#644 Understanding Bitcoin and Blockchains with Nic Carter

Nic Carter is a Partner at Castle Island Ventures and a Co-Founder of CoinMetrics. In this conversation, we discuss bitcoin, mining, Ethereum, smart contract platforms, Castle Island Ventures, Coinmetrics, geo-political issues, and then we roll the FUD dice. ======================= Gemini is a leading regulated cryptocurrency exchange, wallet, and custodian that makes it simple and secure to buy, sell, store, and earn bitcoin, ether, and over 40 other cryptocurrencies. Offering industry-leading security, insurance and uptime, Gemini is the go-to trusted platform for beginner and sophisticated investors alike. Open a free account in under 3 minutes at gemini.com/pomp and get $20 of bitcoin after you trade $100 or more within 30 days. ======================= With 10M+ users, Crypto.com is the easiest place to buy, and sell 100+ cryptocurrencies. The Crypto.com Visa Card gives you up to 8% back instantly, and 100% back on Spotify and Netflix. Also, Crypto.com lets you earn up to 8.5% p.a. on BTC, and 14% p.a. on stablecoins. Get $25 when you download the Crypto.com App with code "pomp". Download the App now: https://crypto.onelink.me/J9Lg/pomppodcast2021 =======================

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:02Speaker 00

  What's up everyone, this is Anthony Pompliano. Most of you know me as Pomp. You're listening to the Pomp Podcast, simply the best podcast out there. Now let's kick this thing off.

• 0:11Speaker 01

  Nick Carter is a partner at Castle Island Ventures and a co-founder of CoinMetrix. In this conversation, we discuss Bitcoin, mining, Ethereum, smart contract platforms, Castle Island Ventures, CoinMetrix, geopolitical issues, and then we roll the FUD dice. I really enjoyed this conversation with Nick, and I hope you do as well. Before we get into this episode, I want to quickly talk about our sponsors. First up is Gemini. Gemini is a leading regulated cryptocurrency exchange, wallet, and custodian that makes it simple and secure to buy, sell, store, and earn Bitcoin, Ether, and over 40 other cryptocurrencies. They offer industry-leading security, insurance, and uptime. Gemini is the go-to trusted platform for beginner and sophisticated investors alike. You can open a free account in under

• 0:53Speaker 01

  three minutes at Gemini.com/pomp and get $20 of Bitcoin if you trade $100 or more within the first 30 days. Again, open a free account in under three minutes at Gemini.com/pomp and get $20 of Bitcoin after you trade your first $100 or more within 30 days. Next up is Crypto.com. Crypto.com is the easiest place to buy and sell 100+ cryptocurrencies. They currently have over 10 million users as well. The Crypto.com Visa card gives you up to 8% back instantly and 100% back on Spotify and Netflix. Also, Crypto.com lets you earn very high rates of return on Bitcoin and other types of stable coins. You can get $25 when you download the Crypto.com app using code Pomp. Again, go click on the link in the description, download the app, and they'll give you 25 bucks. Go check it

• 1:37Speaker 01

  out. Crypto.com. Not only do they have a great username and URL, but also that is the place where mass adoption is occurring. All right, let's get into this episode with Nick. I hope you guys enjoy this one.

• 1:48Speaker 00

  Anthony Pompliano runs Pomp Investments. All views of him and the guests on his podcast are solely their opinions and do not reflect the opinions of Pomp Investments. You should not treat any opinion expressed by Pomp or his guests as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his personal opinion. This podcast is for informational purposes only.

• 2:11Speaker 01

  All right, can we just get the news?

• 2:12Anthony Pompliano?

  News out of the way so everyone knows.

• 2:14Speaker 03

  Um, oh yeah, I moved to Miami.

• 2:18Anthony Pompliano?

  Let's go.

• 2:22Anthony Pompliano?

  Mick Carter is now. Is that breaking news?

• 2:25Speaker 03

  Nobody knew this before. This is the worldwide premiere.

• 2:31Speaker 03

  On the best business show. That's why people will tune in.

• 2:34Anthony Pompliano?

  Exclusive. Uh, is Mick Carter is now a Miami resident. He is living in Brick. Well, here, scoot over a little bit so you can get in the thing there. We'll help you there. I mean, look, if you're gonna make big news like that, we gotta make sure.

• 2:46Speaker 03

  I'm still getting used to live TV.

• 2:52Anthony Pompliano?

  So, uh, Nick is now a resident of Miami. Um, let's, well, first of all, why did you move to Miami? Let's start there.

• 2:58Speaker 03

  There's a constellations of reasons. The number one reason though, has to be tone at the top governance. You know, I moved from Massachusetts and Massachusetts, despite having a vibrant crypto industry, after all, our fund is based there, um, has a very antagonistic relationship from a policymaker perspective with crypto. Um, unfortunately Elizabeth Warren, Senator is not a fan. Uh, my local representative in Massachusetts, Stephen Lynch, also not a fan. Contrast that with Miami, with Florida, you have the mayor Suarez here, who's an enormous supporter. Um, and that stuff makes a difference to me and I'm a highly mobile person. I can live at, you know, everything is remote for me.

• 3:40Speaker 03

  Fund startup, everything completely remote. And so, you know, that to me is number one thing. I just want to live somewhere where as a capitalist, as a crypto person, I'm embraced and supported by the local policymakers. And, you know, honestly, that was a big part of the decision.

• 3:56Anthony Pompliano?

  When did you make the decision?

• 3:58Speaker 03

  Probably around six months ago.

• 4:00Anthony Pompliano?

  Yeah. So you knew that you were gonna do this for a while.

• 4:01Speaker 03

  Yeah. Um, the, it took me a while to sort of actually, you know, effectuate it, but I'm here now. This is like day three. Already I'm on, you know, local TV studio.

• 4:13Speaker 03

  Tom TV. You guys suck.

• 4:15Anthony Pompliano?

  Breaking you in.

• 4:16Speaker 03

  Here I am.

• 4:17Anthony Pompliano?

  All right. Bitcoin right now is very interesting place. You, I was telling my brothers, were like the voice of reason throughout all of the ESG mining, China ban of mining, pretty much anytime that somebody in the mainstream media said something stupid, it was like, ugh, I gotta go write another rebuttal. And you were just cranking them out. How do you evaluate where we are right now with mining specifically?

• 4:40Speaker 03

  Honestly, I think we're in an extremely good place.

• 4:42Anthony Pompliano?

  Okay.

