Embark on a captivating journey with finance expert Kenneth Bok, tracing his transition from Goldman Sachs to fervent Bitcoin advocate.
Dive into the intricacies of algorithmic trading, ethics in finance, and the allure of Bitcoin amid DeFi's volatility. Explore Ethereum's proof systems, the debate between proof of stake and proof of work, and Bitcoin's potential to reshape governance and finance.
Delve into the transformative power of Bitcoin and cryptocurrencies, offering financial inclusion where traditional banking falters. Critically examine the rise of CBDCs and their impact on privacy, international trade, and the future of finance.
Whether a seasoned trader or new to crypto, this discussion challenges conventional finance and unveils the possibilities of blockchain and AI convergence.
Embark on a captivating journey with finance expert Kenneth Bok, tracing his transition from Goldman Sachs to fervent Bitcoin advocate.
Dive into the intricacies of algorithmic trading, ethics in finance, and the allure of Bitcoin amid DeFi's volatility. Explore Ethereum's proof systems, the debate between proof of stake and proof of work, and Bitcoin's potential to reshape governance and finance.
Delve into the transformative power of Bitcoin and cryptocurrencies, offering financial inclusion where traditional banking falters. Critically examine the rise of CBDCs and their impact on privacy, international trade, and the future of finance.
Whether a seasoned trader or new to crypto, this discussion challenges conventional finance and unveils the possibilities of blockchain and AI convergence.
Thank you very much, mr Kenneth Bach. Yes, the infamous Kenneth Bach. Is that right the guy that's changing the finance game?
Speaker 2:I like it. I like it Say more.
Speaker 1:How did you get into finance? Did you always have a passion for finance? Where did it start?
Speaker 2:yeah, this is a long time ago, it's a long time ago so actually I, I, uh wanted very much to be a trader. Yeah, that seemed to be the most interesting game in town a very long time ago, you know, just betting on pure information. It's a big game in figuring out how the world works, right. I mean all the things that we're discussing now, from the most micro to the most macro. You can take a punt on it, right. You can go long and short on FX or stock.
Speaker 2:So yeah it's really an infinite amount of things you can do in finance, and trading was my first start.
Speaker 1:So you did actually start in trading.
Speaker 2:I did, I did. I traded for Goldman Sachs. This was 2008 to 2010. I was a market maker for Eurozone equity ETFs, so essentially we were sector traders. We were trading entire sectors of baskets being the ETFs. So my role at Goldman Sachs was essentially to hedge these products. We would be market making for hedge funds, pension funds and so forth, and making the spread on these products. So, on, the program trading desk is where we executed these algorithms. Right, because it's like these baskets are hundreds of tickers of stocks, so you need to execute them in a way that is completely directly proportional to the index, right, that's being represented by the ETF. So you need algorithms for this. So this is why it's called the, the one delta, or the program trading desks, which are in every investment bank yeah, it's such a fascinating world for me.
Speaker 1:I want to zoom in on it because, on the one hand, there's a science to it. Okay, I think that there's soft signals hard signals that drive investment trades and logic behind them. Those with the best access to the most relevant information can very easily manipulate the market. You know, I'm always having a good chuckle when I look at the Nancy Pelosi stock tracker because for someone who earns a government salary, she seems to do very well on the stock exchange and her trades are infamous. You just have to follow her trades and you'll become very rich. So you know that has and there's I mean I've been a little bit facetious, but it's also the truth, right, that if you have insider information, you can make a margin call and make a lot of money.
Speaker 1:There's a story I read recently about a husband, and it's quite interesting, funny and tragic at the same time, because this husband his wife worked in mergers and acquisitions, okay, and he was just listening to her phone calls and made a informed trade, right, and I think he made over 1.2 million dollars off it. I forget it was who the m&a acquisition was for, but it was quite a big corporate and after he made the money. He went proudly to his wife and he was like look, yeah, you know I made all this money and she's. She immediately reported him and they're now getting divorced.
Speaker 2:So you know that that is a very misinformed uh husband I would say so. You know they're not referring to any particular individual. It's an imperfect system, for sure. Definitely there are. The regulation does its best at preventing these kinds of things, which is why we have the whole big Securities and Futures Act, but of course implementing those thousands of rules is not easy, right, which is where we get into sort of some of the issues in my book around regulation how we regulate on-chain assets which is now a completely different ballgame for regulators.
Speaker 2:So I mean to address your remark. I think regulators do their best. You know, I generally want to believe that.
Speaker 1:But how can we say that? And then you've got the Nancy Pelosi's of the world. Is he making trades?
Speaker 2:This is the US, so this is where it comes down to the implementation of US law and whether or not members of Congress should be allowed to trade.
Speaker 1:And it keeps getting shot down. They don't want to ban it.
Speaker 2:It's crazy, right? I have a Singaporean passport. I cannot comment on US issues.
Speaker 1:No, I know, but I think to your point. It's all good and well, we have rules, but it comes to the implementation of those rules and who gets held to account for those. Definitely an interesting space. And you know, I look at my own experience in trading. I remember I think almost everyone in today's digital society has gone through this or will go through this at some point. But discovering eToro or some kind of trading app and doing a bit of research, put some money down very quickly, make some money over leveraged. I think I was in at like 100x on something like gold, thought I was being genius tracking gold news and immediately made a lot of money. I remember leaving my house to go to a family function and was like I can, I don't have to work a day job.
Speaker 1:I'm not a trader like I'm doing phenomenally well, get to my parents house and bragging about it and open the app and lo and behold, slight market shift, obviously over leveraged, and boom, everything gone, margin call. So that was my first personal taste of trading, but fascinating and I think, fast forward to the human that I am now. I've learned some interesting lessons. I'm quite excited to go deep into those different examples and lessons, because not only has it been trading on stocks, I've done the DeFi play with Celsius and.
Speaker 1:I'd like to dive into that story. I think that changed the game in many respects and will continue to change the game, and I'm keen to hear your professional opinion on DeFi, because you're doing some amazing work in that space. I have ended up landing on a very clear strategy. I don't trade. I avoid trading at all costs. I am a bitcoin maxi, so I'm all in on bitcoin and I'm storing my value that I generate in bitcoin as a store of value with as a deflationary asset. Okay, and yeah, I think it's interesting to see how that journey I've landed at that point. But let's rewind a bit and let's go from your trading days to where you're currently at. Maybe give us a quick synopsis of how your career brought you to where you're at now.
Speaker 2:Yeah, so in 2017 is where I really started full time in blockchain. Actually, my earliest investment in Bitcoin and Ethereum was in 2014. Wow, so my claim to fame is really I invested in the Ethereum crowd sale.
Speaker 1:In a what.
Speaker 2:The crowd sale. Okay, this is the original crowd sale in June of 2014, where the Ethereum team was raising money for their project. This is before or after their pre-mmined. This is the pre-mine. Oh, this is the no. There's, no, there's no.
Speaker 2:Okay, you've got to be careful about what we're saying let me, let me just tell you from my okay, basically, they were soliciting bitcoin, and so the the rate in which they got the contributions was something on the order of 2,000 ETH per BTC. That would drop to something like 1,200, right, so I got in at about 1,600.
Speaker 1:May I pause you there? Yeah, I mean, not many people can share this kind of story, right? How did you know to? Get in at this point.
Speaker 2:So, luckily, I was doing my second degree in religion and philosophy go figure where I was doing research on Bitcoin. Okay, yeah, this one essay in this particular module. It's a liberal arts degree, right, so I could do basically anything that I wanted to research on, and so I did the paper on Bitcoin, right?
Speaker 2:Having also, I also have a lot of memories from the 2008 GFC, because I also was in the trading floor and I saw the whole Occupy London thing happen. You know it brought up very strong. It was a kind of a quite a big ideological shift in me whether or not what I was doing at Goldman's was kind of the right thing to do or whether or not it made sense for society. It felt very much like a game also, where there was a large shift of value from the bankers to sorry, from the other way around, right from the citizens to the bankers Now.
Speaker 2:So the short story is that I was I was doing research at a time scouring the internet, you know, at a time there were all sorts of basically it's Bitcoin talk and Reddit and various sub communities and yeah, lo and behold, popped out this Ethereum thing. There was a white paper, right. So as you skim through the white paper and Vitalik you know he's a very pimply guy YouTube video and what they're describing is a world computer, right. So actually my whole initiation to this was really a bit more on the Ethereum side than the Bitcoin side. I now hold Bitcoin only, actually.
Speaker 1:Only Did you say, only yeah. So just to keep it simple because I've got a lot of things going on Interesting that you've also ended up there.
Speaker 2:Yeah, I'm happy to go further because I was very much on the flippening camp. If you talk about Ethereum as a smartphone and Bitcoin as a calculator, why is it that the calculator is worth more than the smartphone? So we can get into more of those kind of uh details, but that is the short story and then after sorry, if I may, uh, so at that genesis point, uh, well, that's not your, I mean.
Speaker 1:But at that infliction point of, of getting into digital currency, uh, digital assets, right, um, how did it emerge on your religion, philosophy studies, how did you come across it?
Speaker 2:just out of interest ah, well, so the paper is called. The paper was called towards an ecological economics. I mean, like I said, it was such a broad thing, right, that I could basically write on anything I wanted. Okay, so I just went it. It's just kind of opportunity for me to go deeper into what Bitcoin was, okay. So I read the white paper and did all that research, yeah, but it didn't really.
Speaker 2:Yeah, that's the other side of my life right, okay, the spirituality, the meditation, the stuff that I'm kind of my left brain, my right brain, brain, as they call it okay, interesting.
Speaker 1:So you at this like inception stage with ethereum yeah, take us back there for someone I'm super intrigued to, to know what you're feeling, what the market was feeling then there was a very select group of people.
Speaker 2:We in our infancy of this, this emerging market, yeah, yeah, so yeah, I mean I think there were about a thousand people that thousand plus in the thousands that bought into the crowd sale. You can actually see who contributed how much based on their addresses. Now, I mean, for me I actually kind of forgot about it until 2017. What do you mean?
Speaker 1:I carried on my life. You purchased and you just forget about it. I purchased it.
Speaker 2:I just carried on my life. You purchased and you just forget about it. I purchased it, I just carried on, I did some business in real estate and then, in 2017 someone else told me about this, reminded me of my, of Ethereum, and at this time, ethereum had shot up to about about about $10, about 10, in the tens of dollars. Okay, and I tell you, one memory that stands out is that the Enterprise Ethereum Alliance was formed.
Speaker 2:Okay, so the EEA still exists, but the EEA is basically comprised of companies from all the Fortune 500 verticals, right? So you've got BP, you've got UBS, you've got Cisco, you've got so many big corporates that were suddenly interested that all came together and said Ethereum is interesting, right, so that was the big aha moment for me. And then the price obviously spiked, also from, I think, $10 to $30. And that was the big kind of like. I have to hold this right, no matter what happens, because this is a very underappreciated opportunity and, lo and behold, obviously it bore fruit, right, but to get to sort of the thousands of dollars, you have to go through many, many cycles of volatility, sure, sure.
