AmeriServ Presents: Bank Chats

Cryptocurrency Currently: What's New

• AmeriServ Financial, Inc. • Episode 25

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On this episode of Bank Chats, Drew and Jeff welcome back John Valkovci from Saint Francis University to chat about the evolution and current state of cryptocurrency. John fills us in on new policies/regulations surrounding digital assets, as well as the concept of tokenized bank deposits.

Credits:
An AmeriServ Financial, Inc. Production 
Music by SchneckMind, powered by Suno
Hosted by Drew Thomas and Jeffrey Matevish

Thanks for listening! You can find out more about AmeriServ by visiting ameriserv.com. You can also find us on Facebook, Instagram, and Twitter.

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This podcast focuses on having valuable conversations on various topics related to banking and financial health. The podcast is grounded in having open conversations with professionals and experts, with the goal of helping to take some of the mystery out of financial and related topics; as learning about financial products and services can help you make more informed financial decisions. Please keep in mind that the information contained within this podcast, and any resources available for download from our website or other resources relating to Bank Chats is not intended, and should not be understood or interpreted to be, financial advice. The hosts, guests, and production staff of Bank Chats expressly recommend that you seek advice from a trusted financial professional before making financial decisions. The hosts of Bank Chats are not attorneys, accountants, or financial advisors, and the program is simply intended as one source of information. The podcast is not a substitute for a financial professional who is aware of the facts and circumstances of your individual situation. AmeriServ Presents: Bank Chats is produced and distributed by AmeriServ Financial, Incorporated.

Drew Thomas:

Fast fact, after Bitcoin came onto the market in 2009, James Howells mined it on his own equipment and accumulated 8,000 virtual coins. Entertainment media company, Label, has officially acquired the exclusive rights to develop and produce his story, The Man Behind the $800 Million Bitcoin Fortune Buried in a Welsh Landfill. I'm Drew Thomas, and you're listening to Bank Chats. So, yeah, so, so we're back with another video episode of Bank Chats. Yeah, I am Drew Thomas, you are Jeff Matevish, sure am. And with us today is...

John Valkovci:

John Valkovci.

Drew Thomas:

John Valkovci from Saint Francis University and other places, right?

John Valkovci:

And other places, I keep myself rather busy.

Drew Thomas:

just remind people of your background, because you've, you've actually been with us before. You've done a couple, you've done at least one episode, one episode, Yep, yeah, I think. And so we're going to talk a little bit more about cryptocurrency and so forth today, and I think we're going to do it more, maybe more in depth, or talk a little bit about what crypto has become recently.

Jeff Matevish:

Yeah, current, current events, things like

Drew Thomas:

So, but, but, yeah, go ahead and remind people who, that. who you are and what your background is, because you have, you have a really impressive background.

John Valkovci:

Well, thank you for that. I went to law school, and then I served in Navy Jag for, for a number of years. And after Navy Jag, I became a federal prosecutor here in Johnstown with the US Attorney's Office, where I worked for 28 years, until I retired in 2018. It was during that time that I realized that the migration into cyberspace and cybersecurity and cybercrimes and cyber enabled crimes was really picking up. But I also saw that there was this dearth of ability or knowledge, or skill sets in investigating those. And so, I began my journey into cybersecurity with different agents and with different trainings that I took and different certifications I obtained along the way. And then I began teaching as an adjunct at Saint Francis in 2008 cybercrime, cyber law, cyber security type topics. And then when I retired, I had a number of universities asked me if I would join their staff full-time and create a cybersecurity program. And so, I joined Saint Francis and Dan Wetklow, and I created a cybersecurity program up there that we've just at the last year, we received certification from the NSA and the Department of Homeland Security as a Center of Academic Excellence in Cyber Defense Education. There are really only a handful of universities around the country who have that designation. It's a very, very rigorous, it's a two-to-three-year process. It's not like you fill out an application and give them a check. So, that and, and so I teach full-time at Saint Francis cybersecurity courses, and I also am the senior US legal counsel for a corporation called asset reality, okay, international corporation that is involved in the seizure, management, and disposal then of digital assets around the world. We work with governments and law enforcement agencies to develop their legislation in digital assets, in virtual asset service providers. We work on training and, and things like that. So, yeah, keep rather busy.

Drew Thomas:

Yeah, I was gonna say so, so you don't golf much, is what you're saying.

John Valkovci:

And if I did, it would be very poorly. I'll tell you that.

Jeff Matevish:

He was hard to nail down. Yes, yeah.

John Valkovci:

I do apologize. Already apologized.

Jeff Matevish:

No, no, no, no. Just saying, yeah, you are a busy, busy man.

Drew Thomas:

So, obviously, you know, we tend to think, I think sometimes of cryptocurrency as being a new thing, but it's not really as new as it used to, as it used to be. I mean, I guess technically, nothing's as new as it used to be, but, but I think that a lot of changes are starting to happen with cryptocurrency, especially since the last presidential election in the US, but also around the world. So, I guess if people want to see something a little bit more about or understand a little bit more about what cryptocurrency is, we could probably refer them back to the conversation that we had before, because we went pretty good in depth into how it works, blockchain and things like that. We may be able to refresh let's just do a brief refresher about what that is, though, if we could just, just to explain how cryptocurrency is, or what it is.