• 4:43Speaker 03

  As far as mining is concerned. A lot of people were upset with Musk, myself included, for what he had to say about Bitcoin mining. But for better for worse, his comments catalyzed a reaction among the mining community, specifically in Bitcoin. And we've seen this enormous reaction to create nonprofits, associations, just groups of individuals that are engaging in disclosure regarding what kind of energy they're using. We've also seen the exogenous shock, which was the Chinese hash rate migration. We couldn't plan for that, but that just so happened to have enormously positive effects for the mining space. And, you know, I think

• 5:27Speaker 03

  the, in the space of a year, the Bitcoin mining industry has gone from this completely opaque, sort of unaccountable, largely Chinese industry mined with significant amounts of coal to almost, you know, a strongly North American, American industry. I mean, not, not exclusively, but, you know, by the end of the year, I wouldn't be surprised to see 50% of hash rate in the US or Canada. That wouldn't shock me at all. Right now, it's probably 30, 40%. And that hash rate is much more transparent about its operations. Not only that, these miners increasingly publicly traded. We're seeing new listings all the time. We're seeing SPACs, IPOs, all the time for these miners. The SEC has made it clear, they consider ESG to be,

• 6:09Speaker 03

  you know, an important part of US capital markets. Again, for better for worse, the miners are responding to that. And they're seeking out these renewable sources of energy, not just, you know, to appease, you know, critics in the press or anything like that, but also because that's actually what shareholders are looking for. And so there's just all these pressures that are pushing mining in sort of like really favorable direction.

• 6:35Anthony Pompliano?

  When you think of the mining moving to the US, I agree with you. I don't know exact numbers. If it's gonna be 45, 50, 55%, whatever, it's gonna be much more than it is today, right? Let's say in North America, are there downsides to that? Like, we would always point and say, oh, all this hash rate in China, that's bad. And I think a lot of people, one would point to centralization in a geographic region, and then to, to the authoritarian-type government, and unpredictable, we don't know what they're gonna do. If we bring it to the North America and still have, let's say, majority, are we as concerned? Or no, because the government ideally is a little bit different in terms of democratic rule and a little bit more predictable?

• 7:16Speaker 03

  Well, there's just no risk that the government in the US goes berserk and attacks the property rights of miners. We have a patchwork, a federal system where the states make policy with regards to mining. So you're not going to get a homogeneous policy unless there's some significant legislative change or something like that. But that, you know, there's a process associated with that. So the US is just not going to have this institutional environment where mining is prohibited overnight or nationalized. You know, that was something I was always concerned about with China. It's just a less sort of fragile system here. It's, you know, you're just gonna get more heterogeneity in terms of policy. Of course,

• 7:58Speaker 03

  if the US becomes the, by far, the dominant hub, the question then can validly be posed, is this actually an improvement over mining, you know, being largely concentrated in China? But, you know, I think, again, I would just look to the states. The states are the ones that generally make policy around mining. So we have, you know, we don't have one US policy for mining. We have like 50 policies.

• 8:21Anthony Pompliano?

  What's your take on ESG, OFAC-compliant blocks, like, all of what I'll call potentially virtue signaling attempts that were made by miners versus the things that actually could be highly impactful? Do you have a framework as to like, hey, here's the things that we should be focused on that actually make a difference versus the things that sound good but aren't? Or do you think we still need the free market to kind of play this out before we have answers?

• 8:44Speaker 03

  Well, there's a number of things miners can do to sort of improve their optics. You know, one is procuring renewable energy, obviously. Two would be buying renewable energy credits. You know, I don't think anybody should be mandating that, but that exists as an option if miners want to decarbonize, right? And, you know, some miners are taking advantage of that. You know, I don't strictly want all mining to be like lit and transparent and, you know, accountable to the state. Like, I think it's important, and a lot of good Bitcoiners have been making this point. We need a balance of, you know, off-grid mining that's like a little harder to triangulate.

• 9:26Speaker 03

  And then, you know, some large industrial miners that will be, you know, much more transparent. Because if every, you know, every hash derived from a publicly traded corporation, they would be kind of exposed to, you know, those political winds. And we don't necessarily want that for Bitcoin. So, you know, I think long-term where this is going to settle is you're going to have some large, you know, mining conglomerates that are publicly traded and are pretty transparent, clear about all their energy, things like that. And maybe even have these policies about block filtering, although we've seen, I think Marathon was the one that proposed that. They moved away from that after a lot of critique.

• 10:05Speaker 03

  But I think it's important we have this ecosystem of sort of cowboy, you know, wildcat miners that are sort of off-grid and that aren't, you know, necessarily traded on public markets, aren't as exposed to the state.

• 10:18Anthony Pompliano?

  Yeah, one of the things that came up in that Marathon, I think, was kind of in the crossfire of this was they want to do these OFAC blocks. They thought that there was going to be some premium assigned to the Bitcoin that came out of those blocks versus, let's say, other Bitcoin. It sounds like the institutional market put no premium from an economic standpoint on the Bitcoin. We talked yesterday to Adam Back, and one of the questions I asked him was like, what if some of the Satoshi coins moved? Would people put a premium on those coins as like a historical artifact, right? Or some level of importance? And really what it's getting at is like, forget OFAC, forget Satoshi, like, will we ever? Premium assigned to coins, or do you think that we do have like true fungibility where it's a nice theoretical? We're just never going to see it in the economics.

• 11:02Speaker 03

  That's a great question. It's one of those big debates. You know, I actually go back and forth on whether virgin coins exist and are demanded by the market. I initially thought they might be a thing and then I sort of reversed myself. And now I've talked to a few miners to tell me actually there are like people out there that ask for virgin coins.

• 11:20Anthony Pompliano?

  Are they willing to pay more or we're not sure yet?

• 11:22Speaker 03

  It's not clear to me. It's not clear to me. I've just heard whispers that actually there, there is some demand for virgin coins. But you know, the catch is whenever you mine a block, there's fees, right? And the fees are not newly created like the issuance, the Coinbase output is. The fees are deriving from the transactions. So you're processing the block. So the fees taint, you know, if you have this idea of, you know, existing coins being full of taint, the fees would introduce taint into the miner Coinbase. And they're all mingled together, right? There's no distinction in the protocol between fees and issuance from the miner's perspective. So you would have to forsake all the fees in a block if you wanted a truly virginal coin.

• 12:07Speaker 03

  And that's, you know, as the, as the miner revenue becomes more fee dominated, you're not going to want to eliminate that fee revenue. So the, the prospects for virgin coins, I think are really, really challenging.

• 12:20Anthony Pompliano?

  Do we know what the percentage breakdown in a block is right now? Between miner revenue, like true mining in the block versus the transactions?

• 12:26Speaker 03

  Around 5% fees and everything else is issuance. It's pretty low right now.

• 12:30Anthony Pompliano?

  Yeah. Well, I mean, it's low, but it's higher than I think some people understand it to be, right? I think a lot of people think it's, you know, basis points, but it's 5%.

• 12:38Speaker 03

  It's been up to kind of 20% for certain periods historically. And, you know, as the issuance drops off and in theory, as block space becomes a more of a valuable commodity, fees are eventually going to become 100% miner revenue.

• 12:52Anthony Pompliano?

  Talk to me about the Lightning Network, Liquid, these like side chains or second layers. Like, how do you view where we are with the development of that type of infrastructure? And is this something where like now we're starting to see, okay, this is real, this is working, and we can kind of see substance behind the excitement? Or do you think we still have a long way to go to get to the point where you could be like, all right, this is gonna work?