Speaker 1:Just if I may, do you think all of the big corporates realized that there was this layer two capability that they could unlock and that's why they saw Scalability? You mean, sorry, what do you mean by layer two as a blockchain with functionality and capability? Do they understand smart contracts? Yeah, yeah, do you think that's why they were all gravitating towards Ethereum?
Speaker 2:Or do you?
Speaker 1:think Ethereum was just doing a fantastic PR job.
Speaker 2:No, no, no. Ethereum is real. There was actual utility being unlocked. Ethereum is real. Ethereum is.
Speaker 1:I mean, I'm not doubting that Ethereum is real, but what I'm saying at that stage.
Speaker 2:you mentioned all these corporates coming together. Right, was that them realizing that the game was changing and that there was utility to what was the pull factor inner insight? But I think it's a question of the CTOs or the CIOs or these companies saying, okay, this is really this could be game changing. Right, like, let's look deeper into it, we may not be exactly building products on it, like, for example, banking and finance. Right, you do not see, even the likes of JP Morgan now have come out publicly to say that they will not be using public Ethereum for large transactions. Right, they want to build their own layer one, gl1, right.
Speaker 2:So, but this is now rewinding way back to 2017. It's basically saying there is this new system out there, this world computer that basically allows people to run programs. But you cannot disagree. You have to agree that this program has been run. You see, this is a very you think about enforcing consensus with the monies, with money, on Bitcoin, but now you're enforcing consensus on programs, right, which are so general. Any kind of computer program, any kind of if-then statement could now be enforced, you know.
Speaker 2:But that's what Ethereum essentially is. You cannot disagree that the program has been run on Ethereum, you see. So that's why, back to kind of Nick Szabo's smart contract, right, like a smart contract essentially is a kind of a system where there are various rules. It's like a vending machine. You put a certain input out, there's a certain output that comes out. Everyone that uses this system has to agree that this in fact has run. You cannot disagree. That's the whole point of Ethereum. So, to the extent where Fortune 500 companies could use this, absolutely. But then we get into the trickier questions of okay, is this legally binding? What assets are we talking about? How exactly is the use case going to come about? Want to, before I lose the the train of thought the.
Speaker 1:Why did they refer to it as a world computer? That's the first time I've heard that for ethereum but, I'm not. I've never truly dived deep into ethereum, so this is a bit of a lesson for me. So why did he talk to it as a world computer?
Speaker 2:maybe you can just elaborate oh sure, so we get back to how it works, which fundamentally is about nodes. Right back then it was still proof of work. But even then, now, with proof of stake, essentially, where are the nodes? Nodes are distributed right. The nodes are completely decentralized.
Speaker 1:They could be existing here, they could be existing in south africa so the nodes are is computer processing power being held by individuals that help make it a decentralized ledger, correct?
Speaker 2:You can think of it as the hardware, almost, or the cloud that powers the computer. Without the nodes, the computer doesn't work. Now you can. So the whole point of this is is very resilient, right. You could have a god forbid a nuclear attack on entire continent and the computer will still run right. But you can't say the same for a kind of amazon or google. If there's some kind of a centralized destruction what you mean.
Speaker 1:I see what you mean Because you've got this network of computers. If a whole section goes offline, it doesn't take away from the ledger still being operational and functional. It goes on.
Speaker 2:It carries on from block after block after block, like a machine.
Speaker 2:So we start with that base, right, we start with that base and now we go on to the computing right. Again, it's like okay, let's say I did a contract with you At a certain time. At a certain date, we see where the market is and we've agreed if the market's at a certain level, I have to pay you a certain amount. Now we don't need to do a legal contract, we just put on a smart contract. You lock up your stablecoin or ETH, whatever agreement that we've had, and then it just executes. So therein lies the beauty of a smart contract. Already, it's just who's going to execute? The world computer. We've agreed that the world computer should execute this trade and it just executes. Got it.
Speaker 1:May I ask one or two questions before we move off this point? So can you explain for those listening the difference between proof of stake?
Speaker 2:and proof of work. Yeah, so proof of work essentially, are run-off GPUs that solve these mathematical puzzles, that essentially, you need to expend this compute power in order to solve the puzzle, to win the prize of validating the next block. If you validate the next block, you become the sort of the one to validate right, and so in the proof-of-work system, the canonical chain, that is to say, the most trustworthy chain, and how the system gravitates, is to the longest chain, right. So, therefore, you have this race, right. You have this race where the puzzles keep getting harder and, essentially, everyone needs to expend compute power in order to solve this puzzle, and the benefit of the system is that a 51% attack, where one party has all of the hash power to defeat the rest of the system, is very low. It would be impossible. Basically, right, this organization, we need to shore up a tremendous amount, billions and billions of dollars of GPUs and compute power, which is completely impossible, which makes it resilient.
Speaker 1:So I want to make this a bit more practical for newcomers to this world. So you have this blockchain and on the blockchain, you are able, as per your example, to create a smart contract which has an exchange of value and you agree what that exchange of value is at a point in time, and you put it onto this world computer. This blockchain and the blockchain will execute the transaction. The security behind the transaction that allows for this to actually happen is you've got this decentralized ledger with all of these people that have nodes. Those nodes have compute power and they are in a race if it's proof of work, we'll start there to use that compute power to help solve the cryptography behind the block, to unlock the validation yeah, which then um executes the smart contract number number one and rewards the miner or the compute power owner that solved it with a value in the respective blockchain.
Speaker 2:Yeah, exactly right. So let's discuss integrity the integrity of the chain, the integrity of what the transactions actually were, is settled by who has the longest chain, who has actually solved the puzzle. So this is where all this, the system, this is why the system is so ingenious. It's kind of building on all these different blocks of economic incentives, of consensus mechanisms, of cryptography that really came together with Bitcoin and Ethereum. So that was the genesis of it, of course, if we fast forward to today, if I may, Sorry, before you do so, I want to establish.
Speaker 1:So we've spoken about proof of work, proof of stake. Okay, so proof of stake what is? The difference of proof of stake and then, I want to know why Ethereum went from proof of work to proof of stake, and then I want to know why Ethereum went from proof of work to proof of stake. Good question.
Speaker 2:So proof of work. The proof of work, proof of stake, is very important because it solves the environmental issue. Actually, the proof of work is quite wasteful I may be a bit blunt to say that because you've got actually tremendous amount of electricity that's being used to solve this puzzle and which preserves the integrity of the system, of the, of the bitcoin system. Let's talk about bitcoin. It depends on whether or not you think bitcoin is a worthy thing for society. Right, I mean, I'm, I'm, I'm neutral, but there would be people that say that bitcoin is not good for society and we're wasting all this electricity. But if you think Bitcoin is a good option for society, then of course it's worth expending all that electricity.
Speaker 2:But the beauty of Ethereum now is that it's managed to shift from POW to POS, which dramatically reduces the electricity cost of the Ethereum system. So POS proof of stake essentially is I would describe it as skin the game who gets to validate the next block? Right, it's basically people who have stake, and that stake is a literal amount of ether that is limited by the algorithm. You must stake your ether in the system in order to get a chance at validating the next block. If you validate correctly, you get rewarded If you somehow don't obey the rules of the system. If you're trying to screw around the system, you get your stake deducted.
Speaker 1:The entire stake. Part of it. Part of it.
Speaker 2:So this is where there's a it forces an honesty principle. Correct. It forces compliance with the rules of the system.
Speaker 1:Interesting. Okay, do people that have more Ethereum have a higher stake and benefits over those that have less? Absolutely, Absolutely.
Speaker 2:I mean this is I mean well, they definitely have more voting power in the Ethereum network. They get more rewards. Yeah, so I suppose it's a bit like capitalism, okay. If you have more capital, you get more interest in your capital.
Speaker 1:Which on surface value seems logical and makes sense. But does that not become counterintuitive? To the decentralization of the network and ensuring that the network is truly decentralized yes, that's fair.
Speaker 2:that's fair. I don't know if there's a good solution. I haven't quite heard of caps, for example, on this, but I don't think it's become such a problem where there are sort of single parties that have more than, say, a double-digit supply of Ether. Yeah, somehow that I think that's a problem. That seems to be more of a problem in other non-Ethereum chains, yeah, okay, where you have very concentrated blocks of bloating blocks in those.
Speaker 1:L1s. I mean, I know it's been raised as an issue in the Cardano community, which also works on proof of stake, and there's all sorts of concerns around manipulation, voting rights, and I think that's why I've landed and ended up on Bitcoin, because for me, that is truly decentralized and there's no CEO, there's no board, there's no, you know, ability for someone to brute force it, whether it's on the compute power side or you know in any other way that I'm aware of. Yet, however, I do acknowledge that the environmentalists have raised concerns around the carbon footprints associated with Bitcoin, but my rebuttal to that is always compared to what? So we have a truly decentralized mechanism to exchange value. What do we compare it against? Are we, if we compare apples with apples, is Bitcoin more energy intensive or astronomically less energy intensive?
Speaker 1:So what does it take for me, via a banking network, to send money overseas? You're looking at energy between source to endpoint and all of the middlemen in between. You're looking at the layers and layers of approvals and validations. You're looking at multiple day turnaround times. So all of the infrastructure linked to the banking system is what you typically need to compare to trying to do the same thing with bitcoin, which then comes the argument. Well, bitcoin, it takes too long per transaction. Again, compared to what, it takes me, three days to send money internationally, in today's terms. It used to be longer, okay, um, with bitcoin you're talking about minutes. Okay, depending on, uh, which platform, or if you're using the lightning network, whatever it may be.
Speaker 1:So you know, I I shoot down the environmental argument in that respect, comparing, you know, the Bitcoin energy consumption to the banking infrastructure number one, number two, when I look at Bitcoin and this has been validated now in the market I won't mention specific numbers because I'll butcher it, but majority of Bitcoins the nature of bitcoin forces an efficiency principle, and what I mean by that is you have to find the most renewable, efficient, low cost source of energy to enable you to maximize your benefit from a mining capability, which has resulted in a few things Bitcoin becoming the champion of renewable energy number one.
Speaker 1:Bitcoin not only decentralizing finance, but decentralizing energy, and creating this network of energy that didn't exist because of limitations around reticulation to or from the sources of energy, whereas now you have mines popping up next to volcanoes, next to hydro, next to geothermal, all sorts of flaring that's happening at oil sites, that's accumulating in these remote regions, which is in essence decentralizing energy and allowing for that energy to not only be captured, stored, but also potentially load shifting, to leverage it, when applicable, for other means within those regions, which is resulting in a whole other, different kind of economical boom. And you couple that with 4IR or 5IR, you all of a sudden have a different emergence of civilization outside of main city centers. So for me, that fascinates me, and I don't even know if that was by grand design or if that's just. And whenever I look at Bitcoin I see this perfection.