John Valkovci:

Cryptocurrency is a digital asset. It's created and minted depending on which crypto it is. Of course, we can use Bitcoin as an example. There are 20,000 different cryptocurrencies out there right now, or more than 20,000 but the original and the first, of course, was Bitcoin. Everything else is called an altcoin. After that, an alternative coin. Yeah, but Bitcoin functions on something called blockchain, and blockchain is a technology. It's called a distributed ledger technology. Think of it as this massive Google Docs or massive database that is shared by 1000s of people around the world, and it's free to join. You just have to download the application and then manage that way, but think of it as a, as a database. And databases record information. In this case, the blockchain for a Bitcoin records financial transactions in Bitcoin. And this ledger, this database, is owned by 1000s of people simultaneously and anytime there's a change or a transaction, everybody's database, everybody's ledger, is updated automatically. So, it, that adds a great layer of security, because you might want to change your ledger, but it doesn't matter, because your ledger won't match ours, and we're going to reject you then. So, it does add that level of security, and it's just a digital currency. I guess, for, for want of a simpler explanation, it really doesn't exist. You can't download it, you can't hold it. It's not like a JPEG file or a PDF or a Word doc or a PowerPoint. You can't download it. It exists on the blockchain.

Drew Thomas:

You had, I think that the example you had used in the last conversation was the big stone that people use.

Jeff Matevish:

The Rai Stone.

Drew Thomas:

Yeah, that used to, yeah, that basically you never, it never moved. It just changed ownership, right? Yeah.

John Valkovci:

So, the island of Yap in Micronesia, yeah, I can give that again if you want, but if we've talked about it before, we don't need to, yeah, cover that ground again. But if you want to, we're happy to explain that one.

Drew Thomas:

Yeah, go ahead. I mean, you can't hurt. It can't hurt to let people, we're giving, we're giving people a pass, we're letting them, we're letting them skip the other episode.

Jeff Matevish:

No, no, no, you still have to watch that one.

Drew Thomas:

Well, you still, yeah, no, go ahead. Yeah. Explain that one.

John Valkovci:

Yeah. The one of the best representations of Bitcoin to help you understand it is what happens on the island of Yap in, in Micronesia. Their system of finance and currency and banking relies on stones called Rai Stones. These stones are massive. Some of them are 6 feet, 12 feet across. They're round, and they have a hole in the center. Now, the interesting thing about these stones is that they don't exist, and they don't come from Yap. They're actually mined and created on, on another island, probably 200 nautical miles away. So, the Islanders in Yap, they, they get on their ocean-going canoes, they go there, they mine these stones, they bring them back, but they don't move. So, in other words, if we bring a stone back, and this stone has found its resting place on the path to the harbor, and I own it because I mined it, I minted it, that's my stone. Everybody in the village knows this. There is no record keeping. The record keeping relies on everybody's collective memory, and everybody has the same memory. So, the stone on the path to the harbor belongs to John. And everybody knows that. Drew, if you came in and said, that's my stone, everybody would reject that, because they know that I own it. If I wanted to buy a herd of goats from somebody, Jeff. And then we go in front of the village and simply tell them that we are exchanging my Rai Stone for your goats, and now everybody knows that the stone on the path to the harbor belongs to Jeff. The stone doesn't move. It simply stays on the path to the harbor. And that's how Bitcoin works. It stays on the blockchain. We just transfer the ability to spend it. What we've done with that Rai Stone is nothing. We have not moved it. I've simply transferred the ability to spend it on something from myself to you. That's how Bitcoin works on the blockchain. We simply transfer the ability to spend it to somebody else.

Drew Thomas:

they're 278 pro-crypto members. So, how is this new administration changing how crypto works? Are they, are they trying to develop some sort of, uh, official

John Valkovci:

Primarily, we can distill this down to, it's a changing recently? change in policy with the new administration coming in, and President Trump has issued two executive orders, really when it comes to cryptocurrency. One was issued back in January, one was issued in early March. But let's talk about both of those. But before we go into what they say, let's talk about what an executive order is. Okay? It's nothing more than a policy statement. It doesn't create law, it can't create law. It is binding on federal agencies, and it could have the force and effect of law depending on how the, it's implemented by the federal agencies. If there's ever a conflict between an existing law and an executive order, then the existing law will control so the executive order is more like a policy statement. Back in January, President Trump issued an executive order creating a working group, and stressing the United States' new policy position, that we are going to be pro-crypto, that we want to foster growth. We want to foster innovation in the area of cryptocurrency and digital assets. So, what happened in January is they created a working group. The working group is, is comprised or composed of a number of individuals, cabinet members, including the, the Attorney General, the Secretary of the Treasury and other members. They were tasked with three different things, and they were given a 30, a 60 and a 180-day deadline, and they were to determine what regulations exist that control crypto and cryptocurrency and other assets like that in the United States. And then their six-month task this working group was to present to the President a series of regulations or recommendations of regulations for cryptocurrency. That was the first executive order. The second executive order basically tasked the Secretary of the Treasury with creating a crypto reserve. I'm sure you've heard of that. We want to create within this country a reserve of cryptocurrency, much like we have a gold reserve in Fort Knox, we will be having a cryptocurrency reserve. Actually, it's a Bitcoin reserve. But we're also looking at banking, other digital assets. Where these assets come from is civil and criminal forfeiture. When individuals are convicted of a crime, one of the punishments the court can impose is to seize any assets. If the asset is the proceed of that crime, or if the asset was used to facilitate the crime, then the government can seize that asset and deprive you the criminal as part of your punishment, of those ill-gotten gains, you shouldn't be able to benefit from defrauding somebody. We're going to take that away from you.