• 13:14Speaker 03

  Well, when we raised our first fund in 2018, we looked at Lightning, we thought to ourselves, is it investable? At that time, we figured that it would be really challenging to invest in Lightning, because it just hadn't really reached a stage of maturity where we saw developers able to hack on it and build really interesting experiences in a short period of time. The infrastructure, the plumbing was just, you know, challenging. As of today, it's a little different. We backed, you know, a bunch of Lightning startups. Lightning, to me, looks to be reaching a state of maturity where it's actually usable, not just for microtransactions or streaming payments, but for other kind of like Web3 use cases, where it's sort of this novel

• 13:57Speaker 03

  sort of internet architecture, not even strictly for payments. And so, like, Lightning Network, as of today, i- is kind of, I think, reaching actually an inflection point. And if you look at the value locked on Lightning, it's had this inflection as well. And I don't know exactly what to ascribe that to. But the network itself is, is, you know, I'm seeing a vast proliferation in the, in the sort of set of use cases that we see on it today.

• 14:23Anthony Pompliano?

  Yeah. And just speaking, you're talking about like the Wildcat miners, those that are kind of off-grid, no one really knows about, but they're still able to, you know, participate. It seems like all of the public metrics with the public nodes, that's gone parabolic. But we have to remember that there's also kind of these Wildcat nodes, right, that are basically out there that we don't have an understanding how big they are, how much capacity is there, etc.

• 14:44Speaker 03

  Yeah. And you don't necessarily want the entire payments network to be transparent. I mean, payment opacity is a pretty important feature of the functioning system. So, it's, you know, it's kind of funny, because, you know, obviously, I love on-chain data and blockchain analytics, but you do have to surrender some of that as these networks become, you know, more second-layer, more private.

• 15:08Anthony Pompliano?

  For those that don't know, talk to me about Castle Island, talk to me about CoinMetrix. Kind of what is the investment thesis and then any progress on CoinMetrix?

• 15:16Speaker 03

  So Castle Island, we've been around for about three years. We're still Boston-based. We've grown the firm recently. Actually, I'm the only member down in Miami, so I'll be our Miami attache.

• 15:30Speaker 03

  You know.

• 15:31Anthony Pompliano?

  You just need a yacht. Joe's got three yachts he told us today, so you're good. I'll lend you one.

• 15:34Speaker 03

  That's what I'm talking about. So we've been doing more deals in Latin America and well, actually, we have three portfolio companies here in Miami right now. So, you know, that wasn't the case six months ago. So there's an interesting like crypto nexus here, as you guys are undoubtedly aware. But, you know, our general thesis is financial infrastructure is our bread and butter. That's what we know best as it pertains to public blockchains. We're in co-investors in a number of startups and that's, that's what we do effectively. And we've been broadening our scope recently. We've been looking into alternative internet topologies, less censorable internet architecture, social media, things like that.

• 16:15Speaker 03

  And so, you know, things that are adjacent to public blockchains, but the main thing we do is financial infrastructure on public blockchains. Making the asset class something that could actually extend to, you know, billions of people.

• 16:28Anthony Pompliano?

  I think everyone knows you and Castle Island for what I'll call it the Bitcoin investments, right? Those are the ones that most people know. They're the ones they've seen you talk about, et cetera. What is like the most extreme on the other end outside? Like, I, I think we were laughing this morning at the Supreme being a controversy, all this stuff. Like, when you think about the portfolio, what percent is Bitcoin versus like other things? It doesn't have to be other blockchains, doesn't have to be other coins, but just like anything else that isn't Bitcoin only.

• 16:57Speaker 03

  Yeah, I mean, we, we have a handful of explicitly Bitcoin-only startups in our portfolio. You know, Casa and River would be good examples and the Lightning startups. But generally, we've taken the position that we're not going to dictate to the entrepreneurs, to the founders, which protocol to use. And, you know, many of them, if not most of them are, you know, cross-protocol. And you know, whether it's using stable coins, using smart contract platform. You know, a lot of these are sort of brokerages, exchanges, custodians for those kind of business models. You're going to want to support what the market is, you know, telling you is important. And so they'll be cross protocol.

• 17:37Speaker 03

  And so we're not handing down, you know, these dictates in terms of, oh, you absolutely have to use this or that. From the perspective of VC, you just have to be, I think, more of a more open minded about protocols.

• 17:51Anthony Pompliano?

  I wrote a piece recently that talked about like monetary maximalism and then basically like technology competition. And I think this is kind of what you're getting at, which is there's almost in money, a lack of technological superiority. Like the US dollar system is not necessarily the most technologically advanced, but it has the social consensus. We all agree that it has value, we use it, et cetera. And so you arrive at like some level of maximalism in a single currency where you're paid, you save, you invest in that, pay your taxes, whatever. But the technology maximalism is almost historically has never worked, right? Whether it's iOS, whether it would be Python, whether it would be any of this stuff. But there is going to be this market where NFT is like a good example, I think, where like people started out on one blockchain.

• 18:35Anthony Pompliano?

  And then some people split off and said, hey, we're going to go do it on a dedicated use case specific blockchain. Some people said, hey, we're going to go do it on a layer two. Some said, hey, we're going to go on another smart contract platform. Like it just feels like it got very fragmented very quickly as people pursued what ultimately was like a technological, you know, feature.

• 18:50Speaker 03

  Yeah, it's so interesting to see. You're right. NFTs were first issued on Bitcoin. And then, you know, then you had more growth on Ethereum. And then now it's fragmented across blockchains like Flow, these alt twos on top of Ethereum, Tazos, other smart contracts. You know, virtually any blockchain can incorporate NFTs because you're basically just creating a serial code that, you know, references some external data. And so now I think you're going to have NFT platforms that are cross chain and just straddling a bunch of blockchains. And, you know, maybe even from the user's perspective, you won't know where it's, you know, where the. Registry is where you know.

• 19:29Anthony Pompliano?

  Does it matter? Like, this is one of the big questions, I think, is everyone talks about decentralization. Like, I think of the world as, people think of Bitcoin, crypto, blockchain, whatever you want to call this industry, as Bitcoin was where it originated. So decentralization was the most important thing. It was put out there as being incredibly important, peer-to-peer electronic cash, etc. Now, with like, let's take Ethereum, there was, okay, we're gonna add this composability, we're gonna like, make it better, all this stuff. But then like, Binance Smart Chain came out of nowhere, and was just like, ah, we're just gonna make it fully centralized. Like, we're gonna go for efficiency, low cost, high throughput, like, who cares? And not everyone moved, but like, some people moved. And then you started to see this with other blockchains, etc.

• 20:10Anthony Pompliano?

  And you almost get to the point of like, how important is decentralization in some of these systems versus they should just pursue the efficient kind of hierarchical structure that allows for high throughput, low fees, and like, decentralization doesn't really matter to the use case?

• 20:25Speaker 03

  Yeah, I remember Larry Sukunick wrote this, a good friend of mine wrote this great piece years ago about platform-grade decentralization, sovereign-grade decentralization, if I'm remembering. And he couches it in terms of your adversary. So if your adversary is the state, which is the case with money, you know, we're competing with Fedwire and the dollar system when it comes to a base monetary asset. You know, decentralization is all important. When it comes to creating a new architecture for exchanging, you know, can maybe more trivial digital value, or something that references outside concepts. So something that's not fully endogenous, you know, like NFTs, for instance.