Speaker 1:We've now entered into the mind of a Bitcoin.
Speaker 2:We've now entered into the mind of a Bitcoin. Enter the Bitcoin mind.
Speaker 2:Exactly, I mean LV. Let me try and get to the crux of it. Yeah, please, it's about government, right? I mean it's whether or not what you've said. If a financial system based on Bitcoin is possible, then my counter to that is who sets the rules for it? Right, because government.
Speaker 2:Of course, we know government's imperfect right, but government, by and large, for most countries, are set on laws, they are set on rules, they are set on an electorate. Like these form the sign of the social contract between the government that, for the most part, implements the financial system and the people who are the real stakeholders. Hopefully, this is a democracy. We all know that there are many countries that are not democracies, but when it comes to Bitcoin, it is not very clear to me what the social contract actually is. Who are the people being governed by Bitcoin? You see, you have all these people that are basically anonymous. There are people that have a lot of Bitcoin, but what exactly is the contract there? You see, I don't quite see it. That's where, philosophically, I also have libertarian elements. You know, I love the fact that Bitcoin has given people more options. I love the fact that I mean, I got my financial freedom with Ether, so I'm all for it. You know it. There's a kind of a I.
Speaker 2:I would argue, freely, happily, that bitcoin is a brilliant representation of digital gold. It's a non-sovereign store of wealth, right, every government is going to tell you to believe in their currency, but bitcoin, uh, is there for you and shit hits the fan, right, as it happens in Ukraine. So you know. But if we're talking about which is where I come to sort of this point in the conclusion of my book it's like saying, okay, look, if we are really going to talk about financial inclusion, if we're really going to talk about real finance, there is this hard problem that needs to solve that, basically. That needs to solve that Basically. How are we going to deliver financial services scale? That is true to the ethos of this decentralized principle, right, by and large. We have this machine that works with rules from the FATF and the BIS and the banks and the commercial banks. It just functions on its own and it delivers services to the masses. How are you going to replace that whole machinery with Bitcoin? I don't quite see it quite yet.
Speaker 1:Okay, let me maybe raise some valid points. So, on the point of anonymous users on Bitcoin, I mean you can track every transaction on the chain, but you don't know who they are. You don't know who they are Okay, so I suppose there's a point to be made there. However, when you come to the statement about the existing system yes, we have, uh, infrastructure and banking that has been made available to the masses. Uh, I don't know what the statistics are. I think it varies dramatically from country to country on whether or not it serves the masses. I don't know what the statistics are. I think it varies dramatically from country to country on whether or not it serves the masses or whether it serves the top 1%, 10%. I think that's debatable across countries. It's not as accessible in African countries as you would like to think.
Speaker 1:Hence why things like M-Pessa and other value exchange mechanisms with airtime have emerged, because humans want to exchange value and they're looking for the easiest way to do that. I think that Bitcoin still enables this, and it's also the reason why you see, its adoption generally has happened quite a lot in countries that have either got limited access to banking or have experienced hyperinflation through the abuse of their currency by their government, or policies by the government, or behavior of the government, so that hyperinflation, net negative and eroding your complete value or store of value, has made people realize that they need an escape hatch. They need something that they can put their value into, that is a deflationary asset. That is provides true sovereignty, assuming you have the guts to hold your own keys. Okay, and I think that that has the rabbits out the hat.
Speaker 1:With Bitcoin, you can see the spread is there. As for governments and banking, I think that we have lost the plot, generally speaking, a long time ago, and you've seen these repetitive cycles of bubbles emerging. From a debt crisis perspective, 2008 is going to look like child's play compared to, I think, what's busy emerging in the market, and I'll be keen to hear your professional opinion. All I see is a house of cards. All I see is woo-woo economics. All I see is relentless printing of money, relentless printing of money, and with that relentless printing comes certain behavior around wars that happen in perpetuity without being supported by hard money, which has created the world that we live in, which is chaotic. I'll pause there.
Speaker 2:The can of worms has been opened. Okay, I mean I will not. I'm in agreement that money printing is a problem. Okay, I actually did quote Ray Dalio in my book. That basically says that you know, he has done this brilliant study of world history and currencies. And he also says that when it comes down to the print button or austerity measures, they hit the print button or austerity measures. They hit the print button usually. It's usually the safer, I mean usually the path of least resistance. And then we get into sort of hyper hyperinflationary affairs.
Speaker 1:I mean which is interesting, right, because you it's, it's about being voted out. If you bring in the austerity measures and the hard financial kind of requirements to balance things out, that's when you're at risk politically. Show me the incentive and I'll show you the outcome. Charlie Munger, right, and that's the challenge.
Speaker 2:Let me kind of add a dimension here which I think is important. In fact, actually, it's the Westphalian Treaty, the Treaty of Westphalia. What, the Treaty of Westphalia? What is the Treaty of Westphalia? If my memory serves me correctly, 16th century. Basically, it says that countries don't interfere with each other's countries. I'm not going to interfere in your business, so you do what you want with your money, I'll do what I want with my money. This is a very important principle. This monetary sovereignty principle is very important. So, whether or not we're talking about fiat or gold standard, every country has the right to decide what to do with their money, which includes defending their money from other types of money, other types of stable coins, other types of CBDCs, cryptocurrencies and so forth. So this is generally. The West Valley Treaty is a seminal point in world order, but that doesn't exist.
Speaker 1:It does. That changed after World War II. World War II okay. So if you take a step back, to have a war you had to have gold and we were on a gold standard. We stepped off the gold standard in 1971. When that happened, the game changed. That treaty became null and void. In my opinion, in my humble opinion it's the first time I'm hearing of it, but the reason why I say that is if you look at what happened post-World War II, the US became the global reserve currency, why they had the most gold, but they were holding a lot of other countries' gold. Those countries started to recall their gold and that's when I think it was at Reagan said look, we're going to step off the gold standard.
Speaker 2:It's going to be temporary.
Speaker 1:And then, from that point onwards, you can look at the charts. They speak for themselves. But my point being that that, what is it called? The west?
Speaker 1:the west, the, the, the westphalian treaty, the westphalian treaty yeah okay, so excuse my ignorance, but surely that that, in principle, maybe it worked, uh, when there was a gold standard. But as soon as the us became the global reserve currency, that changed because, if you look at how the world is now pivoting, has been dominated by that, okay, the US dollar being the main global currency that everyone's measured against. But that's changed, or is changing as we speak, because of the abuse of that power.
Speaker 2:Let me, let me try and unpack.
Speaker 1:Yeah, there's a lot here. There's a lot here.
Speaker 2:I feel like I'm doing some ninjutsu.
Speaker 1:This is not an attack on you. This is just the first time I've got someone who really knows what's going on, maybe to come help shape our thinking. Okay, hold on.
Speaker 2:Breathe. Okay, you're right that the US Became the reserve currency In world trade. That's why we have Things like the petrol dollar. You know Even emerging currencies. You need to use the US dollar. Then you have to go through SWIFT and then the US has control over that kind of system. But what I'm referring to Is the right To conduct your monetary policy. The US has never Gone to any country and say you must use the US dollar. You understand, this is a very sacred issue.
Speaker 1:Do you?
Speaker 2:really believe that? Tell me, which country has the us imposed its currency? On which country has it imposed its currency? Yeah, they said to the, the politicians and the, the people who lead the country you must use the us dollar. No, it doesn't. This doesn't happen like that. It doesn't happen like that. It. That's why, that's why I bring up this important point of the of sovereign, monetary sovereignty. Yeah, so?
Speaker 1:so the pivoting away from the petrodollar, does that, uh, mean anything? The, the saudis had to trade oil in the petrodollar. Yeah, so is that not the? Is that not them dictating?
Speaker 2:that's not the, that's trade, but that that's not the same as what happens in Saudi Arabia. Right in Saudi Arabia, the US dollar is not the de facto currency, it's the dinar why does it become the de facto currency in countries that?
Speaker 2:I suppose because it's seen as a store of value yeah, so that now we get into the trickier questions, which is where I'm happy to address your kind of first point about the edges and also holding profligate governments in check. Like gold, I think it does have that function. There is that possibility of it functioning like gold, essentially, but it's better because it's digital. So I am all for options, and so this is what I'm trying to steel man in so many cases. But it's better because it's digital, so I am all for options, right, and so this is what I'm trying to steel man in so many cases is how the government thinks and how the world order, which is obviously, you know, very high pay grade, right, like. But that's where I got in to all these issues with my book how the policy thinkers about WMDs and you know, like North Korea funding their nuclear program with cryptocurrencies Like these are not normal things that you come across on a day-by-day basis. So I'm trying to steel man these kind of thinking like a central banker from one of the G7 countries, right.
Speaker 2:But what I would generally try to articulate here is you know how generally the world order works and why, generally there are certain spots in this whole discussions about DLT and blockchains and CBDCs and tokenized deposits. There are certain quite bright spots, right, and one of them is around stable coins. We can talk about stable coins a bit more, but as soon as we kind of if you're happy with this thread, you know. Like you know, stable coins generally are a good marriage of where the government and crypto sort of come in right. Stable coins are essentially fiat on a blockchain, right? Okay? So things like Tether and Circle. So USDT and USDC are the two most popular stable coins in circulation at this moment. Okay, how do they?
Speaker 1:So, by definition, what is a stable coin?
Speaker 2:Stable coins is a representation of fiat money on a blockchain. So, basically, let's take, for example, usdc, which is one of my favorite examples. So, essentially, when you give a dollar to Circle, circle will hold that dollar in reserve and mint a token on the Ethereum blockchain, which represents one USDC. And is it one-to-one? Yes, it is one-to-one. Okay, the issuers are not allowed. Who is Circle?
Speaker 1:sorry, hmm, who is Circle?
Speaker 2:Is it government-backed?
Speaker 1:No, it's a private company. A private company that's created a fiat stable coin.
Speaker 2:Correct. So their whole job and how they make money, we can get into that, but let's talk about the functioning of this thing. So they're a company, they hold these reserves, they earn interest on the reserves and they issue out the tokens on the blockchain. So now this fiat representation you are assured if I take this stable coin back to Circle, Circle is going to give me back that dollar. But the beauty of this is now this stable coin lives on this ginormous open network which is the blockchain. So a farmer in Kenya could just spin up a MetaMask wallet and start storing USDC on his computer.
Speaker 2:Just like that he doesn't need to do KYC, he doesn't need to go to a local branch. He's completely embedded with the global DeFi ecosystem already.
Speaker 1:So it's creating, like what do you call it? Velocity or the ability for US dollars to be digitized and have a greater footprint.
Speaker 2:It's an open network, got it? It's an open network, it's an open financial system, which is where this whole DeFi conversation comes in right, where it's basically it's amazing for financial inclusion.
Speaker 1:How do they validate that circle has a one-to-one ratio?