Drew Thomas:

So, it's kind of, so it's kind of like whenever somebody gets convicted of a crime and then writes a book. Like they're not, they shouldn't be able to profit from the fact that they committed a crime by writing a book and making a million dollars.

John Valkovci:

They could, but whether the courts choose to forfeit something like that is another question. Basically, we look at the assets that you, that you've garnered through things and whatnot, and so there's criminal forfeiture, there's also something called civil forfeiture, which we actually seized the property. The property is, it's an In Rev action where the property is the defendant, United States of America, versus 10 Bitcoin, and that, that property, then, is the subject of the lawsuit, and we can seize that asset civilly as well. There's also administrative forfeiture. The long and the short of it is not the, the intricacies of how we seize and forfeit, but the point I'm trying to make is that, that procedure of forfeiture and taking assets from criminals so they can't enjoy them, and then we're going to take those assets, that cryptocurrency, and we're going to put that into the crypto reserve. That's how we're going to fund the crypto reserve.

Drew Thomas:

And what's the goal of having the reserve? Is it that they can, the government can then turn around and spend that on, what's like, is there a limit on what they can spend it on? Can they spend it on military? Can they spend it on, you know, learning to do, I don't know, the, the mating habits of some sort of a mosquito, like, what, like what can they, what can they spend the money on? Is, I guess, my question.

John Valkovci:

Right now, the goal is to simply create that Bitcoin reserve. Think of it as a, as an asset of stored value, just like gold, we have gold in Fort Knox, yeah, we hope we do, right?

Drew and Jeff:

Yeah, that's, that's, that's, that's, that's what they say, yeah, allegedly, yeah. Allegedly, there's gold in Fort Knox, but...

John Valkovci:

We don't spend that on anything. We have it there as a store of value for some future event that may or may never happen. We don't know. The same thing we're doing now with Bitcoin. We want to create that Bitcoin reserve as a store of value. Yeah, it's interesting, though, when you think about it, that when Bitcoin was, was actually developed back in 2009 into 2010 and it was with Blockchain technology by, by an individual or a group of people known as Satoshi Nakamoto, still anonymous, nobody knows who that is or who they are. The way it was written is there will only ever be 21 million Bitcoin in existence. Once we hit 21 million, no new Bitcoin will ever be minted. And I checked this morning for you Drew, and right now we are at 19,999,000 there's about a million Bitcoin left to be minted, and that's it. There will never be any more than that. And just your basic Economics 101, supply and demand, when that stops, then they're going to become more valuable, or at least, you hope they will become more valuable, yeah, yeah. But we have a way to go. The last Bitcoin is projected to be minted in the year 2140.

Drew Thomas:

Oh, wow. Okay. Well, so, so I think we, and I do, correct me, Jeff, if I'm wrong, I think we kind of touched on this before, which was the idea that every, every so often, they, they halve, H, A, L, V, E, yeah, that they halve how much time it takes, or how much energy it takes to mine a Bitcoin. So, will they ever actually get to 21 million like, or is there going to be a point where half, of a half, of a half, kind of, like a kind of, like getting to the goal line on penalties in football, like you can't ever score on a penalty, because...

Jeff Matevish:

But it'll be so difficult to obtain that last Bitcoin. Yeah, yeah.

John Valkovci:

So, they will reach a point where they run

Drew and John:

So, they so they actually will mine the last out. Bitcoin at some point. They will, and that's projected right now mathematically to be in the year 2140, because of that halving right now, it keeps getting less, and less, and less. And as we go further, it'll be simply a fraction of a Bitcoin where, in the past, when it started, you were the miner received 50 Bitcoin for every block. Now it's down much less, and it's going to keep getting less. But when you think about it, back then, the Bitcoin might have been worth $1 if that, I mean, you got 50 of them. That's great. Now, you know, I think we're at 3.75 or three and a half, or something like that. And...

Jeff Matevish:

Can I ask a question going back just a little bit about the like, seizing the Bitcoin or the crypto assets, is that difficult to do? We had talked last time about like, custodial versus non-custodial wallets. If your crypto is not in some exchange or being monitored by some exchange, how do you get that crypto from these criminals when everything's anonymous and there's no exit as you said last time?

John Valkovci:

Right, that off ramp that we talked about, that exit strategy. If we can find a wallet that they possess, it's not part of an exchange, maybe it's a Trezor or a Ledger Nano hardware wallet or something like that, they have in their home. We can possess that, that piece of hardware, but you can't transfer the crypto out of it or do anything with it unless you have the private key or the seed phrase. So, part of criminal investigations and part of a lot of the training we work with now law enforcement agencies is helping them recognize what a seed phrase is, helping them recognize what a private key is. It's just a long string of, it's long alphanumeric sequence. And many police officers, when they go into a place, if they don't have the training and experience on what to look for, they may miss that. They may not recognize that as being

Jeff Matevish:

Additional item on the list of things to look something that's important. It's like sending a police officer in looking for methamphetamine, but the police officer has no clue as to what methamphetamine looks like. Is it a pill? Is it powder? What is it? They don't know what they're looking for. They may not seize it. And same thing when we come to this type of information about crypto. So, one of the goals of law enforcement is to find that private key so that we can take the crypto that they own, regardless of where it's at, and, and seize it and put it in the government bank. for.

John Valkovci:

Another thing to look for, yeah, yes.