• 21:08Speaker 03

  You know, the most popular platforms we're seeing, like Flow is a, is, you know, an NFT-specific platform. Certainly makes decentralization trade-offs, like, running a node is much more difficult. I think a lot of people kind of took the Bitcoin ideology in terms of cheap node operation and tried to extend it to other novel blockchains without realizing that these blockchains weren't pursuing the same goals Bitcoin remotely. And it doesn't necessarily make them invalid. It just means that they're attempting something which is just radically different in terms of its goals.

• 21:51Speaker 03

  That said, I think there's a lot of fragility in some of these blockchains that have very expensive nodes. Because expensive nodes means few nodes. Few nodes means you're exposed to any kind of legal challenge, potentially political difficulties. Like, I'm not going to call any blockchains out, but.

• 22:12Anthony Pompliano?

  You won't?

• 22:13Speaker 03

  Yeah.

• 22:13Anthony Pompliano?

  Double dog dare you.

• 22:14Speaker 03

  One interesting thing is at CoinMetrix, we've run, you know, like, I don't know, dozens of blockchains. So I periodically ask my engineers, I'm like, which nodes are the hardest to run? And they're like, oh, this one and that one, and this one and that one. And like, we can't get them online, or like, they're falling over all the time. To me, that like, that's information the market probably isn't internalizing. It just expresses itself in the form of fragility, and it builds up and it builds up. And then eventually something catastrophic happens where we learn that, you know, there's only seven nodes. And you have the all-in-one data center, all-in-one jurisdiction, or something like that. We haven't really seen those validator-level failures yet, although blockchains do stop all the time. It's just, people don't notice it.

• 22:58Speaker 03

  They'll seize up and halt, and you have to get restarted. That doesn't really get reported. So I would caution people that for some of these really aggressive smart contract blockchains, where they're pushing tons of data through the system, some of these failures are likely to emerge at some point.

• 23:14Anthony Pompliano?

  I want to kind of go through the ecosystem a little bit and ask you about certain things, and then we'll play a FUD dice for a little bit. But Ethereum has this new update, right? In terms of the monetary policy and the burning mechanism, et cetera. What is your understanding or kind of read as to positive, negative? Are you neutral? How do you think this affects Ethereum moving forward?

• 23:36Speaker 03

  So I got completely savage day one on Twitter when I talked about EIP1559 actually increasing fee levels. Apparently, that was something that had been forecasted, so people didn't like that I pointed that out. But my.

• 23:53Anthony Pompliano?

  Was it right?

• 23:54Speaker 03

  Yeah, yeah, so it was like fees on Ethereum are like, I would say structurally higher now. And. Really what EIP 1559 did was cut out the floor in terms of fees. So when, you know, you'd have periods on Ethereum of downtime where it would get pretty cheap to transact. The new EIP kind of just eliminated that and set like a higher threshold, minimum threshold to sort of transact. I'm vastly oversimplifying. But generally, my read is that it's sort of consistently like pretty pricey to transact. Of course, you got, you know, the Ethereum community got this great thing in return, which is burning a significant share of all the fees that, you know, would be paid to miners.

• 24:39Speaker 03

  Miners are making as much revenue now as they were before. And also, I think a majority of those fees are being burned. So think about what that means from a user perspective. So that's good and bad. On the one hand, you can make this argument, hey, if we actually reduce the issuance, Ethereum can become deflationary from a monetary perspective. It's a great story to tell investors. The negative thing, and this is something I try to communicate and I'm trying to be fair and balanced here, is it's a form of rent extraction, right? So initially, the miners, all of the fees, we're going to pay miners for their service of keeping the block space linear and, you know, doing the thing that miners do.

• 25:22Speaker 03

  Now, a, you know, good portion of the fees associated with using Ethereum just go to effectively reducing the price of Ethereum, right? By, you know, potentially reducing the supply. And so that really benefits token holders at the expense of users of the blockchain. Now, a lot of Ethereumers will say to me like, oh, well, token holders are users, so it's all the same thing. But if you expect Ethereum to mature and you have a lot of firms that hold Ethereum just for working capital perspective, just to utilize the blockchain, transact on it without wanting to have financial exposure to Ether, those firms are going to feel disempowered because, you know,

• 26:06Speaker 03

  the Ethereum governance process increased the costs of using Ethereum.

• 26:11Speaker 03

  And funneled that sort of return into the token price. And so now what you have, thanks to the CIP, is like these two groups, these stakeholder groups are at odds with each other. You know, people that are long-term, effectively speculators, not pejoratively, on the token price. And then people, and I think this is the most important demographic that you want to sort of curry favor with, you want to sort of coddle them, is the people that use and hold Ethereum as working capital. But that latter group is a little disempowered by the change, in my view. So that's, you know, I'm certainly not known to be like, you know, deeply part of the Ethereum community, so this wasn't received very well when I said it.

• 26:53Anthony Pompliano?

  When you think about this, because it's an interesting framework that you're using, where token holders can see price go up, which people on Twitter, etc., like, they love that idea, right? So they're going to applaud you for that thought process. But you're basically saying, yes, but the people who are using this, this may actually be a negative impact. And so is it fair to say that your analysis is this could be short-term good because price goes up, but actually, long-term sustainability over a 10-year period or something, could put more stress or kind of be bigger obstacles or more complexity moving forward because of the change?

• 27:29Speaker 03

  Yeah, I think there could well be a reckoning where it's, people begin to understand that the somewhat opaque governance processes are not being, you know, they're not necessarily weighing the interests of all stakeholders equally. And there could well be a moment where people realize, wow, we turned up the rent extraction dial too high, and we got to turn it back now. I think that's completely plausible. I don't think people are really ready to hear that message. Maybe fees need to be really high for a long time, and these other smart contract competitors start to do really, really well, which we've seen. That's happened in the last week or so, just, you know, appreciating relative to Ethereum.

• 28:13Speaker 03

  But yeah, I think there could be reckoning over the unanticipated impacts of tweaking things that look like technical things, but they're actually political changes.

• 28:24Anthony Pompliano?

  So my view of this has been, I want to see if you want to agree or disagree, and then two, also like how you think this will play a way forward is there was Bitcoin, people tried to do things with it, they were unhappy with the technical kind of architecture and how easy it would be, they went and they built Ethereum. For the all intents and purposes, they were able to accomplish the composability that they were looking for that led to DeFi, many of these other things. But then they started to hit kind of a limiting wall. And so flow, you know, is one example, but you've also had the Binance Smartchains of the world, you've got things like Solana, etc. that are now starting to pop up. And it almost feels like to some degree, there's a lot more technical competition among the smart contract platforms, and I'll say Bitcoin and something else that's competing from a monetary standpoint. And

• 29:08Anthony Pompliano?

  so if that is true, and you can agree or disagree with it, is this something where the old like, what is MySpace, what is Facebook, what is the next social network, whatever, that is more likely to play out along the smart contract technical competition like landscape? Not claiming any one of them is any one of those companies, you know, equivalent, but just saying like, there is going to be ones that find success, there's going to be ones that disrupt, there's always going to be new challengers, and like, you're going to constantly have to iterate and innovate your way to stay at the front of the pack to hold both, one, the economic holders, but also to the users of the platform. Because it seems like Bitcoin is, it either works or it doesn't, but no one's really competing for that like decentralized, programmatic, you know, monetary policy, etc. And so it's

• 29:53Anthony Pompliano?

  kind of a one or zero. Here, it doesn't feel that way when you talk about the smart contract platforms.