Speaker 2:they have an auditor okay yeah, they do audits I mean they must be worth a few billion now, many billions yeah, I think last several tens of billions, about 30, 30b if I'm not wrong.
Speaker 2:Yeah, around that ballpark. So their business model is essentially earn interest on the float. They don't pay interest for people who deposit the currency with them, which is a different model from how banks work, right. Of course, banks earn on the spread on the interest they pay versus the interest they earn, but banks also have the license to do fractional reserve banking right, whereas stablecoin issuers are essentially hamstrung with not being able to do fractional reserve banking.
Speaker 1:So I give a dollar to Circle. Circle gives a physical dollar, a printed dollar. They give me a blockchain USDC. Okay, how do they earn interest on what they're holding or what are they buying?
Speaker 2:They buy bonds. How do they earn interest on what they're holding? Or what are they buying Bonds? They buy T-bills, ooh.
Speaker 1:That sounds like a recipe for disaster.
Speaker 2:Which bonds are they buying? Short term HQLA high quality liquid assets From which country? In the US Because it's Ooh.
Speaker 1:Jeez, that sounds like a ticking time bomb to me. No one's buying the US bonds anymore, like the US bonds are in crisis. No, I mean, isn't that like a real problem that everyone's dumping US bonds?
Speaker 2:Yeah, I mean this depends on your view. This is now we come back to the systemic issues. I mean, yes, if we're talking about the sustainability of it, the House of Cards, I mean, look, it's all based on faith, right, it is. I mean that's not. I mean a lot of money is essentially a construct. It's a legal construct, it is. It is the state has a monopoly of violence. Okay, let's just not laugh about that also. But you know, I mean this is a well-known fact, right, like the state gets to conduct punishments and so forth, depending on the rules that you've set. So, anyway, when it comes to money, you ask if the US is so much debt, why do we people, why do still people, believe in the American empire? Because they're still, you know, know pretty much what people are blind?
Speaker 2:they're blinded by, they've been completely blinded by this mainstream narrative yeah, look, I mean this is where we get into the the weeds of it, but I, you know the american empire is still going strong it is going strong for sure, but let's, let's, let's, let's, let's, let's.
Speaker 1:I think for me and I'm really I'm not attacking you this is a great conversation.
Speaker 2:I'm fully awake and engaged the worms are falling over the place.
Speaker 1:Let's have fun while we're going through, because I'm having fun, so okay. In the past, your ability to project kinetic power projection would give you the ability to set the rules and to enforce the rules. So the US as an empire has, post-world War II, become the superpower. I think he's trying to hold onto it. There is a strong ability still to project power and they've tried to flex that in many different ways and I don't want to go down that rabbit hole. And I think that on surface value, for most human beings it looks like everything's okay.
Speaker 1:For those that are maybe in the financial world understand how the game is changing because of relentless money printing and if you look at the debt curve, I think it's every 90 days the US has another trillion dollars in debt that they generate. They're over 31 trillion at the moment, which is just an insane number. If you try and explain that to me as a company, it doesn't make sense. There's no rules. Keep raising the debt ceiling, keep printing more money, keep causing inflation. Inflation has a direct impact on how they have to manage it, which puts all the banks in a corner, because all the banks are long on bonds. So when you talk to me about circle holding bonds.
Speaker 1:That doesn't inspire confidence and that's why I say it's a house of cards. So at some point something has to change. And it all changed when they went off the gold standard. Because in the past, if you wanted to go to war, you had to fund those wars. And wars are extremely expensive and all the wars to date in the in our lifetime are funded by relentless printing of money. Back in the past, you had to have gold to pay for your wars, okay, and if you, if you, ran out of gold, you had one of two options Either you stop the war or you round up all the gold from your people.
Speaker 1:Or you enter the fiat system and, very quickly, when you try and take the gold from your people, you will see how long you stay in power and how quickly you either get your head chopped off or dethroned from your position of power. But that's all changed because we can just print money and we can have these trillion dollar budgets for relentless wars across the globe to spread our mandate. But that's changing because there's this hard pivot away from the petrodollar, there's the hard pivot away from the USD, there's the introduction of Bitcoin, which the rabbit is out the hat. So you know, I think, that I don't mean to be pessimistic. I just want to be a realist as to where are we going in this new financial world that we live in okay, let me.
Speaker 2:let me address what you've said with agreement, that we are indeed entering a multipolar world. This is something that I brought up in my book as well, as my other friend, pietro, would say. We are going through several Ds D-Dollarization, d-carbonization and D-Globalization. The Chinese ECNY project is very significant. This is the Chinese CBDC right. So there is a project called Enbridge, and Enbridge is a wholesale CBDC system that connects the central banks of the UAE, hong Kong, thailand and China together in what is an alternative to SWIFT.
Speaker 1:So CBDC stands for Central Bank Digital.
Speaker 2:Currency and part of the solution also uses Ethereum, which is an interesting point and bear in mind. So, basically, what this allows is China to trade with the Gulf countries in oil and gas in their native currencies, in Chinese Yuan. That bypasses the US dollar. This is very significant, even though China probably will not be a reserve currency for the time being, it certainly can trade with belt and road countries on their own networks, right? So if you combine this with what China is implementing on the domestic level with their retail CBDC again the ECNY, which is in my book I mentioned as probably the most significant CBDC project that we'll see, because the Chinese government basically has the tremendous will and the means to implement such a system. Right.
Speaker 2:And bear in mind, if you remember, the QR payment revolution of the last decade was basically because the Chinese government allowed that to happen with WeChat Pay and Alipay, right. So all of that great leap in fintech will again happen, in my estimation of the ecny, right? So what exactly are we talking about here? We're talking about uh an app. We're talking about integration with their banking apps. We're talking about, uh, offline payments. We're talking about sort of an integration of the chinese yuan with a digitally native kind of cash system that they're implementing.
Speaker 2:So, to address what you were saying earlier, you know there are there definitely are geopolitical implications with this distributed ledger thing, which is not just about Bitcoin, but of course Bitcoin has started the whole chain of events that led to CBDCs, which is why I also point out my book Jonas mentioned that with you in the last podcast around Libra and Facebook and stablecoins, and all of that, of course, was because they observed what stablecoins were doing.
Speaker 2:Facebook was observing what stablecoins were doing in the first place. So all of this is kind of like an evolutionary thread, which is what I try to articulate as a crypto fiat innovation dialectic. They're interplaced between the crypto ecosystem, which is like this massive boiling pot of innovation in fintech that may or may not reach the direct consumer, but it's innovation that's monetized with tokens, that is now being ported over across the regulatory wall in banks, in central banks and commercial banks right so this is a very significant threat of innovation that I think people should be aware of yeah, agreed, I couldn't agree more, and I think it's amazing that you you kudos to you for kind of champion, being a champion in the space and putting a book out on it.
Speaker 1:Let's, let's rope it back in. So, and thank you for entertaining my little tangent there, but I think it's important to to voice these things out loud and to to look at it through a realistic lens. So, what a cb? A central bank? Why is a central bank, digital currency needed?
Speaker 2:Good question, okay? So let's take a concrete example of the ECNY. The PBC, the People's Bank of China, has publicly stated that it wants a backup system to WeChat, pay and Alipay. So obviously, tencent and Alipay are private companies. These systems have become so big that essentially, they are sort of what should be a public infrastructure system. It's a bit like a pipes, it's like an electrical grid. Now, if we talk about innovation dynamics, you're an innovation. If we talk about innovation dynamics, you're in innovation. If you have Alipay owning the network, you will not have third-party people, startups being able to freely innovate on that system.
Speaker 2:This is where the government, the central bank, is trying to step in and say, okay, look, instead of competing with all these fintechs because by now the fintechs are the ones that intermediate the relationship between the consumer and the banks right? So this is a bit of the central banks coming forward to say, okay, maybe we should be the one that's providing this digital infrastructure service, this public payments infrastructure, so that it remains a public good and we defend our monetary sovereignty. Right, because if other central banks start allowing for you and me to own, to store CBDCs in their country I mean their CBDCs on our phones we might well do so. So to counter that the local central bank wants to offer the same thing, you see, and the threat of stable coins as well, right, why do we need central banks?
Speaker 1:Do we need them in today, is the point? Is there not a? Have they done us justice? Have they provided value? Have they obeyed the rules or have they created the rules as they go along? Why do we need a central bank? Why can't we be completely sovereign with our own currencies?
Speaker 2:This question around monetary policy, right? This gets back to the management of the economy, right? If you have a system where it's in the EU and there are many countries of disparate economic levels, the question is, how do you harmonize all of that where you're conducting one central monetary policy? Is monetary policy even needed in the first place, right? Should we just go back to trading grams of gold? I'm not an economist, I won't dare wade into these kind of very tricky issues, but I mean, this is the ballpark of what we're getting into, right. But you know, bear in mind what I said earlier is we have a system that for the most part works. I mean, well, I'll stand by that. I live in Singapore. I mean, we have a system of laws, we have a system of rules. We are not all out violence. You know kind of killing each other of rules. We are not all out violence. You know kind of killing each other.
Speaker 1:the world, the state of the world, is much better than a hundred years ago and it goes to. It goes to a comment you made when we were grabbing coffee. Right, it comes down to your leadership. It comes down to who is is governing your, your, your monetary policy, your banks? Yeah, um, it's. It comes down to the political decisions that are made to ensure the safety and security of your country, both financially yeah and physically right.
Speaker 1:Yeah, um, singapore does a phenomenal job in that hands down. Uh, from everything that I've read and seen, if you look at the sovereign wealth fund, I think Singapore's sovereign wealth fund is bigger than all the other ones combined. I think that they also stack gold like crazy.
Speaker 2:And.
Speaker 1:I'm very proud to say that South Africa played a pivotal role in that back in the day. You know there's a great story around that but I don't want to, I don't want to kind of try and repeat it because I'll mess it up. But you know, again, I think that there was a world before central banks.
Speaker 2:Yes, yes, it wasn't quite a globalized world, of course, but, yes, of course, in the medieval era, I mean. Okay, so let's kind of talk a bit more about CBDC. What you said about my kind of thinking around this, because this is a very important issue, possibly more important than Bitcoin in my estimation I agree, because that's for me it's where the rubber's hitting the road for the mainstream, correct. So, look, I think people have a right to be informed. Okay, I mean, you have to understand that CBDCs are a very fundamental shift in the way your money works, right? So let's take a simple illustration here the dollars in your pocket, that cash, is a direct liability of the central bank. If you open up your Grab app or your DBS app, that's not a liability of the central bank, it's an indirect liability, but it's a liability of Grab and DBS. If any of those institutions of course they will never happen go down, then you lose your money, but your cash, it's safe. The central bank can always print right. So counterparty risk of a central bank is always lower. So there are many possible benefits.