Drew Thomas:

So, so the bank doesn't really own it, they just own the key to it? Maybe I'm misunderstanding. So, you're saying that financial institutions are, are starting to offer crypto related currencies, so custody.

Jeff Matevish:

That's a different subject, but yeah, so, so financial institutions now are offering certain services for cryptocurrency, and that's like having custody of... Well, for I mean, comparing that to a regular

John Valkovci:

Are we talking about token, are we talking about tokenized deposit? Yeah, yeah, okay. A tokenized deposit is nothing more than taking somebody's checking or savings account, okay, and turning it into a digital asset issued by the bank. So, if I have $1,000 okay, in your bank, you're going to give me a digital token worth$1,000 and that digital token will be created by you and exist on the blockchain. I have the private key for it now, because it's been transferred from you, the bank, to me, the customer. That $1,000 is basically nothing more than a digital representation of the money I already have in your bank. I can't spend both, of course, but then by putting it on the blockchain, and I have it, and me having the private key, now I have it, the ability to spend it, so like those Rai Stones on the island of Yap, I own it. Okay? Owning crypto, really, when you distill it down to its essence, owning crypto simply means you have the ability to deposit, I mean, they seem identical. spend it. That's it. So, now I could take that $1,000 that's on the blockchain and I could use it for anything I choose to spend it on. And the benefit that, that tokenized deposit is I can send it anywhere around the world instantaneously. It's cheaper transaction fees than trying to get a bank wire transfer or something like that. I have more control over it, so there's a lot of benefit to it. But okay, it would have to be issued by the bank, tokenizing whatever the deposits they have here. Okay, does that make sense? It does. Yes, it's just a way of tokenizing it

Jeff Matevish:

Okay.

Drew Thomas:

So, for me, it seems and placing it on the blockchain and giving the customer a greater ability to spend it and transfer it. If they have a electronically, on paper, than it was to literally move those relative who lives in Albania, they could transfer immediately to Albania, to their wallet without worrying about some sort of international transfer or whatever regulations would apply to something like that. bills around. But at the end of the day, I think that the point of that was so that banks could move money internally. There, there really wasn't ever a time when an individual was ever going to have a $10,000 bill in their wallet. Is crypto kind of like, I mean, I don't think that a lot of people are going to start using crypto until they figure out how to use crypto, right? If I can't buy a pizza with it, which I was the first thing that you ever bought with crypto, right, was the, was a pizza. But if I can't buy a pizza with it, what good is it to me? I guess, is the question.

John Valkovci:

I think too, we have to keep in mind when we talk about crypto, yeah, because if we talk about just cryptocurrency in general, we still have the volatility issue. So, you know, we have to be specific about what we're talking about here. If it's just general cryptocurrency, it is a stable coin. Is it digitized or tokenized deposit amount? These are different animals that we have to deal with, and each of them has different benefits and different risks associated with them. If we're talking about Bitcoin, spending Bitcoin, that's one thing, but let's, let's, we have a couple things we can talk about here yet too. We want to talk about digitized tokens and how people use it or, yeah. I mean, you know, the tokenized I guess the tokenized deposits, some use cases. Yeah, the use case is, I said, and we mentioned this earlier, if I have $1,000 in your bank and I want to send $500 of that to a relative who lives in Albania or Sub-Saharan Africa, or any other place around the world, how do you go about doing that? Of course, I could write a check, put it into a card and mail it. I can do a wire transfer through the bank. Okay, there might be other ways to transfer that money, but I'm also using the bank to transfer that money, whereas if that amount in my account was tokenized and I now control it on a blockchain. I could simply spend it and send that person $500 and it's just like transferring any other type of cryptocurrency, they would have immediate access to it. They could spend it on whatever they choose to. We don't have to worry about paying any banking fees. We don't have to worry about days or weeks or anything else like that. It can be done within a few minutes. And so, there's the benefit. It's really more so the transfer, the ability to spend that. Again, if I wanted to choose, if I found a vendor who was willing to accept that type of a token, or then I can simply send it to them. If Sheetz will accept Bitcoin, I can go pay for my gas with Bitcoin like you do a debit card. We're still not at that point yet, when it comes to tokenized deposits. It's more the bigger picture with, I can send it here, I can send it there, more cheaply and faster than working through a bank.

Drew Thomas:

And so, it's probably, I would say, probably larger banks that are doing this, right? Yeah. I think a lot of smaller community banks, they're not...

Jeff Matevish:

There's a lot of, is there, like, extra overhead or anything for setting something up like this for a bank that a community bank may not be able to do?

John Valkovci:

The bank would have to develop the infrastructure with respect to the blockchain technology, and then they would have to have the ability to basically create tokens, to mint tokens that represent the amount of the deposit, and then transfer that digitized, that digital asset, so to speak, to the customer via blockchain. So, it would require some degree of infrastructure, but it's not extensive. It's not like creating a new branch someplace, or building a building. It's just the, the technological infrastructure they would need. I, we can go into it maybe in another conversation of what that would require. I'm not quite sure it, it's going to be a function of the size of the institution. I think it's going to be more of a function on the risk appetite of the institution, which we can talk about. There is one more point I wanted to raise about these two executive orders, oh yeah, that were issued by the President, and he was very, very clear in the orders, is that there will never be, at least, under his administration, never be a central bank digital currency. Which is basically a government minting their own cryptocurrency. Okay, okay, some governments around the world are doing that. They want that central bank digital currency, but President Trump had said that will never, ever happen under his watch.

Drew Thomas:

Is there a benefit to doing that versus not doing that?