• 29:59Speaker 03

  Yeah, I mean, I don't remotely think of these things in terms of the analogies to social networks. I, you know, if you think about the key decisions that are made, whether it's changes Bitcoin, I mean, the block size change, as I said with the IP1559, these look like technical changes, but really they are pertaining to governance. And they pretend to, you know, who are the winners and losers in these systems? Who are the entities that can extract rent from being proximate to the protocol? And who are the entities that are being effectively harvested by the Elites, not to, you know, kind of engage in fear mongering or anything, but that is at

• 30:41Speaker 03

  the core of any real major change that happens in any blockchain is who are we empowering by virtue of our changes to the protocol and who are we disempowering? And oftentimes developers don't acknowledge that they're engaged in politics. They think they're engaged in engineering, but it's politics because there's billions of dollars on the line.

• 31:02Anthony Pompliano?

  How much are they influenced, in your opinion, by the non-engineering community? So whether it's people on Twitter, whether it's large asset managers, whether it's folks like if you're taking the Ethereum system consensus, if you look at Solana, FTX and that crowd, like, how much of it's coming from the people who aren't actually writing the code versus do you think these are our technical decisions that are being made by the engineers and they just have ramifications in the political analysis?

• 31:29Speaker 03

  Well, it's hard to quantify. I mean, it depends on the blockchain, but you have this tyranny of structurallessness, right? Where in a non-formalized system, which is the governance of most blockchains, it's not formalized, power still exists, it's just veiled, it's opaque. So it's not clear who has power. And then in a highly technocratic system, it's a lot of engineers that, you know, take up this role as, you know, policymakers, people that can actually influence the governance of the system. I would say that's what I mostly perceive is these like backdoor, you know, pretty opaque, like pretty hard to understand as a regular person, you know,

• 32:11Speaker 03

  settings where decisions are made. And, you know, it's largely technocrats, aka, you know, effectively very technical engineers that are making political decisions. Of course, you do occasionally have, you know, influence and it's getting more blurred now as you have more interest groups and you know, more large corporates that try and inject themselves into, you know, these governance conversations, like, you know, New York Agreement, things like that. And you also have more sponsorship of core devs, which muddies the waters. But I'd say, you know, like historically, it's largely technocratic and also hard for an outsider to sort of get a handle on.

• 32:47Anthony Pompliano?

  When you think about other areas you guys are interested in, so you've got kind of the Bitcoin or monetary analysis, you've got smart contract platforms and kind of public blockchains. Are you guys doing anything in NFTs? I saw that you sold an NFT to Von Miller by accident.

• 33:02Speaker 03

  Yeah, that was such a funny story.

• 33:05Anthony Pompliano?

  Tell us the story real quick and then talk NFTs.

• 33:06Speaker 03

  So I, you know, like a year ago, I complained on Twitter that no one ever sends me a nice, comfy startup t-shirts. Like I think I have 50 t-shirts from startups. I'm sure you guys do too. And OpenSea sent me a t-shirt and they sent me a card with a t-shirt and the card had, you know, what was clearly a private key scribbled on it. And I took one look at it. I, you know, put it into MetaMask. I'm like, wow, this is the ugliest NFT I've ever seen.

• 33:35Speaker 03

  It was like, um, you know, a bunch of lines, like red and green and white lines didn't really make any sense to me. I'm like, what is this? Not like it was not, I appreciated the gesture and it was a great t-shirt. Um, but I thought it was total, like a totally weird NFT. And so I forgot about it. Actually, I put it on my fridge. Um, a year later, I got a DM from Dan at OpenSea. He's like, Nick, the floor price on this thing is like eight ETH. I'm like, what, what do you mean? He's like, the NFT I sent you, like you need to sell that. And I'm like, okay. Uh, and I go back on OpenSea and like, sure enough, my like ugly NFT is like, it was a color glyph and it is trading, these things are

• 34:15Speaker 03

  trading like eight to 10 ETH. And, you know, it was like 25 grand. And, uh, and so I like listed it and, you know, then I saw that, um, someone on OpenSea with the name Von Miller bought it. I'm like, well, that's obviously not Von Miller.

• 34:34Speaker 03

  And I'm like, you know, I'm a fan of Von Miller, like great player. I'm like, there's no way he's speculating on NFTs. And then

• 34:40Anthony Pompliano?

  Under his own name.

• 34:41Speaker 03

  Under his own name. His account on OpenSea, tag his own name. The next day, my friend sends me an Instagram post from the Von Miller where he's bragging about the NFTs that he bought.

• 34:53Anthony Pompliano?

  And yours is in there.

• 34:54Speaker 03

  Mine is the fifth one. And he's proud of this NFT. And like I've immensely conflicted feelings about this because if I hadn't, because now the floor price on these things is like three times higher. It's like very material. It's like 20 ETH now. Because Von bought it and everyone's like, I gotta get my hands on one of these. So I basically should not have sold it to him. I should have just sat on my fricking NFT. But yeah, I do have the honor of having sold an NFT to Von Miller.

• 35:23Anthony Pompliano?

  Every startup that's ever sent me a T-shirt and didn't send me a NFT that's now worth $75,000 or whatever it is, we're gonna have a conversation now.

• 35:32Speaker 03

  Yeah, this is officially my favorite ever.

• 35:37Speaker 03

  No question. I should have worn it today.

• 35:39Anthony Pompliano?

  How, how sustainable is all this, right? So we see the CryptoPunks, it seems like that's like entered into this like social status game that people are playing, no different than why somebody buys an expensive car or watch or whatever. The Ether Rocks somehow now have like entered that realm as well. Do you buy the argument that like it's literally just people trying to prove who's cooler, who's richer, who's whatever? Or is there some other fundamental value? Like, how do you evaluate all this?

• 36:09Speaker 03

  I mean, people have always played these status games and there's always someone out there that thinks the objects of status are tacky, you know? Like, we might think Lamborghinis are tacky. I certainly wouldn't buy one. So there's always, and in crypto, you know, like the crypto culture is very idiosyncratic and like pretty unique. So I can understand why outsiders find the status objects in the crypto space tacky. But you can't argue with the fact that CryptoPunks, other NFTs have crossed the chasm in terms of being objects of status. Like mainstream celebrities, Odell Beckham, I think, has one. Did Jay-Z.

• 36:48Anthony Pompliano?

  Jay-Z changed his profile picture.

• 36:50Speaker 03

  And so what it is, is this, you know, like gold is recognizable because of its physical properties, you know? So that's why people wear gold jewelry to demonstrate wealth and status. That was the OG version of this. A CryptoPunk. If you know, if you include it in your AVI on Twitter, you're demonstrating status in a way that's relatively easy to prove. I mean, of course, you could fake it, but people would sort of figure out that you didn't actually own a CryptoPunk, if you, you know.