Speaker 2:And again, it depends on which country is implementing these CBDC systems. For instance, in the Bahamas, right, they want to essentially connect their islands with the CBDC project right In a system. Well, in the United States, for example, the CBDC project is not likely to happen right Because it already is the reserve currency. It is not going to kind of derail that by introducing all these possible surveillance fears of the population. So it depends. But in the EU the digital euro project is going strong, which will go into consultation and so forth. So obviously the EU sees there's a benefit for digital euro right. So it's a very general tool. The issue around privacy is very important.
Speaker 1:CBDCs are linked to a blockchain. It just depends on the country and which blockchain.
Speaker 2:Good question. So CBDCs can be implemented without blockchains. Many CBDCs use blockchains. Blockchains form part of the complex system that are CBDCs, but many of the cross-border systems of WCBDC trials do use blockchains. What is WBDC? Wholesale CBDCs Okay, got it so wholesale. There are two main types of CBDC systems Wholesale CBDC systems that basically connect central banks and commercial banks, and retail CBDCs, which basically connect all the levels of central bank, commercial banks and households. So in terms of Wcbdc's, they are incremental upgrades, you can say, to systems that we already have, such as rtgs, real time growth settlement systems. These are networks that connect uh commercial central banks and commercial banks, but the real game changer of what uh cbdc's, retail CBDCs. So you know to sort of also bring home this. So it's around the implementation of these RCBDCs in the general population, people. It's around of how do you preserve, say, the privacy of these RCBDCs?
Speaker 2:In the Chinese example, they have what is called controlled anonymity. So basically, for the very low amounts of cash, you don't actually need an identity card to utilize the ECNY. It's a bit like a cash card, right, but it's limited to certain amounts of money. If you want to transact more amounts of money, then there's a tiered system, you need to do your KYC. Did you have that with cash? You certainly have when you want to cash in $100,000 in a bank, you know I mean.
Speaker 1:This is where the AML and CFT rules kick in theoretically make cash and handle cash outside of a rule, rules-based system, without having tiered restrictions. I mean, that's prevalent throughout the world, right, especially with illegal activity. Uh, you know, cash is king, yeah, so so what I think I'm trying to say is the first red flag for me with CBDCs is that within a certain limit, you don't need to abide by the rules. But as you get to higher requests for higher amounts of CBDCs, you have to start complying, and you have to start complying with whatever rules that government makes Correct. Yeah, okay, red flag for me.
Speaker 2:I can see how it will be a red flag. I mean, again, I would like to steal man this, please do you know? It's around the threats which the normal, normal person doesn't see. Yeah, so this is, this is. We're talking about terrorist groups, right, that do very, very bad things for society. Now, this is a, this is the, this is the, I would say, the tragic point of it. It depends on how deep your distrust of government goes. But essentially, the government needs a kind of a TSA key into these transactions, right? Whether or not you believe the government is using the TSA key to unlock and see what the transaction is. This is all based on trust, but what? And also bear in mind, what does TSA stand for? So, you remember your suitcase. Yes, in the US there's a kind of a lock where only the transport security.
Speaker 2:TSA guys can unlock your suitcase.
Speaker 1:Excuse me, you got to unlock it.
Speaker 2:You know what do they do. Of course there's a lot of trust, but only the TSA has this key right. So this happens with financial transactions also right. But what I was saying is basically look, if you got a global kind of terrorist guy who's crossing borders and so forth, you need now a global supervisory body, which is what the FATF is, to trace all of these guys down. So you need the TSA keys for basically the whole financial system.
Speaker 2:That's a big problem, of course, but what is the alternative? You see, there's this very hard problem to solve. How do you stop these bad guys? You see, these guys are and who is the bad guys.
Speaker 1:Like you know who's. The definition of a terrorist is also what makes a terrorist organization Well look.
Speaker 2:I mean, I cite you a real example. Okay, so the UN and it depends on. These are reports. Okay, I quote the reports. So one of the most active hacker groups in crypto is an entity called the Lazarus Group. The Lazarus Group is linked, basically, with the cyber military wing of the North Korean government, and the UN report has cited that the Lazarus Group is using crypto to fund their WMD program, ie nukes. So I would label that as a major threat to the global order. So my point being is that there are these very hard problems right that we are all looking to solve as a society. I would like to believe that the government is doing their best you see, and in so doing it would be a nice change from history.
Speaker 2:Yeah, in so doing, in so implementing these vast systems of control, that it leads to so many inefficiencies. I look, I'm also. I'm so a regular Joe like you. You know I don't have high office, you know I can't get these irritating things all the time, but but that's the system that we have sure, sure, sure.
Speaker 1:I think it's the faith in the government part which, sure, I think it's the faith in the government part which, again, I must say, I'm Singaporean. Yeah, yeah, yeah, sure, sure sure.
Speaker 1:And I'm South African, which is maybe why I'm a bit more pessimistic at the moment, but it's a general view. I think with governments, if you've studied history, you know it changes over time. If you're lucky as a civilization, you have a good government that creates a good country with good safety, security, financial freedom. But that can change very quickly. And I think what freaks me out with CBDCs is with cash, there was still a level of freedom. Yes, if you want to deposit cash or withdraw cash, it's become more difficult over time. You know, I see in Australia there's a lot of complaints coming out of people that want to withdraw cash and they're getting a Q&A. I've seen videos of them saying why are you withdrawing this money? Where do you want to use it? And it's like it's my money, like why do I have to?
Speaker 1:answer these questions to these questions. Yeah, and I agree with that. Yeah, um, I've also seen, you know, when people are trying to put money into bitcoin, for example, that they get questioned or the black bank freezes their accounts. So there's this type of behavior and this government control over its people, where we create these altruistic mechanisms for enabling things. But the script can easily be flipped to using it as a control mechanism for compliance.
Speaker 1:And what freaks me out with CBDCs is that you lose a level of autonomy and freedom. Cbdcs can be programmed to control how much, when, where, what you can spend it on, how's your social credit score? Have you been a good citizen? And lock you down and control your ability to live. So that, for me, is a very real concern.
Speaker 1:Just a blanket, you know, hope that the government will use it correctly doesn't inspire confidence, because governments come and go, they change. They change dramatically in democracies every four years. Weirdly enough, the governments that seem to be leapfrogging in today's society have longer term stability and leadership in place. So you know, it's such an interesting time to be alive because, on the one hand, you have the old world and the fiat currency world that had been decoupled from hard money, and with that came, in my opinion, a long list of issues in the form of perpetual war, inflation and abuse of monetary policy, which keeps resulting in these cyclical events and that, like the 2008 financial crisis or stock market crash, started way before 2008. But anyway, fast forward.
Speaker 1:We're now entering into the digital age and Bitcoin. I think it pulled together different technologies to create a new mechanism to exchange value. That catalyzed a sequence of events which has resulted in various types of token projects, projects, coins, blockchains, uh, layer two blockchains, cbdcs. That is emerging. Where it all lands, I think, is very interesting and, um, you know, I think the work that you do is trying to demystify that and and introduce, uh, some, some logic to it yeah, no, uh, that indeed is why I wrote the book.
Speaker 2:You know, again, I try not to be too opinionated because there are very strong views on both sides. Um and I, I try to lay it out as as um, as an engineer would like. This is how it works. Yeah, you know, I, I don't get into the ideology, of course, in the conclusion I get into my own opinions, but I tried to chart the course for where the future of money is going. Now to your earlier point around uh, privacy surveillance, big brother, these are absolutely 100% uh valid concerns that need to be addressed very seriously by central banks, and I don't think that this has been done adequately right At the last why by central banks?
Speaker 1:Why by central banks? Aren't they the crux of the issue in most countries at the moment?
Speaker 2:Oh, because they are the ones implementing. Hold on, let me. They are the ones implementing these things, so they have to convince the general population that they indeed do preserve privacy. It's not good enough to say that these things are happening and the right way to do it is how the EU is doing it. It has to get past their legislative bodies, there has to be a big debate, and so forth. That is the democratic, cbdc side of it. That is, to my mind, the right way to do it.
Speaker 2:Right, so, but of course, this is where there's some difference sometimes with the Asian governments. Right, where Asian, there's a kind of this whole society above self and, you know, we go forging forward. It's less of a decentralization, separation of power sometimes, which also is an advantage because we get to move more quickly, right, sometimes there's more risk of things going wrong, as you rightly point out, you know, but for some of these Asian countries, including Singapore, we've never seen some of these big, gross abuses of power, fortunately or unfortunately. So it is also a shape of history, the shape of history that has resulted in the state of affairs that we have now. I'm just being quite pragmatic about this.
Speaker 2:I'm trying to be as less ideologically centered, because it is a fact that the ECMY project is going to move forward. So the best we can do is to analyze what are the consequences of this happening. Yeah, so that's on the CBDC side. You know. What I say is-.
Speaker 1:So what can we expect in the next two to three years around CBDCs, in your humble opinion.
Speaker 2:Yeah, so I don't see it being implemented wholesale in the West. You know, because of all this pushback, I do think that we will definitely see more trade networks between the emerging countries and the BRICS countries.
Speaker 1:the moment is really lots of activity, lots of countries joining BRICS, lots of trade between the BRICS countries. So that's on the back of CBDCs can solve very well.
Speaker 2:Actually, it's this system. So think about it as blockchain enabling peer-to-peer financial transactions. In a sense, cbdcs could also enable the same things right? Suddenly, you don't have all these fintech layers and banks clogging up the in-betweens. You have the government enabling for these G2G kind of partnerships to work, which is already happening quite quickly. You see this MOU with the PBC and MAS where Chinese tourists can essentially spend ECNY in Singapore. I don't know it's been implemented yet, but they did sign the MOU already. So, in short, I think we can see a greater deal of interoperability that looks like a fintech app that ultimately will help the consumer on a day-to-day basis. I do believe in that operability that looks like a FinTech app that ultimately will help the consumer on a day-to-day basis. I do believe in that. More options.
Speaker 1:I mean, in our lifetime, we can see it right. One of the things I've noticed, even in South Africa, before I came here I already noticed it but less and less I carry cash. I actually don't carry any cash. Cash is the exception. Now, right, it's so.
Speaker 1:Yeah, it's dirty, it's clunky, it won't take coins anymore, I mean, and I don't mind not carrying cash, but it's just interesting to see how our world has changed because everything's QR code based. Payla, you know, the retail system caters for many different types of payment options, whether it's card, qr code, whatever it may be. So CBDCs are just going to make that world more real Seamless, seamless.
Speaker 2:Yeah.
Speaker 1:Got it, got it.
Speaker 2:And also, hopefully, more startups that build on the CBDC systems right, given that it's a more open playing field for fintech startups. So I'm a big believer in fintech. I'm a big believer in fintech.
Speaker 1:I'm a big believer that fintech can indeed move the needle for the masses right, which maybe takes me on to the next point, which is DeFi Sure, and maybe you can help us understand. What does DeFi stand for and where's the opportunity for innovation there?