John Valkovci:

It comes down to almost a privacy issue when you think about it. Because if the government is going to create a central bank digital currency, and they want to pay your Social Security benefits or welfare benefits or any other VA benefit to you in that currency, then they're going to send it to you, like on the blockchain, and you have to spend it then on the blockchain, so you have to have the wherewithal to understand what you're doing. But it's also one of those things where the government could actually say, okay, we're going to give you this much as your welfare payment for the month, but we're only going to allow that token to be spent on this, and this, and this. You can't spend it on anything else. They could also then track every expenditure you make with that token as well, too. So, there is that, that privacy, that's been one of the primary arguments against the central bank digital currency is the lack of privacy, because basically, the government controls and watches what you're doing with the money they give you. Okay, people don't like that.

Drew Thomas:

the reasons why so many governments want to get rid of cash. They can't track where you're spending it or what you're spending it on. They can't tax it easily, because it moves from me to you without any record of it moving from me to you. So, you know, cryptocurrency, by its very nature, cannot be moved without tracking who it moves to, because otherwise you would not know who is allowed to spend it.

John Valkovci:

Exactly. I mean, every crypt, every Bitcoin transaction, is completely transparent. It's on the blockchain. Every single Bitcoin transaction since the very first transaction in the Genesis block is on the blockchain, and anyone with internet access can see any individual transaction. The idea behind it, though, is, we call it pseudo anonymous. It's not completely anonymous, because what you can see, in addition to a lot of other information, with timestamps and whatnot, you can see the address of the sender, the address of the receiver and the amount of bitcoin being transferred.

Jeff Matevish:

Wallet addresses you're talking about? Wallet addresses. You're looking, okay.

John Valkovci:

Coin wallet address, okay. And the thing about that wallet address, it's mathematically derived from a private key, so the private key can control that. That's what gives you the ability to spend it. Think of that wallet address as your email address. You want people to have it because they can't send you an email if they don't have your address, sure, but they don't have your email account password. So, your private key is like your email account password, your wallet address is pretty much like your email address. It's okay to be out there. Okay, it's not going to hurt to have anybody. You want people to know that that's how they're going to send Bitcoin. They send it to that wallet address, right, right, which is now controlled by your private key. You own it because you can spend the amount in that address. But the addresses are simply a string of letters and numbers. It's an alphanumeric sequence. It's not tied to an IP address. It's not tied to a username. It's not tied to an email address. There's really no biographical information that will tie that Bitcoin address back to you as an individual. It's meant to be anonymous. Now, again, having said that, I when I teach cryptocurrency at Saint Francis and through my other jobs, there are ways to de-anonymize cryptocurrency transactions and trace it back to certain individuals. That's why they've come up with a, there's, for a number of years now, there have been what we call privacy coins. Dash, Zcash, Monero, and they're being used more and more frequently by criminals, particularly on the dark web, because they do have that privacy feature where you can't even see the input address or the output. You can't see the amount that was passed between two people. You just know something took place. You don't know between whom and you don't know how much. So, there are a lot of ways. I mean, part of what law enforcement struggles with is trying to de-anonymize something that was meant to be anonymous.

Drew and John:

Wow. So, one of the pieces of information that we found was that this was research according to Gemini, 51% of those surveyed, Gen Z individuals own cryptocurrency, Millennials, about 49%. So, is this something that is going to, you know, become more popular as the younger, these younger generations get older? Or do you think that like will people like me and my parents and so forth, will they just be left out on this stuff because they just don't understand it well enough? And is that going to be a problem, you know, 20 years from now? I don't see it as a problem 20 years from now. There are a lot of things that we can divide and classify generationally in this day and age.

Drew Thomas:

But, I mean, like, cash has been around forever, like my parents, my grandfather used cash. My grandpa, my dad used, I use, guys use cash. But this is something that is so new, I think sometimes that it makes me wonder if...

Jeff Matevish:

It's scary for a lot of people, because it's there's so much unknown, yeah.

Drew Thomas:

Yeah, because they don't know how to, I think it's hard to get your head around how to use it.

Jeff Matevish:

Especially because, like you said, you can't touch it. It's not a thing. So, yeah, you know, how do I, how do I trust something that's not a thing?

Drew Thomas:

And maybe it's, maybe it is a generational thing in that, that generations, younger generations, grew up with technology, in the way that, that I grew up with, I don't know, playing outside. Like, the technology to them is just the way it is. They didn't have to learn how to use it. It was handed to them when they were two years old. So, I think they're a little possibly more trusting of stuff like cryptocurrency, because they're used to dealing with intangible things and considering them to be valuable. I don't know if that's a true statement or not.

John Valkovci:

Honestly, using crypto perhaps sounds more complex and complicated than it really is, because you don't have to worry about owning cold wallets or hot wallets. You can create an account on Coinbase, or Binance, or Kraken, or any one of the large, centralized exchanges, and creating the account is nothing more than if you were to register for another account. You put your credit card in, or you put your bank account number in, your routing number, your checking account number, and then you have to put a considerable amount of biographical information, because these large exchanges are like financial institutions in that they are governed by FinCEN and by the Bank Secrecy Act, so they have the obligations of the KYC, know your customer, sure client. They have to collect that information on everybody who has an account with that exchange. And once you put that in, it's nothing more than opening a bank account. You are literally opening a bank account online. And then you can transfer money out of your checking account to the exchange, and they will place a certain amount of whatever crypto you purchase into a wallet. But the idea is, when you're using an exchange like that, as we talked about the last time we met here, Jeff, is that that exchange holds the private key, which means they are the ones who actually own that crypto. Now you basically can tell them, I want you to send this here or send this here. They have to physically do it for you. They're just, you just own the accounts. They own the crypto because they have a private key. For most people, that's fine. It's very, very convenient. You simply log in, put your password in. It's no different than logging into an AmeriServ account and transferring money from one account to another, that's exactly it's very, very similar to what you're doing now, if you want to go a step further, then you have to worry about having your own wallet and controlling that set of private keys. So, there's a lot of things going back and forth, but it doesn't have to be as complex as most people think it is.