• 37:15Anthony Pompliano?

  If there's one industry where they're going to figure it out, it's crypto.

• 37:17Speaker 03

  Yeah, like someone's going to be the detective and figure it out. So, and also you can wear fake jewelry too, you know, so that, you know, other, other instruments of status are not, um, you know,

• 37:27Speaker 03

  like they can be compromised too. So, um, there's no question now that, um, owning digital artifacts and using it as a way to prove wealth and status is here to stay. No question. I don't know what the, you know, next exciting vintage is going to be, uh, but, uh, some of these things probably look like they're staying in power.

• 37:46Anthony Pompliano?

  Would you guys ever invest in those types of assets? Forget which one, but like, do you see that as an investment opportunity from a fund that is focused on investing in the industry? Or is it too speculative and you're more focused on like the public blockchain's financial infrastructure?

• 38:01Speaker 03

  I don't know if I have an edge there. I mean, I can, in fact, I can assure you, I do not.

• 38:06Anthony Pompliano?

  I don't know, man. You were selling to Fawn Miller.

• 38:09Speaker 03

  That's my one trade. Maybe we're going to keep it a one trade all time. Um, but yeah, if we were collectibles focused funders, which those totally do exist, and I know funds that are bespoke NFT trading funds. I'm sure they've done well. Uh, we would, but you know, we have a mandate and, uh, that's what we do.

• 38:25Anthony Pompliano?

  All right. Last question I want to ask you, and then these guys probably have questions is, uh, Axie affinity? Is this like play to earn things? $2 billion, people are asking in the comments in terms of,

• 38:36Anthony Pompliano?

  how do you think about play to earn? Is this new? Is it just a new variation with digital technologies? Is that something that you all are looking at as like a sector? Do you have opinions on Axie affinity itself?

• 38:47Speaker 03

  Yeah. I mean, we, we haven't invested directly in, uh, block, well, actually we have invested, uh, in, uh, blockchain, like collectible card trading games, things like that. We've also done some analytics, uh, an analytics platform, but, um, we haven't really done anything like an Axie infinity. I think what you want to do is interrogate where the cash flows are coming from. So. You know, the earning, like, who are you being paid by? Where is that cash flow? What's the origin of that cash flow? And as far as I understand it in Axie, it seems to be folks that are buying the tokens in order to participate in the system. So, you know, this isn't me trashing it, but it looks somewhat circular in many ways. And so, you know, the reflexivity is good on the way up.

• 39:31Speaker 03

  And but it's also, you know, devastating on the way down. So I would just try and audit, you know, where the injection of capital into the system is coming? And does it require the continuous entrant of new players? For those cash flows to work? I think people are modeling them maybe as if permanent growth is possible. But of course, it's not in a finite world. So that's the question that I would sort of like pose of that system.

• 39:58Anthony Pompliano?

  When you evaluate a system like that, what would classify as healthy? Origin of cash flow versus like non-healthy?

• 40:06Speaker 03

  Healthy would be a situation where users are just organically paying.

• 40:11Speaker 03

  You know, injecting capital in the system in a sustainable way, like, you know, to buy skins or to buy, you know, pay to win is like the most common mobile model. Unhealthy would be this requires continuous growth for the cash flows to actually be stable. And I don't necessarily know enough about Axie to, you know, answer that question.

• 40:32Anthony Pompliano?

  Yeah, it it um. It's one of these things too, where I think that one specifically seems to have struck a chord. And I got to call out the bias of the Delphi Digital guys were trying to get me to go and, you know, they were founded at like a penny or whatever, right? And they were incredibly right about the future economic appreciation of it. And then they told me to get it like a dollar and then again, like $5. Now it's, you know, whatever, 70, 80 bucks, whatever it is. And the whole time I was just asking myself.

• 41:02Anthony Pompliano?

  Yes, you can keep earning, which I understand, but like there's like this social component to it. And with social, not from like, oh, you and I are going to communicate in the game, but there's like social implications. So like one side of that conversation is like, this is amazing. People who might have been driving it for Uber or actually just didn't have money and were poor, etc. And some of these developing nations can now with an internet connection, create economic, you know, uh, kind of prosperity for themselves or security and all that. That's the positive side. The negative side is like, does that mean they're now like addicted to, like they have to play every day, all day long, right? And they can't have like another life? I, I don't know where it settles out, but it just feels like everyone is focused on like the economic side. And like, we getting this weird, like, are we going to get to Ready Player One? Is that like where we go?

• 41:47Speaker 03

  I mean, there's like kind of weird vibes around the scholar system. Is that what it's called? An axi where you buy the assets and then you lease them out to people typically in the developing world to play the game. And, you know, to me, that seems like, kind of like a sharecropper style relationship. Um, and so I'm waiting for the hit pieces to drop in the media about it. I haven't seen any, but it's very fertile ground for, uh, people to accuse crypto of being neo-colonial. Um, you know, so, uh, maybe now that I've said it, someone's gonna-

• 42:23Anthony Pompliano?

  Of course. And they're gonna quote you as well. Nic Carter said-

• 42:27Speaker 03

  I'm the best business.

• 42:30Anthony Pompliano?

  All right. What questions you two guys got?

• 42:31Speaker 04

  Mine would just be around, uh, regulatory stuff, right? So we've seen as the market for digital assets and Bitcoin specifically has continued to grow, uh, it's obvious that it's becoming more on the radar of politicians, whether it's Elizabeth Warren, Ted Cruz now on one, on another side and all these other people. Is this just like, uh, kind of the, the, the price you have to pay for playing the game of getting bigger and growing and all this stuff? And how do you see that trending over time? Like, does it become more of a, of a topic? Not just in infrastructure bill, but all these other kind of facets?

• 43:02Speaker 03

  Yeah, I'm concerned about it. I'm worried really that Bitcoin and crypto generally will become a partisan issue. We've already seen the origins of that. I mean, if you just tally up the senators and representatives that are overly pro Bitcoin and the ones that are against Bitcoin, you're seeing party lines develop. And that's not strictly good. I mean, I want to be part of the biggest possible tent. I don't want to appeal to just 40% of America. And it would be a big shame if it got, you know, highly politicized. You know, Bitcoin itself is a neutral, apolitical system. But of course, in its collision with the world, different political camps will have different reactions to it. I mean, I like that we kind

• 43:46Speaker 03

  of showed some of our muscle as this bill came through the Senate and the House, even though we lost in the end, looks like we're going to lose. There will be other opportunities to change the language regarding brokers and things like that. But yeah, I'm concerned. I don't know exactly how to alleviate the partisan lens that is falling over the industry.

• 44:05Speaker 04

  And are you surprised? Because like, so from my standpoint, Elizabeth Warren was one that was outspoken kind of against it and said some super coders and all this kind of stuff, right? So to me, she's a person that would, I would assume would believe in kind of the innovation in the technology. Did it surprise you a little bit that these party lines started to draw in the sides that people took?