Speaker 2:Yeah, so DeFi is basically finance on a blockchain right, and what I mean by that is that this finance can happen in the crypto native world, which is kind of a bit of a wild west, and it also happens on the institutional side of things, where it's regulated by the central bank and regulators and happens in commercial banks the central bank and regulators and happens in commercial banks. But DeFi has many aspects of it that are quite unique, which is around that it's a modular system. So let me give you a concrete example. Let's say you want to buy Ether. You have an option of going to Binance or Uniswap or 1inch. Now 1inch is an aggregator right. 1inch connects to all these different decentralized exchanges and gets you the best price right. So this is where 1inch, as an aggregator, is building on top of the layers of all these elements in the DeFi ecosystem to give you, the consumer, the best price. So there are many other integrations that happen in DeFi that are like this, and the closest that the traditional banking system has come to with this kind of model is open banking, where they're trying to open up sort of banking layers with APIs. So that's the modularity. It's a peer-to-peer permissionless system where people can open up wallets and basically transact on their own.
Speaker 2:There are very novel mechanisms such as automated market makers, again like Uniswap, where people stake their assets on the exchanges and basically remember the market maker. Back to what I was saying. Goldman Sachs is an ETF trader. We are the ones offering on both sides, on the bid and offer. So what an automated market maker allows is for the masses to earn that spread right.
Speaker 2:So this is a bit more complicated, but basically I take my Ether, I stake it on Uniswap, I get a receipt, the people trading on Uniswap. Now Uniswap will charge a fee and I earn those fees. So there's a way of democratizing the market making with trading. So this is quite a complex system but only happens in DeFi. But some this automated market making system has been. So a lot of these DeFi innovations are being trialed in even the central banking world with the Bank of International Settlements, with the Euro, and there's a project called Project Mariana that basically utilizes these innovations in the DeFi world in the regulated environment. So, in short, it's this hotbed of innovation right that has all these new financial constructs that bears little friction of the regulatory environment, so that they can innovate so freely and quickly. But whether or not these actually get used by the mainstream consumer is a different question. Sure, sure.
Speaker 1:It is a very exciting space and I've seen some really interesting innovation in this space to a USDC, to a Cardano, and then swap it out for Ethereum and do that all within a few minutes at max. It's just mind-blowing right. Yeah, and I think that's the world that's changing. Is these on-ramps and these off-ramps to be able to move value around so seamlessly? I'm seeing the ability for one of my startups which has created the ability to buy, for example, a Rolex, and let's say, you purchase the Rolex in Hong Kong. You then can have that Rolex validated, authenticated, then put into a digital fidgetal experience. Okay, so you keep the assets at source, you own it, because Rolexes, for some people, are also store of value and increase in value over time. I can take that Rolex into the digital realm Okay, post it as an NFT and sell it and then have that product kind of delivered or continue to keep it at the source. So there's like these really interesting innovations that are emerging on how to create value, stake value, create value, stake value.
Speaker 1:I personally learned a very hard lesson with celsius, which was a defi early kind of player, and for those that don't know, maybe you know better than me on how to describe celsius. But I remember it was just after I discovered bitcoin that I was buying and staking well, not staking aaking, stacking my sats and just building up as much Bitcoin as possible. Joined some forums, heard about Celsius and I was like, let me do some research. And it seemed too good to be true and normally if it is too good to be true, there's some kind of red flag there. But at the time couldn't believe what I was reading, which was underlying principle I could take my Bitcoin from my current exchange, send it across to I think they were based in California, in the US.
Speaker 1:Celsius would receive, I would open an account, I would receive my Bitcoin in my account in Celsius. I would then be able to stake that Bitcoin as an asset, as a store of value, take a loan against it. So if I had $1,000 of Bitcoin, I could up to 50% remove $500 back, which I would receive in USDC. I would take that money, send it back to South Africa. Guess what I did? You restaked it. No, I bought more Bitcoin. Okay, and do you know what I did with that next Bitcoin? You restaked it. I sent it back and restaked it. I thought I had discovered the Holy Grail because Bitcoin was only going to go in one direction, so I got greedy right.
Speaker 1:Yeah, you leveled up and I basically, over leveraged, state my, my, my asset right. Long story short, many people cottoned onto this. With celsius, bitcoin had quite a dramatic pullback that resulted in the entire system crumbling, coming down, and I think they're still busy trying to come out of that, with many people waiting for their Bitcoin to be given back to them. So that was my DeFi experience, and it was amazing. Let me just I want to state amazing, because what I was able to do is I could wash that $1,000 of Bitcoin three or four times in the matter of 30 minutes. Okay, if I try to do the same thing through a conventional banking mechanism, it would have taken me months to go back and forth that much.
Speaker 1:Maybe not months, a month maybe, but that opened my eyes to the power of DeFi. What it also opened my eyes to is that there's inherent risk with DeFi. There's layers on layers, and if you don't have visibility into the back end, if you don't know whether or not they're actually staking it, if they're actually holding a one-to-one store of value, if they actually have insurance, your coins, whatever they may be, are potentially at risk.
Speaker 2:Okay, so let's start from the end. Potentially at risk, okay, so. So, uh, let's start from the end. I agree with you that, uh, knowing what's in the kitchen and how they cook it is very important and, for the most part, is the regulators that have that mission to make sure that their kitchen functions as advertised and they're not. There are no cockroaches in the kitchen. Okay, that's a very important part of it, and I would also say that this is also my point is that when many people in DeFi, summer, celsius or Luna Terra sorry, you know, earning 20% on their yield, you know many of these apps look exactly like fintech apps. Now, what happens when a normal consumer opens up a fintech app is that they basically just go to town. The thing right, they don't need to do D-Y-O-R. You know there's no research to be done because someone else the do D-Y-O-R. You know there's no research to be done because someone else the government has done that research for them. So the problem is the disconnect, I mean the assumption the government has, but they hadn't.
Speaker 2:Most fintech apps that come on the market through Apple's place I mean iOS and so forth have been vetted by the regulatory bodies.
Speaker 1:That wasn't the case with Celsius Exactly, and it wasn't the case with a lot of the other ones that you mentioned Exactly Because they were not regulated. I mean, the regulation was still trying to catch up. They didn't know what they were dealing with.
Speaker 2:Yeah, we got to get into the final. But my broader point here is that the regulation of it is important, right, that the labeling is important. So I'm absolutely with you on that important. So so I'm absolutely with you on that. At the same time, I also agree with you that that those experiences were quite, were quite, are still quite, magical, you know, because basically you get to experience and what an open ecosystem of money looks like, where you can send your money everywhere you can, you know, hunt for the best yield.
Speaker 2:You know you can hunt for the best uh, exchange. You know that all these interesting things that are happening A lot of them are, of course, speculative in nature and derivatives on derivatives that are, you know, can only you know which account for these double digit yields. But it also gives you a. That's why I say it gives you a glimpse of this open financial ecosystem, the potential Agreed, the potential of that where everything is all done properly. You know people are accountable, they're not anonymous, you know. But this is the power of the blockchain that it is open, it allows for open innovation on these open networks.
Speaker 1:Yeah, agreed, agreed. How do they give a yield of 20%? You know, do you want to get into that? And maybe what I want to get to is I like to provide functional content and I've shared a lot of strong views from my side and I've raised a few red flags. But what? What would you give as advice to anyone that is playing in the space, because I know lots of people that are entering and it's weird because, like you and I, sit here and we've both come to the same conclusion, which I'm quite cognizant of, which is we both have just put our stuff into bitcoin and we're sitting.
Speaker 1:All the newbies that are coming in uh, that haven't been part of the previous cycles yeah, all playing the same same playbook. I'm putting a thousand dollars spread into these 10 shit coins. Okay, I'm gonna leverage, I'm gonna stake, I'm gonna do all of this stuff, and I just feel like they're gonna go through the same lessons yeah now, good questions, lb.
Speaker 2:So, uh, I want to rewind and kind of address, because they're the same lessons as what we discuss in trading. Okay, so, actually sizing your bets and managing your risk is number one. Like, if you're a trader you don't know how to manage your risk, I can tell you, in the long run you're gonna survive, right, you gotta, you gotta not have too many concentrated bets. If you want to be a pig, as sorrows would say, shove it all in. Okay, good luck. You know, make sure you know what you're doing, but, generally speaking, conservatively, you want to diversify and you don't want to put too many chips in one place, right, if you're investing? And, okay, this is a percentage of your net worth, I won't mention that, but you know it should not be a double-digit percent. Okay, that's one. Number two is around sort of education. You know you can read my book. You know it offers some history lessons.
Speaker 2:I don't shy away from anything because the market has a very short-term memory. Right, I absolutely agree with you that newcomers come in and no one likes to talk about the bad stuff. You know like what a downer you know, but there are some really bad things that happened in in the crypto market, but very few people, don't they? No one likes to talk about their losses, right? So so, yeah, you, you gotta be a little bit, uh, sort of cynical around what people are saying. Uh, you know x on twitter and x. There is this very strong momentum with the new trendiest thing, everyone posting memes and being funny. It's not a very good source of information, you know. You got to dig deeper into more of the literature and I think finally is sort of.
Speaker 2:I mean, this is where I also keep it simple. You know, you certainly can spend your time looking into the newest, hottest thing and sort of placing some bets in that. I don't think there's anything wrong with that. But I mean, where I am sort of concerned, this is my own personal journey. Now, right, with the book, it's kind of like I'm trying to swim over to see what can be done on the regulated side of things, right? Well, I still believe in this stuff. So, for me, the simplest position I don't want to think so much about it is actually just to hold Bitcoin in my exchange, or even buying the ETF, which is a possible option for people, right? In fact, that's what I would recommend to my own parents. If they want to buy Bitcoin, buy the ETF.
Speaker 2:Why would you recommend an ETF? Because it goes through their normal stockbrokers. They don't have to figure out the custody, they don't have to figure out whether or not this exchange is going to go bust. Someone's going to hack my Trezor or Ledger, or I have to figure out my seed phrase on the MetaMask. There's a lot of hoops that you have to go through and you have to make sure that you safe, keep your private information very carefully. And then there's the third party risk of the exchange involved in the first place, right. So, on a net basis, actually holding the ETF is a good solution for a lot of mainstream users, but I think with that.
Speaker 1:So there's a trade-off right, and I agree with everything that you said, because it even freaks me out having my bitcoin on an exchange or, even worse, having to have my seed phrase and have my bitcoin in a cold wallet. I think that that that is a lot of responsibility, especially if that's where you have your life savings, so that's fine, but at least if it's in a cold wallet, that's first prize, then you own that Bitcoin that.
Speaker 1:Bitcoin is true digital sovereignty. Okay, if it's on an exchange, then you're at risk of the exchange, and we've seen many exchanges. I think the biggest is FTX. Yes, did we have any Bitcoin?