Jeff Matevish:

I think there's probably also some apprehension, because it's so unstable. I mean, when you think of cryptocurrency, you think of altcoins, and not necessarily stable coins. But when you know you're talking about performing this in a financial institution, you're talking about stable coin, not necessarily you know, something that's as volatile. So yeah, like you said, maybe not as scary as what people actually think it is.

John Valkovci:

There's also that inertia. People are going to think, why do I need it? Yeah, there's not a lot of vendors who will accept crypto because, as you just mentioned, as volatility. Didn't Bitcoin, I think in January, hit $106,000 and in March, it went down to$78,000 Yep. Yeah. That hurts, yeah.

Jeff Matevish:

And there's so many coins out there now, and designer coins, I mean, it seems like every influencer, every celebrity, is spinning up their own coin, and they're tanking, yeah.

Drew Thomas:

Well, I mean, you could even make the argument that there's a political component, even with Dogecoin. I mean, like, you know, yeah, with Elon Musk and his, you know, particular coin, like, is there a, is there a political aspect there where, because he's so enamored with Trump, or Trump's so enamored with him right now, whichever way you want to look at it, that all of a sudden his coin is going to go up or

John Valkovci:

down? It is a rather interesting coincidence

Drew and Jeff:

It is also Dogecoin, yeah. that the Doge, the Department of Government Efficiency, yeah.

John Valkovci:

I do appreciate that. As an aside, I do own Doge, and I'm waiting for Elon to do something so it skyrockets, and I can sell it.

Drew Thomas:

It used to be every time he went on Twitter, before he bought Twitter and turned it into X that every time, he would mention it, it would go up. It would like double in value to two cents instead of three cents or whatever it was. All right, what else do we got?

Jeff Matevish:

Since we talked last, last year, has there been any stability in crypto, or is it still as risky as it was a year ago?

John Valkovci:

I would use the word volatile as opposed to risky. Okay, it's still just as volatile as we just mentioned. In the last three months, we've seen a $28,000 swing in the value of Bitcoin alone, and a lot of times as Bitcoin goes so do some of the others. Okay, Ether coin has a similar swing, but it's also worth a lot less. Some of the other cryptos are more, more stable. Again, stable coins, but if we're talking cryptocurrency, is it as risky, if we're going to use the word risk, I would say yes. President Trump wants the United States to become the crypto capital of the world, to bring it into mainstream, to have it more accepted, not just by everyday citizens, but also by industry, by the financial industry, and by other industries as well. So, the more we can implement that type of regulatory framework, the better it's going to be for everybody. That's going to reduce the risk. One of the primary reasons that the financial industry hasn't really strongly embraced cryptocurrency is because of the unknown. When you think about it, and this is one of the things that President Trump told that working group in his executive order in January is, look, within six months, I need somebody to come in and recommend some solid, comprehensive regulations regarding crypto and digital assets. Let's look at what exists right now. You have the SEC, the Security and Exchange Commission, they deem certain crypto and certain digital assets to be securities, and if they are, then they're subject to regulatory control by the SEC and other digital assets are considered commodities by the Commodity Futures Trading Commission. The IRS considers crypto property, true. Yeah, it's not income, right? It's property, right. So, if you sell it, you could experience a capital gain, right? Short-term capital gain or a long-term capital gain, depending on how

Drew Thomas:

So, so, so that brings up an interesting long you, you held on to it, right? Okay. And then you, you question. How in the world, do, do people who are not educated subtract your basis, like you do in any other capital asset, and then you will pay your capital gains tax on that. But it's not in understanding how this is viewed by the government, how do income, it's property. they have a prayer of doing their taxes properly to make sure that they're like, do they, do you have to use a tax preparer? Are, are some of these, are some of these tax platforms out there, like TurboTax and H&R Block, and all the I don't, I mean, I'm just naming names for reference purposes. Do they know how to do this?

Drew and John:

Well, first of all, what we're talking about here, I hope everybody understands, yeah, isn't legal advice or financial advice, no, no, no, no, no, it's not but, not emotional support, yeah, it's just right now, the IRS doesn't want you to list your crypto, I believe, as income. Right now, they're simply asking you on, on your 1040, if I'm not mistaken is, do you own crypto, or have you purchased or sold or done any crypto within the last year, the last next year, yes or no. So, right now is, I don't believe there is, now I could be

Drew Thomas:

Yeah. I could be too. I was just curious, because wrong. it seemed when you brought up like, you know, the IRS like, how it's viewed makes a difference in terms of how you're, I mean, I can imagine somebody getting audited 10 years and, 10 years from now on their taxes from 2020, well, seven years from now, say, on their taxes in 2025 and they say like, well, I'm sorry you didn't report your, your, your crypto income, properly. And now you're, now you owe, you know, on, on $100,000 worth of Bitcoin or something.