• 44:26Speaker 03

  Honestly, not so much. So I wrote an editorial today on CoinDesk, talking about the OnlyFans ban, or the proposed OnlyFans shift in direction, which they later reversed. And I was making the point that it traces back to this program called Operation Chokepoint, whereby the government effectively instructed banks to deplatform certain genres of commercial activity. Sex workers was one, and that's why they've had such a hard time with payment processing historically. And a lot of it was stuff like, you know, firearm sales and gun manufacturing, things like that. So there is a school of thought out there, and you know, this is present in Congress, in Treasury, that government should politicize payment rails.

• 45:12Speaker 03

  So that they can promote policy through banks. And so Warren's view, as far as I can understand it, has to do with increasing, you know, pursuing a progressive agenda through, you know, through payment rails, through banks. And Bitcoin is anathema to that, right? So even if she's nominally against, you know, concentrated power in banking, things like that, she's for state oversight into what kind of transactions you can make. And, you know, that's, I think, very deeply unfortunate. But that means I think it's very unlikely we'd ever, you know, get her on our side.

• 45:49Anthony Pompliano?

  Gotcha.

• 45:49Speaker 05

  John, what do you think? Yeah, so I'm going to ask you about Castle Island Ventures. Can you just talk about, I know you just did your second fundraiser, I think, this year. Can you just talk about what the process of fundraising was, what companies you've looked at, and like how you kind of look at vetting them?

• 46:04Speaker 03

  Yeah, I mean, fundraising is, and, you know, Anthony, you'll know this, I mean, it's very ranging, context dependent, like, in the good times, it's the easiest thing in the world. And then in the bad times, which there are plenty of, it's like the absolute worst, most draining, impossible task. And because our industry fluctuates so much, it's hard to time a fundraiser such that, you know, it's hard to like nail the timing. Like, you're always going to be going through some sort of awful six months where you can't raise, and then you have an amazing three months where it's the easiest thing ever.

• 46:40Anthony Pompliano?

  And we're begging you.

• 46:41Speaker 03

  Yeah, it's, you know, how it is. So we were, you know, lucky, I guess, with the timing, you know, it worked out, we raised our second fund, $50 million fund, closed it earlier this year. Our investment thesis is largely the same, I would say. Terms of evaluating startups, a lot of it has to do with founder market fit, you know, does the founder's experience, you know, pertain to the market or the protocol? You know, you say founder protocol fit even. Does it pertain to, you know, the opportunity there, you know, pursuing? We value crypto nativeness very highly, of course, you know, just because there's something about, you know, crypto natives that really matters in this industry.

• 47:25Speaker 03

  You know, team is like probably the biggest consideration for us, but then, of course, like, you know, market sizing. And, yeah, I would say we're like maybe more valuation sensitive than your typical crypto firm, which. I guess I've regretted that in a lot of contexts where we should have overpaid for a startup. But you know, we've kind of stuck to our guns a lot of the time. And you know, we've tried to be reasonably sensitive to valuation. So that's maybe what sets us apart from some other funds.

• 47:57Speaker 00

  Yeah, it's interesting to see people's like different, different thought processes about like different startups. And it sounds like you go mainly after the founders and the team and what market they're going after.

• 48:06Speaker 03

  Yeah, and you know, we have like the, when we started, there weren't actually that many equity focused venture funds in the crypto space. There are a lot of token focused ones. And we decided we understand equity best from a governance perspective. And it was under deployed. And then also, we felt that a fund bridging traditional financial systems, the financial services industry and the crypto space, that needed to exist. And there's a lot of great funds that did that as part of that strategy, but that was sort of the bulk of our strategy. And so we're, you know, think about like within crypto, like we're a specialist within a specialist space already.

• 48:50Speaker 03

  So we're about as kind of niche as it gets.

• 48:53Anthony Pompliano?

  We have the FUD dice. One, can people buy these online?

• 48:58Speaker 03

  Yeah, I think on my merch shop, onthebrink.shop.

• 49:02Anthony Pompliano?

  Onthebrink.shop.

• 49:04Speaker 03

  I think we have like 200 pairs left, so.

• 49:07Anthony Pompliano?

  By the way, the fact that when you moved, these came with you is exactly what I would expect from you.

• 49:13Speaker 03

  I brought a box.

• 49:14Anthony Pompliano?

  A whole box.

• 49:15Speaker 03

  Because you know, I knew that not everyone had them yet.

• 49:18Anthony Pompliano?

  All right, you, you have to do the honors. You roll, the way that these work, for those that don't know, is each dice, die, I guess die, has on the interface or the face of it, a different piece of FUD. So everything from inefficient government ban NSA to unfair, what else is on here? Quantum, Satoshi returns.

• 49:42Speaker 03

  There's some good ones.

• 49:43Anthony Pompliano?

  Helps China, what is on the bottom here?

• 49:45Speaker 03

  Helps China, that one's obsolete.

• 49:49Anthony Pompliano?

  All right, so give us a roll and let's see what else, see what we get here.

• 49:53Speaker 03

  This is the fourth edition. It's in Bitcoin orange. Well, it's not quite Bitcoin orange. My dice manufacturer has actually had some sort of snafu.

• 50:03Anthony Pompliano?

  I love that you have dice manufacturing. In this space, you can have a meme dealer, you can have a dice manufacturer.

• 50:11Speaker 03

  We had supply chain issues. I don't know.

• 50:16Speaker 03

  Yeah, they, we had the exact right shade of orange and then they're like, sorry, we can't, we tried and the batch failed. And like, how a dice batch fails?

• 50:27Speaker 03

  So anyway, if it's not the quite the right orange, please don't hold it against me. Let's roll. Oh, that's my funds logo.

• 50:38Speaker 03

  Oh, quantum. That's my, that's one of my favorite FUDs.

• 50:42Anthony Pompliano?

  All right. What is the FUD around quantum?

• 50:44Speaker 03

  The quantum FUD is that quantum computing will just destroy Bitcoin because electrical curve, digital signature algorithm, or I guess we've Shnor signatures now, will be broken by quantum computing. And everyone's funds will be, you know, freely, you know, thievable, I guess. And that's the FUD.

• 51:10Anthony Pompliano?

  There's two pieces to this, I think. One, is there a true quantum computer yet?

• 51:14Speaker 03

  Not to the level that would be required to break ECDSA.

• 51:20Anthony Pompliano?

  Okay.

• 51:21Speaker 03

  So, but in theory, we have quantum computers that have accomplished some very limited tasks.

• 51:26Anthony Pompliano?

  Okay. And then the second thing would be if somebody did have the computational power and complexity to break it, would that destroy the value of Bitcoin? Like if I broke the Bitcoin algorithm and then just took all the Bitcoin? Isn't it unvaluable? So I basically just took something that has no value?

• 51:43Speaker 03

  Yeah, I think it's the quantum FUD involves this classic reasoning mistake where you you confuse the structure of Bitcoin for the substance of Bitcoin, basically. And so the theory is that if you break or render inoperable a feature of the system, the system itself dies, but that's not true. What Bitcoin is really is a list of who owns what or what addresses can unencumbered, you know, do valid spends. That list can obviously survive anything because and it can survive a change in the signature algorithm. So if ECDSA fails, you know, we're swapping it out already with Schnorr.