Speaker 1:But, it was really kind of manipulating the market in so many ways. So that's the risk. So get your coin off exchanges, and there's never been a higher volume of coins leaving exchanges because of this world we live in a higher volume of coins leaving exchanges because of this world we live in. Then I think there's ETFs, where the trade-off is that you can go via a BlackRock or one of the companies that have been approved to provide ETFs to the market. We've seen an enormous inflow of it's dwarfing the gold ETF play when it comes to the kind of money that's flowing in for Bitcoin via ETFs, but you never own the Bitcoin. That's the important thing. You don't own that.
Speaker 2:Bitcoin. Yeah, I mean, you own the ETF, which is, if you trust what they're doing in the kitchen, which is a one-to-one, then you indirectly own the Bitcoin. Make sure that the exchange you're using is regulated. That is also an additional piece of it, you know? Look. So again I'm back to more options, more better right. These are I absolutely, absolutely. If you're young and you know what you're doing, of course the rate you could be getting through buying through Binance is probably better actually than paying all the expense fees. But you know this is a complex. I could write a whole blog post about it around. Okay, let's say you hold it on a ledger. Yeah, I don't know about you, but my ledger has malfunctioned on me before, that's my biggest fear.
Speaker 1:Did you fix it?
Speaker 2:yeah, but you know, it's basically where the numbers don't look right and it basically goes wonky and then it's like, oh, suddenly you're back to the seed phrase and you have to buy a new one, you have to restore it. Sometimes you have to update it sometimes you update it the the doting wipes. There's a lot of things that you know computers are. We all struggle with computers. Right, update this. They're all like little beasts that need constant feeding right, so it's never they're not like.
Speaker 1:It's not an Apple experience how did you feel going through that, when you had to buy a new one and use the seed phrase? Was that just explain that feeling to me?
Speaker 2:no, look, I mean. Yes, it's like there's no one to call you're on your. This is why it's really the wild west you know, like you, you could have lost hundreds of thousands of dollars. So that's where, despite it all being about decentralization, sometimes intermediaries help.
Speaker 2:Definitely, you know you need someone to call, you need someone to be on the hook, you need someone to sue you know, I say it, you know and that's why they they charge those fees for those things, but they are, they are coming, you know. Like, I mean, I would say Coinbase is a good experience. You know, you can pay and buy your assets on that and it's sort of regulated, so it offers a very good experience.
Speaker 1:I would recommend for Singaporeans independent reserve.
Speaker 2:Uh huh. I really think that I haven't tried that.
Speaker 1:Yeah, that's seamless, it's easy to use, can store your Bitcoin. They immediately remove it if you need to, so I'm quite impressed with them. Yeah, shout out to independent reserve. Okay, so the world is changing. Uh, for any entrepreneurs, innovators that are listening to this, what advice or where should they look as potential places to build and create new things? What should they be looking at? Is it in the DeFi space? Is it a CBDC? Is it an innovation on a blockchain? I mean, I work quite closely with Hela. I don't know if you've come across Hela in Singapore, singapore's first layer one blockchain. They've got quite a strong program to invite entrepreneurs to build out on their blockchain. So what advice would you give to the market?
Speaker 2:Good, questions, good questions. Look, I think the future of digital assets is still bright. It's still bright. I do think that you do have to choose a path right. If you want to go crypto native and go full-fledged in the crypto world, there's lots of opportunity ZK with identity, with NFTs, with games, with all sorts of you can think about it. You can innovate, you can use your token to bootstrap your startup. Do it, because that's all open territory for you.
Speaker 2:You could be the next YoliSwap, you could be the next 1inch, so you have to buy into that system. Open territory for you, right. You could be the next YoliSwap, you could be the next 1inch, right? But so you have to buy into that system. You then have to get with the dynamics of issuing a token, marketing and all that right, which is you know, it's all game in itself and also playing the crypto crowd. As long as you come up with a good product, right. As long as the product is good and it really advances the field, go. If you want to play in the regulated environment that's a different ballgame, right Then you've got to understand the rules of regulation. Is it asset tokens you're doing? What exactly is it like? I'm quite bullish on asset tokens right, so fractionalized secondary shares, fractionalized real estate and so forth. It hasn't quite taken off.
Speaker 2:I've seen a startup come out of Vietnam that's doing that Huge market right, it solves access to these illiquid assets, even the likes of I've seen it for art as well, you name it. Anything can be fractionalized, right? So there's a big transformation also happening on the banking side, where the asset tokens are happening. So there's innovation and asset tokens that are happening across the different spheres of the Wild West, the startups that are regulated, like the RMO players, and then the deep securities industry transformation, right? So general advice is you know, you got to pick one of these sections or one of these themes. I mean, generally speaking, you can look at the chapters of my book. I mean they're separated on all these different themes.
Speaker 2:In which world? Right, in the regulated world, there's cbdc's, there's tokenized deposits and there's tokenized assets. Right, any of these three are big enough for a startup to play in, right, if you're. But let's say you're a startup building some kind of a point of sale system on a CBDC ecosystem. Which CBDC ecosystem? Who do you know? You see, how do you get the inroads to that? Who's the vendor? What's the process? You know, these are all the things about it. But you've got to pick a niche and specialize and know yourself, know what's required of the inside out and also dealing with the regulatory environment in there. Yeah, so that's very broad, but you know it's a but bear in mind. What I'm saying here is two paths, right as a sort of differentiated by two big sections in my book, from chapters one to five and then six to nine, the two worlds. So they have different rules. One involves a token, the other one doesn't involve a token. One involves regulation, the other one doesn't really involve regulation. So you do have to pick a niche and play with that.
Speaker 1:I think that's great advice, thank you. Has industry adopted blockchain? You know I'm thinking about like smart contracts or leveraging blockchain use cases in industry. Are you seeing a mainstream adoption yet? Is it still very um, niche or nuanced? Because I think what's interesting for me when I look at the space is the convergence of technology. So you know we have blockchain that emerged. Then you look at IoT plus blockchain, which allows kind of end-to-end value chain interlocks and validation to drive a smart contract. But I don't I haven't seen mass adoption of that yet. I think it's quite complicated, but it's't. I haven't seen mass adoption of that yet. I think it's quite complicated, but it's doable. I've seen specific use cases, especially from farm to fork kind of use cases for manuka, honey or stuff like that in selected use cases to prevent counterfeits and fraud. But then you've also got like now, um, the health tech, you've got uh ar, you've got web3. Are you seeing the adoption happening from your experience?
Speaker 2:yeah, this is also a very good question, which is basically in my framing, is are enterprises using blockchain, right what they're using it for? Now, I'll give you some examples of uh, of uh. I'll give you one good example, which, which is reinsurance, right? So a while back, some of the largest, the largest reinsurers of the world Swiss Re and that group of a lot of them, german, you know came together and said let's use blockchain to simplify the processes of reinsurance, and it didn't work out, right, reinsurance for what? Sorry, reinsurance for reinsurance contracts, like claims, and to set up a general platform so that blockchain can verify all these claims and handle all this paperwork that handles in the backend. It didn't work out, you know, and we also see the kind of the failure of, say, supply chain use cases in blockchain, which is, uh, I think it's called uh, yeah, as a trade network. Right now, my.
Speaker 2:My point being here is it's around the business dynamics, right? So a blockchain enables consensus amongst parties that may not agree with one another. It forces consensus, but that requires people to share information. Businesses are not. It's a moat, you know. I'm not going to give away my moat so easily. Just join your blockchain network. By the way, who owns the blockchain network? Is it, you know? Is it a JV? You know who owns it? You know who owns the standards? These are very tricky questions which have not been answered very addressed very easily in forming, uh, industry-wide blockchain networks, right, so I, I think the the.
Speaker 2:The finding for me, this is observation over five, six years is that the business dynamics around blockchain in enterprises are not so easy to solve, which is why, again, in the wild west, where it's all decentralized, there is a, there's a much freer innovation curve there, right, so, so that's where. But then, of course, if you talk about, uh, let's say, let's say in the in the banking world, right, so let one of the, I think, projects that definitely has seen traction is JP Morgan's Onyx. So a refresher that JP Morgan is a universe on its own. They are one of the biggest banks in the world. Definitely, they have all these customers that basically come as a huge network on their own.
Speaker 2:So they themselves said if we implement a blockchain, can we see efficiencies within our organization? And the answer is yes, absolutely. You have ability for people to set conditions on their deposits and they can reduce settlement times and so forth. So this is where you need a network that's sort of big enough to unlock these efficiencies with a blockchain. You know, it just requires a sufficient size and it obviously depends on your industry. For finance, it's very clear, but for other kinds of industries, where there's information flowing about all over the place, it's a question of then okay, well, let's say in healthcare, you know, can this information live on the blockchain? Probably shouldn't. You know, it's very private information. So there are all these very tricky questions that need to be answered.
Speaker 1:That's a good example, because there's a startup I'm working with at the moment where we want to help them aggregate all of your health data and leverage AI to consult and guide you on gaining additional life hours. But we want to leverage the blockchain to give you true sovereignty over your health data Because, if you think about it, my blood records are one place, my dental records another place, my fitness information's in another place, my assessments, whether it's mental, physical, whatever it's all kind of all over the place. It's not all aggregated in one area serving me. I would have thought that the blockchain would have been the most secure place to keep it, compared to all of those systems that they're on.
Speaker 2:It can be a pointer. It can be a pointer to that Funny story. I've invested in one like that. It didn't work out. Why not? Good question. I think it's a question of who owns the standards for this, you know, and obviously it will be the health agency and the government. So, again, this is one of those things where, in theory… why do you say they should?
Speaker 1:Shouldn't it be the individual?
Speaker 2:there has to be laws around that. I'm not a healthcare expert. Sure, it depends on the framework of the laws and the standards governing healthcare data. Yeah, this is again not my area of expertise.
Speaker 1:No, no sure. I mean I'm just shooting from the hip here with you.
Speaker 2:Yeah, no, I don't think those. No, I hear you. I mean, that's why I invested in that startup, but this was bear in mind 2018. Some things are too early.
Speaker 1:I was just going to say quite far ahead of the curve, yeah.
Speaker 2:Right idea too early.
Speaker 1:What was the idea? Was that to aggregate all the data?
Speaker 2:Quite similar, quite similar Canonical. Yeah, you're able to port your healthcare data and move it from, say, even from private to public healthcare providers. You can use that data to train AI models and monetize your data. Obviously, they preserve your privacy. But yeah, I mean, as I get a bit older, I always want to see someone in your industry having made money and doing what you're doing. I'm just a bit jaded with everyone coming out saying they're going to solve cancer and they don't solve cancer, surprisingly. Um, it's the. It's the. It's the. Try to test it. You know crypto exchanges or you know otc desks that regularly make money right.