Jeff Matevish:

And all that Bitcoin is worth nothing or whatever.

Drew Thomas:

Right. And who knows whether the Bitcoins worth, yeah.

John Valkovci:

Well, that's just it right now, because this is part of the overall regulatory scheme. It's not treated consistently by every branch of the government and every regulatory agency. And so, what we need to have is, we need to have comprehensive regulatory scheme. This is what crypto is. This is how it's going to be treated. Banks are somewhat hesitant to get involved with crypto because they don't know how that's going to be treated. The bank might say, okay, we're going to, this looks like a security to us, but no, it's a commodity over here. And banks have very, very strong regulatory compliance responsibilities, FinCEN, Bank Secrecy Act, Patriot Act, all these things. They don't need to get in hot water. So, I think once we have a clear picture of the regulatory scheme on how crypto is going to be treated, I think you'll start to see more banks dipping their toes into the, into the crypto pool here. So, I still think we're a way away. And I would love to come back and talk about those regulations. And once the working group says, here's what we say, then we have a great time talking about those. But back to the IRS, right now, the IRS would have to go to an exchange, Coinbase or Binance and say, okay, you have a whole list of people whose address is in the United States. How many of these people send me this massive spreadsheet of everybody who has an address in the United States who purchased or sold or redeemed, or whatever crypto exchanged it. And then the IRS would have to process that information and say, okay, Jeff, it looks like information from Coinbase says that you purchased$10,000 worth of crypto this year. Okay, okay. Now, if they're treating as property and as an asset, that's fine. So, you did. If you sell it when it and if it falls to nothing, and you sell it for $1,000 you have a $9,000 capital loss that you can use then spread across your tax return. If you have a capital gain then you'll pay a capital gains tax on it. So far, that's where we're going with it. Right now, where we're at with the IRS is they are just, there's two things the IRS is doing. They're just collecting data on anybody who says they, they own crypto, or they purchase crypto, or they've sold crypto. Remember, it's just a question, yes or no. But every time you sign that, 1040 Okay, take a look at the back page on the bottom right above your signatures, that very, very tiny print, saying that I swear that all the information on here is true and correct to the best of my knowledge, information, and belief, and that intentionally or knowingly providing false information to the government is a federal offense punishable by five years in prison and a$250,000 fine. So, even if they don't touch your crypto, they find out if you own crypto, but you said, no, you just filed a false tax return. And, yeah.

Drew Thomas:

Yeah, well, yeah, yeah. And I mean that, this is something again, you're not going to probably have the answer to, because I don't think anybody has the answer to this, but it brings up the question, you know, talking about anonymity and not knowing who owns it, how do you prove that you owned it? If, unless you are admitted, yes, I owned it. But I could say, no, I don't. And how does the IRS go back and prove that I do, if it's all anonymous?

John Valkovci:

If you have an account with Coinbase, yeah, or one of the larger exchanges, they have the information, because when you open the account to purchase crypto through them, they have KYC obligations, just as AmeriServ does, okay, okay. And when you open an account at AmeriServ, they need your driver's license, maybe another form, picture identification, a passport. They, they want all that information, so does, so do these exchanges. They have to collect that so the IRS can simply get that information. Now, if you purchase it from a decentralized exchange or somebody sends you crypto. Just for the heck of it, Jeff, you open up your own crypto wallet and I'm going to send you$100,000, I'm going to send you a Bitcoin.

Jeff Matevish:

Thank you.

John Valkovci:

Well, you're very welcome, I wish I had it to send. But nobody knows you have it, right, other than me, right? I'm not the government; I'm not an exchange. Nobody knows who I am, that just sent you that Bitcoin. So, to answer your question, Drew, how does any, how would anybody know, or the government know that he has it? They won't. Yeah, they won't. He could spend it on something. He could transfer, but if you cash it out, now, we're back to that off ramp someplace, yeah. How do you cash it out? How do you get that? It's great to say I own a Bitcoin. True, true. But you know what? I want the cash. Okay, right? Yeah, I'm not going to HODL. I'm not going to hold my Bitcoin hoping it goes to$200,000, I want the cash now. For you to cash out, you're going to have to go to one of the known exchanges, and when you do, they're going to have to meet their KYC obligations and record the information that you just cashed out one Bitcoin and they placed $100,000 in your account. Yeah, and if that account is tied to a bank, the bank has perhaps reporting obligations as well. So, now there are other ways you can cash out your crypto. You can just, there are places online where you can say, look, I want to meet somebody. I'm willing to sell my one Bitcoin for $90,000 even though it might be worth$100,000, let's meet in the back of McDonald's, and you bring a paper bag full of money at$90,000 and, and then I'll give me your address, and I'll transfer the crypto. If you think that's a viable way to, to transfer crypto and you're not worried about doing that type of a thing, go ahead, I wouldn't. I mean, that's, this is fraught, right there. It doesn't make any sense to think of it. It's almost a nonsensical type situation, because that doesn't happen. Yeah, there you have limited ways. You can go to a crypto ATM, you can take money out of that address. Okay, every day, just like you could a regular ATM, it'd be tied to your address, and it would transfer to you. But most of those crypto ATMs, and there are fees, are very, very steep fees, and so you're losing a lot of money that way. And they also have different levels. So, in other words, you're allowed to withdraw $300, or $400, or $500 a day from a crypto ATM with virtually no KYC other than maybe an email address that you can fabricate. But if you want to start drawing out more and more higher amounts, now you're going to have to hold up your driver's license. They're going to be facial recognition. There's almost an element of some sort of digital KYC there. Okay, so are you happy drawing$300 a day out paying high fees every time you do that, or, or per transaction, I guess I shouldn't say per day, but per transaction. So, there's a lot of ways, but sooner or later, you're gonna have to hit that off ramp. And yeah, that's where the government's going to step in.

