, like easily blockchain, because this is where the future is going. And it might not be as big as something, say, like the Internet, because like it has a subset of it. And it might not be as big or life changing as machine learning, because machine learning nowadays is like replacing jobs like artists with stable diffusion that came out recently. It's had one local art competitions and it's like anyone, like you or me, we can make amazing art in the span of like minutes through AI and eventually, you know, like self-driving and stuff.

52:33 But I think blockchain is going to be still like a very, very profitable career to be in simply because one, it's so new, no one has experience in it. And then two, because there is a lot of corporate interest, there's going to be a lot of funding. And even if you don't do some sort of entrepreneurial pursuit, you'll be able to be hired by a large company who's going to pay you a lot of money to like head up or work in their blockchain division. And you mentioned all these guys that have already cashed out.

53:04 Do you think this is a zero sum game? I don't think so, because like if you look at just real world products, even in terms of like exchanges, like there's tons of exchanges. Right. So there's Fidelity and TD and Charles Schraub. And then like that, you have all these like new upstart coming exchanges. Like Robert had started the trend of like the free trading thing. And then Webull came along and now Moomoo came along. It's like all these companies, there's always more room in the field because there's so many people in the world.

53:34 And so even for like ride sharing, right? So you have like DD and Lyft and Uber and probably other stuff that I don't know about. For the exchanges, like we already have so many crypto exchanges and they're all making money. They're all doing well. Competition is both healthy for like the consumer and well, mostly healthy for the consumer. So we have better choices. They have to compete on their fees. They can't charge us like, you know, 10% fees. If Coinbase was the only exchange around, they could charge whatever fees they wanted.

54:00 But because there is Gemini, because there is FTX, because there are these other places where you can buy crypto. They're like, OK, well, we have to keep it reasonable or we won't be competitive. We've talked a lot about all the opportunities and the successes for the builders and founders. But what about on the other side, the investors? I mean, they're the ones that are paying the salaries for these for these builders and founders. Right. And also providing them with a capital for exiting. Right. Yeah.

54:29 Unless there is also a lot of investor angel money. And that side I'm not as savvy to. I just know that there's a lot of retail piling in. And don't they do they see it as a zero sum game? And is it a zero sum game for them? Rather than describing as a zero sum game, it's more almost like a treasure hunt or a lot of retail investors are trying to rather than the treasure hunt, like stock pick or like betting on a racehorse. But they have no idea how horses work or racing works or even like what the horses look like or where this race is going to take place.

55:08 They're just kind of like throwing money at random names they think look cool, which is like a terrible, terrible strategy. And then they also did a study like if you just do Bitcoin and Ethereum, you effectively get the same results because like they're the largest to the game the most consistently. And for most people, that's all I really recommend just dollar cost average to Bitcoin and Ethereum. And with like a small portion of your net worth, don't like YOLO all in. And so I think that like retail, for one, gets caught in the hype and gets dumped on by everyone else when they could just do this really boring strategy and it would probably work out for them.

55:45 But if everyone did that, then who is going to fund more of these more, you know, innovative projects that are trying to do new things and push the boundaries? I don't choose Caesar. It's funny, right, because we all say that. But at the same time, if it weren't for the people, then what would be accomplished with it wouldn't have value, right? If everyone is taking the same route, then it wouldn't have the value because then if crypto stays what it is right now, it wouldn't have that much real world use, right?

56:15 It's just a lot of its value is banking on the future of it becoming useful someday. Not the current product, but this is a store of value to generate, to hold its value while the technology improves. That sounds like kind of like the logic that you're describing to me. Yeah, I mean, I don't agree with that statement, because then you would just kind of look at traditional startup funding. So like the people betting on these futures are the ones who have like the money that's like their job. So like a VCs or private equity or hedge funds or like you can still get funding sources through these companies that don't necessarily expect a consistent return, right?

56:54 Like their entire goal is to hit a home run. So if they go to bat a thousand times, their one home run, instead of it being a home run, it's like a super home run. It'll 1000x or 10,000x and they'll get rid of all their losses. And I don't think retail has the money to do that, really. Like we, you know, as an individual person, how much are you really investing in crypto projects? It may be like 100,000 a year, like maybe a million dollars per year if you're a really wealthy person. But like these hedge funds or private equity or VCs, you know, they can invest a million into like 10, 20, 100 different projects and don't care if 99 of them fail.

57:33 And for the average person, if you're investing into 100 projects, you can put it into maybe what, like 1k to 10k max per project. And then not to mention, it's like a full time job just researching these projects and finding out about the founders, finding out about the tech. Like this, there's like multiple jobs, right? So I think very similar to, it'll become more, as the industry becomes more mature, a lot of the funding for these more unproven projects with like the bright future is going to become more traditional as well.

58:06 And the only the projects who are like, can't get that funding is going to go towards crowdfunding. So similar to like the current ecosystem for launching an actual product. Like usually people will try to get some sort of loan from like the bank or VCs or whatever more established institution. And then like have the lower tier projects, they'll go to someone, something like crowdfunding and try to get it from normal people because they, and it's also seen as like not as distinguished to get to do crowdfunding.

58:32 It's like not as prestigious and even like within VCs, there's like tiers of VCs, right? It's like more prestigious to get it from like Sequoia. Right. So I think that, um, yeah, I, I do think that projects will continually be funded, but they'll need to prove themselves more in the future rather than just having this easy money from like everyone. It's good from everyone trying to get rich. It's like, okay, well you have to have some sort of like background or code or MVP or something that actually proves that you're worth worthwhile of funding.

59:02 Um, and especially as like people start to crack down more on regulations. So like, I think ICOs kind of stopped being a thing in the States all the way back in like 2017, 2018, um, along with countries like Canada and Singapore. So lots of countries that are starting to ban ICOs and we talked about before, like China banned, um, secondary NFT trading. So yeah, I mean, I think the good projects, there are going to be lots of projects that won't get the funding that might be successful, but it's like people will still be able to get money.

59:35 Uh, I think there's just, well, I guess then we start talking about interest rates and how like people are kind of being more austere and they're like giving money to people. Um, but I don't think we'll be in this environment forever. Like when interest rates come down, like more money, more money flowing. Um, you know, like money is plenty available. I think it's even in this kind of a downturn that we're in there. I still see people getting funded. I still see like really big rounds for, um, traditional startups.

1:00:04 So I think it's like, there will always be rich people trying to make more money, looking for opportunities along with retail and they have more money too. Um, so I, I don't think that funding is going to be a problem really. Um, yeah. And I think this is also a decent point to end this, uh, podcast. And, uh, is there anything you'd like to shout out to the audience or anything you want to say? And thanks for having me on Frank. Uh, first time ever doing this, but it was fun catching up. Catching up. I'd like to thank you, Dave, for joining us talking about crypto.