Speaker 1:Well, I suppose even in that space we've been cutting our teeth. Last year was an absolute nightmare of horror stories with, you know, the crypto, 3acs, ftx, all of that. So I think there's always a baptism of fire with any emerging technology. But I want to come back to the blockchain of fire with any emerging technology. But I want to come back to the blockchain. Why is it not? Is it dependent on which blockchain you store the data on? That worries you about the sensitivity of the data. I would have thought that's the most secure way to store sensitive data.
Speaker 2:So this gets into data, right, this gets into data, whether or not. So remember your GDP. What are the best principles, according to GDPR and PDPA, is that data has a right to be forgotten. Data has a right to be amended.
Speaker 2:You know there are many ways to link your data with your identity, and these ways also should be modular. I'm sketching it out very broadly If you put something on a blockchain, it's there forever, it's even a pointer to your data, and then some hacker with you know enough smarts can figure it out and the next thing you know, your private health data is on the dark web. That's bad. You never want that to happen, right? So there are all these safeguards that need to be put in place where a blockchain is. These are most that need to be put in place where a blockchain is. This almost like you can think of it as a mass broadcast of this point of data. I'll give you an example Social media platform, a Web3 social media platform that linked your Twitter identity with your cryptocurrency address, right? And this social media platform did not have a good data policy around revoking your linkage of your identity to your cryptocurrency address.
Speaker 2:Now, that's a very serious thing, because you've essentially doxed yourself if you've linked your Twitter identity, which may be your real name, with your crypto address, and then people can go to town with what you have in there and monitoring your address and so forth. This is not in the realm of what normal people would be able to ascertain. This is more sophisticated attackers, but of course they do exist, right. So this is a question of, generally speaking, data on the blockchain lives forever. We've got to be very careful about what we put on the blockchain, even if it is some kind of a pointer and not the data itself, even if it is the encrypted data and not the data itself so interesting learning for me.
Speaker 1:Uh, for some reason, naively, I just thought that that would be the most secure place, but you're making some pertinent points there that are a bit concerning. Just because it's on the blockchain doesn't mean it's visible, though. Right, you would need to.
Speaker 2:Most things are. I mean the way there are various architectures for this right. But if we look at how Ethereum works, it's pseudo-anonymous. There's a, there's your public key, which, if you have not linked to your public identity, but your public key persists. So if people know what your public key is and that's visible, you can go with EtherScan and go into your public address and see your entire holdings and what you're doing. All transactions are visible on Ether, on Ethereum network, but as soon as you link, then that linkage is irrevocable. You cannot we know, we cannot unknow something that we've already known.
Speaker 1:So once that handshake is made the digital handshake then, where you might have had an anonymous account that you could see the value that lay in there, now it's linked to a person. That person can become a target interesting yeah, it's pseudo anonymous.
Speaker 2:It's not completely anonymous. It's a string of numbers, that that uniquely identifies an account, and it stays there. It's always there, it's not completely anonymous.
Speaker 1:How is AR going to impact the space? What is your current take on it? Because the speed at which we're getting to AGR artificial general intelligence I think is much sooner than most anticipated, with the advent of open AR and the amount of data they're processing. You look at the updates on updates, the advancement that's happening. What is AI going to do when it comes to cryptography, when it comes to finance, when it comes to fraud, when it comes to the risk that we face? Are we ready? What's your thoughts?
Speaker 2:Yes, good question, good question. I generally think that ai has most relevance to smart contracts, right, so you could think of it. To put it very simply, ai makes smart contracts smarter, right, so you could definitely link some kind of llm or some kind of a training model to a smart contract programmatically and then it just becomes basically ability a, a human, almost human-like ability to ascertain a certain output based on certain inputs that you put. It doesn't need to be now programmatic. You can basically look at a big data set and come up with certain predictions based on that training model, right? So that's again very that's generally on smart contracts, because that deals with now the programs and how they run. The other part of it is around the integrity of AI data, right, it's basically blockchain.
Speaker 2:I think can be one of the biggest problems with AI now is ascertaining whether or not something's authentic. Is it a real human video or is it a video that is generated by an AI LLM? So the blockchain actually does very well with tracking these little bits of data and making sure that this. It's like an NFT you can think of it, right, because a token basically is you cannot duplicate a token Once this NFT is minted once I know this piece of. Let's say, I've generated a video using OpenAI's model. I now put some kind of identifier on that. I put it on a blockchain. You can't duplicate that anymore. It always travels with the video. So I know that some startups are actually working on something like that to solve this problem with AI.
Speaker 2:But it's a huge. I'm also trying to grapple with how AI is going to integrate with blockchain, but these are some of the two on top of my mind how it's going to integrate.
Speaker 1:So do you think the converse could happen, where you use the blockchain to authenticate a human content versus AI content? Same principle.
Speaker 2:Yes, yes, you could definitely do that. You know like, if you go for some of these Ethereum events, they will issue a proof of attendance, a bit like a concert ticket, or say they issue now certificates. Some of the COVID certificates were issued on blockchains. So this is where the important part around verifiable credentials comes in, where you need some kind of a third party to attest, let's say, you got your degree and you go to your university. University will attest to the fact that you are in fact a degree holder, and then Mint and NFT that's basically a digital version of your degree. Yeah, so you need these kinds of intermediaries to help you to translate into the digital ecosystem. But blockchain is very good at these things. Blockchain, again, is very good at holding the integrity of a database, where the database can be used by many parties, and there are all these third-party developers that already know Ethereum so they can build something for you.
Speaker 1:Yeah, Do you see a? I think that's what's kept Ethereum alive, despite all the hard forks and building the plane while flying it. There's some real kind of brilliant Ethereum believers. Yeah, brilliant computer engineering believers. So do you think that that's going to keep it alive? Is this continuous innovation on top of that blockchain?
Speaker 2:I think. So I'm optimistic on the Web3, you know, obviously, which is kind of the other sphere of DeFi, web3 being much broader and talking about the internet as a whole, you know, talking about ownership of one's digital assets in general. I'm optimistic Because I think what we're discussing with Web3 and sort of the fundamentals of where the internet well, companies, venture capitalists like A16Z are trying to drive the industry towards is a different vision of the internet altogether, where people actually own that data, their sovereign digital sovereignty right. You don't have to kind of enter these walled gardens of Amazon and Google and Apple, even sometimes that play by their rules. You can basically take your data and say I actually am the sovereign individual in this and I can go to another platform, right, and and it's all it's, I don't need to, it's not such a hard process to unplug from some of these big platforms.
Speaker 2:Yeah, so that generally is is where I think there's a lot of opportunity. Uh, for, for the blockchain tokens that I have kind of said is out of scope in my book because I just really wanted to focus on blockchain and finance as a vertical. But, um, yeah, look, I mean again, now we also think in the context of the of the recent run-up in prices, with bitcoin price and ether price. You know now you know doing quite well. There is this whole new resurgence, I would say, of interest in startups trying to build into the next wave of Web3, and I think this is, this is optimistic, this is promising.
Speaker 1:I couldn't agree more. I do appreciate the use cases you've mentioned for NFTs. I think NFTs got bastardized a bit with, you know, the digital art space as a functional capability, non-fungible tokens. You mentioned some good examples of how that could be leveraged and I would encourage people to broaden their thinking on how to innovate with the blockchain. You know, I think there's huge opportunity, especially with the convergence of technologies. You know, the most exciting startups I'm seeing are pulling together AI, IoT, Web3, you know, create a real farm in the middle of Southeast Asia somewhere. Link it to a Web3 farm that you can plug into.
Speaker 1:So there's. There's, I think, significant opportunity to not only innovate but to become financially free and to pull together these different concepts to craft a new world right absolutely.
Speaker 2:You know. Look, the future is bright. I think everyone is for innovation, including central bankers. Um, it comes down to to product. You know, there are a lot of buzzwords that, uh, that everyone is excited by, but as long as you focus on building a product that people want, you'll do fine. You know, a product that people want and people pay for.
Speaker 2:It doesn't matter what the tech stack is actually. Of course, it might be very sexy to your investors, right? But what's the ARR coming from? What's the product that people are actually buying? How is it better than everyone else? Or you're just trying to do. If you're trying to do the same thing in a different market where the previous has worked before, that's absolutely a viable strategy also, but these are all very general things, of course, but I guess what I'm saying is I reflect on my earlier years of investing. Also is that, as an early stage investor, sometimes you go based on the founders and what they're trying to build and there's less emphasis on, okay, what's the product here? Right, which is now. I reflect on this. And now, actually, now, product first, like show me the product. I don't want to see your slide deck, I want to see the product. I want to see how it works, I want to play with it, at least if a sketch of it is better than not having anything at all. But you know, I want to see the product nice agreed.
Speaker 1:What work, what's keeping you busy at the moment and where and how can people engage with you as a subject matter expert in this space?
Speaker 2:Yeah, so I'm still looking for investment opportunities. I'm a kind of an angel investor in DeFi and in fintech startups, so you know I'm also working….
Speaker 1:You're not completely jaded.
Speaker 2:No, no, yeah, I'm still, of course, yeah in certain themes, right Again, I've caveated a lot of things during our conversation, right. So I'm also kind of lending to what I've learned over many years Big on asset tokens, you know, big on sort of enabling for access to new investment opportunities. I'm also working on on an next book, yeah, which is also hopefully around asset tokens, and people can find me on kennethbockcom. That is like the central hub for all my other links. You know I do have a sub stack where I do some writing on on on all these themes, you know cover a lot of things and you know I do go into some of the geopolitics of it also covered Enbridge on one of my newsletters, active on LinkedIn also. You can follow me on LinkedIn and, yeah, I mean, generally speaking, the phase now for me is I'm kind of taking a step back from the trading.
Speaker 2:You know, I'm kind of looking into sort of these industry-wide surveys of where DLT and finance is moving and, yeah, also kind of trying to move over more to the regulated side of things where I think there'll be kind of more. It's more, it's kind of firmer ground to build on. Yeah, having seen six years of crypto, I realized that it can be a very exciting test bit, but the volatility of it and sort of the meme and sort of the culture in it, sometimes it's very tiring. So I'm trying to get to see what can this innovation, vibrant innovation, culture in the wild west, how can it be ported over to the regulated world? That is like the best of both worlds for me.
Speaker 1:Yeah, I think, just from my side. You know, thank you for actually pioneering the space and I appreciate you for the work that you do, especially with the sentiment that you just said. Now we need more people like you that are conscious of the risks, conscious of the benefits and looking to build a bridge between the regulatory side and the innovation side. I think that I've voiced some strong opinions and you very elegantly handled them and shared lots of pills of wisdom. I would encourage anyone that's looking to innovate in the space to reach out. More importantly, get your book Decentralizing Finance. I'll definitely be studying it and will engage with you once I've finished it to see if it's reshaped some of the hard opinions that I have, and I look forward to collaborating with you going forward, and I encourage anyone that wants to innovate in the space to reach out to you. And thank you, I really do appreciate your time and your wisdom.
Speaker 2:Thank you so much. Thank you for having me.
Speaker 1:Awesome. Thanks, Kenneth Bye.