Drew Thomas:

I mean, in a, in a very, in a different, but somewhat similar way, it's kind of like your retirement fund. You're putting money into your retirement fund, but it's only, it's only money on paper until you withdraw it. So, you know, your stocks go up and down and people say, oh my god, I lost this much today, or I gained this much. But you didn't really do that until you, until you're ready to remove it. It's just on paper.

John Valkovci:

That's what they say. You know, it doesn't feel good when I look at my 401(K) going, literally, have it, but you're right, you don't realize it. Yes.

Drew Thomas:

Yeah. I mean, my checking account didn't change because the stock market went down today, even though, technically, but if I wanted to retire tomorrow, it would, you know, because that's, that's the point when I'd be withdrawing that those funds, you know, yeah, crypto is weird. I, it's, it's not weird. It's, it's, it's fascinating. It may be the only currency in history that I can think of that was not mutually agreed upon by the society, that it was, that it was created by and or created by a government and then told, this is what it, this is what you use for currency in our country. And maybe that's why people are having such a hard time around it, because it was sort of created, and now they're trying to back into using it as currency, as opposed to, you know, it being say, okay, $1 is now $1 it's, it's worth, you know, I mean, at one point, you mentioned Fort Knox earlier, at one point, theoretically, every dollar in the United States was backed by a piece of gold, which people had already mutually agreed on was valuable. We're trying to convince people that Bitcoin is valuable by the Bitcoin community, yeah, by the[inaudible], you know? And maybe it does, maybe it doesn't, but I think the jury may be still out on that a little bit.

John Valkovci:

It is. And I honestly think that toward the end of this year, we are going to have a much clearer regulatory picture of digital assets and crypto in this country. We already have the policy statement that we want to become the crypto capital of the world and be crypto friendly and use crypto to foster innovation and growth and expansion. I think you're going to see it become more mainstream, mainstream, once that happens with financial institutions and things like that. So, I think this is going to be the year, I think we see crypto change we really do from being that what is this, I don't understand it, to oh, crypto, yeah.

Jeff Matevish:

It's not a fad like NFTs were, yeah, that's all, yeah.

Drew Thomas:

Oh yeah, that's, that's an acronym I haven't heard in a while, NFTs, yeah, yeah.

John Valkovci:

And you won't either yeah.

Drew Thomas:

I own a digital photo that I could, yeah, no, that was the whole thing that was weird. All right, I think, I think that's cool. Yeah, I think that we would, I mean, this, as you pointed out, is going to be a topic that is going to keep changing. And if you're willing to keep coming back and talking to us about it, I think that would be valuable. Because, you know, as you pointed out, six months from now, a year from now, this could all be different, yeah, probably will be different, to be honest. So, but yeah, I think, I think that's good, Jeff, you have anything else?

Jeff Matevish:

I'm good. Thanks.

John Valkovci:

No, you're welcome. Thank you. I can't wait till AmeriServ starts issuing tokenized deposits.

Drew Thomas:

Hang, hang in there.

John Valkovci:

Yeah, I, it's, it's a time, it's a ways away again because we still have the regulatory scheme. Yeah, yeah. It's an interesting concept.

Drew Thomas:

It is, really, it is. Thanks very much, John.

John Valkovci:

You're welcome.

Jeff Matevish:

This podcast focuses on having valuable conversations on various topics related to banking and financial health. The podcast is grounded in having open conversations with professionals and experts with the goal of helping to take some of the mystery out of financial and related topics, as learning about financial products and services can help you make more informed financial decisions. Please keep in mind that the information contained within this podcast and any resources available for download from our website or other resources relating to Bank Chats is not intended and should not be understood or interpreted to be financial advice. The hosts, guests, and production staff of Bank Chats expressly recommend that you seek advice from a trusted financial professional before making financial decisions. The hosts of Bank Chats are not attorneys, accountants, or financial advisors, and the program is simply intended as one source of information. The podcast is not a substitute for a financial professional who is aware of the facts and circumstances of your individual situation.

Drew Thomas:

Even after two conversations with John and a not insignificant amount of independent reading, wrapping my head around cryptocurrency still proves to be a challenge. Some people have asked me, why does something like Bitcoin have value? And I immediately think of the Rai Stone. Whether you personally find it valuable or not, a significant number of people do, and it's difficult to argue when the value of a single Bitcoin reached an all-time high of nearly $110,000 for the first time, earlier this year. However, many argue that calling these coins currency is still a bit of a misnomer, since one of the tentpole aspects of a currency is stability. Yes, Bitcoin is currently valued in the six figures, but it can also fluctuate by hundreds or even 1000s of US dollars in the space of a single hour. For most of us, it seems that crypto is worth learning more about but is also something that should be approached with extreme caution. AmeriServ Presents Bank Chats is produced and distributed by AmeriServ Financial, Incorporated. Music by SchneckMind, powered by Suno. Our co-host and executive producer is Jeffrey Matevish. You can find our entire library of episodes by visiting your favorite podcast platform, or you can watch the vodcast on YouTube. For now, I'm Drew Thomas, so long.

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