• 52:28Speaker 03

  If all of these signature algorithms fail, we have a technical challenge ahead of us, but the Bitcoin blockchain does not disappear. There I've seen proposals for moving to quantum resistant signatures, which do exist. They're just space inefficient. So it's, you know, there's an engineering challenge there. But there's also, SHA256, I believe, is not quantum vulnerable. So it actually, there's an interesting debate about the fraction of Bitcoins that are quantum seizable. The early address formats did not involve hashing the address. Later address

• 53:09Speaker 03

  formats do. So hashed addresses are less or not quantum vulnerable, as far as I understand it. That's kind of like a detail that doesn't matter. Really, what I've understood from talking to cryptographers is we're probably decades off from, you know, quantum computing threatening Bitcoin. Second of all, quantum breaks are gradual, not sudden. So we will have plenty of forewarning. And then third of all, you know, there are signature algorithms we could use if it came to that.

• 53:40Anthony Pompliano?

  It just feels like this is like such like a lazy intellectual argument because majority of people can't articulate what you're articulating in terms of the technical architecture. They're just like, I heard quantum computers are really complex and powerful. And of course, they're just going to break it.

• 53:54Speaker 03

  Well, it's just that, you know, we're not really that good at predicting technological progress in the future, you know, like tech predictions 20 years out tend to be wrong. So should we abandon technology that works today based on the theoretical future technology that sort of invalidates this technology? I don't think so.

• 54:15Anthony Pompliano?

  Yeah.

• 54:16Speaker 03

  You know, let's use what works now.

• 54:17Anthony Pompliano?

  John, you get a roll next. Let's go. We're all going to roll one time, then we're going to finish up. That was a horrible roll.

• 54:27Speaker 03

  See, we got energy waste.

• 54:30Speaker 03

  The classic.

• 54:31Anthony Pompliano?

  Yeah.

• 54:32Speaker 03

  The classic. Yeah, Bitcoin wastes energy. That's the critique.

• 54:36Anthony Pompliano?

  The

• 54:38Speaker 03

  What can you say?

• 54:39Anthony Pompliano?

  Best energy statistic that I found this year was that Elizabeth Warren was saying Bitcoin energy usage is more than some countries, right? A couple of people saying that. Okay, true. Yeah. Okay, fine. So I went and I looked at what else is more than some countries and Christmas lights. And so I said, we should cancel Christmas because Christmas lights consume more energy in the United States than some countries consume all year long.

• 55:01Speaker 03

  There's a war on Christmas.

• 55:03Speaker 04

  All of a sudden, it didn't matter as much.

• 55:05Anthony Pompliano?

  All of a sudden, that was not a great critique, right?

• 55:08Speaker 03

  There's, there's so many industries you can find. I believe the industry for the extraction of zinc actually accounts for more energy than Bitcoin. But I've never heard anyone complain about that. Maybe because zinc is useful in sunscreen or whatever.

• 55:26Speaker 03

  I'm not a big fan of sunscreen, but we can leave that aside.

• 55:29Anthony Pompliano?

  Well, you better get used to it here in Miami.

• 55:33Anthony Pompliano?

  I don't care how tanned you are, you gotta make sure you got some sunscreen. Do you think that when people bring this up, is it better to attack the argument or I guess defend debate, whatever, from a, no, it's actually not that bad from an energy consumption standpoint, or is it, that's not really worth the conversation, it's more so the energy usage is for a positive impact or like a good reason, right? Like, people feel like they gotta punch back at the energy consumption amount, but it almost feels like the better argument is like zinc is useful, therefore people consume power to do it, Bitcoin is useful, therefore it's going to consume power.

• 56:10Speaker 03

  Correct, absolutely spot on. So there's a lot of clarifying to do around the nature of the energy grid, which is a concept that most people do not understand. And I would say, having looked into it now for a long time, it's probably, you know, on a par with or deeper than Bitcoin in terms of its complexity, so.

• 56:27Anthony Pompliano?

  You are our energy grid expert, by the way.

• 56:29Speaker 03

  Well, like, not really, I'd say, you know, like, I think you need a PhD to, like, truly understand it, but the more I dig into it, the more complex it is. So the notion of stranded or wasted energy or transmission losses, people just aren't aware of this. And so because they lack, you know, some of that basic knowledge, they're not really very well situated to, you know, understand Bitcoins, energy consumption, which is very unique and very idiosyncratic, right? So there's a factual side of the debate, which is important, but as you say, the most important thing to do is just remind people of the utility of Bitcoin, because no one complains about the aluminum extraction industry, or, you know, steel, like, you know, they understand that it's used to build skyscrapers.

• 57:13Speaker 03

  No one complains about AC, which is used far, far, far more energy than Bitcoin, or even, you know, tumble dryers and washing machines, modern conveniences, everyone benefits from these things, no one complains about them. With Bitcoin, not everyone benefits from it, especially not Westerners, you know, that sort of lack in appreciation for why you would want a system like this. Why do you want an independent system of property rights outside the state, outside the banking system? And so, you know, it kind of goes to the, like, the globe that you have behind you. If you look globally, where Bitcoin is most adopted on a per capita basis, it's not the US. It's like Chainalysis had good data on this. They just came out last week.

• 57:58Speaker 03

  It's on a per capita basis. It's Vietnam, India, Pakistan, Nigeria, Kenya, Venezuela, Colombia, Ghana, Southeast Asia, Eastern Europe, Ukraine, Russia, Latin America. Those are actually the most popular places. People aren't aware of this, but you know, we're looking at 150 million people worldwide that are sort of crypto users now. That is a very different perspective than, you know, elite Westerners that are elites that are the main voices in the energy debate.

• 58:38Speaker 03

  And if anything, it's kind of like this, sort of like, you know, like very Anglocentric perspective to say, "Well, who needs a sound money system when we have the dollar?" Right? Well, you know, over a billion people worldwide live, I think Alex Gladstein says this, "Live in 20 double-digit inflation," right? And, you know, most people worldwide do not have access to functioning capital markets for savings, that's for sure. And, you know, many, many hundreds of millions of people worldwide do not have access to functional banking systems. So it's about communicating the global nature of this and what people are using it for.

• 59:20Speaker 03

  That is, the energy debate is actually, it's a utility debate.

• 59:25Anthony Pompliano?

  It's crazy to me that so many people have the privilege, right? Gladstein's been all over this, I think you and a number of other people. But it really is just, the system that we have works good enough. And we were talking earlier about like mobile banking in African countries, leapfrogged the US, definitely in Asia, they leapfrogged us. And it was just because we kind of had this legacy technology. And so you're almost better off coming at it from scratch because you're able to understand, one, why is it powerful? But two, that is your entry into the financial services. And so again, I just always go back to like Elizabeth Warren's probably the perfect example. Last decade, two decades, she spent like railing on Wall Street about accountability and transparency. And then like a system comes along that literally every single transaction's

• 1:00:08Anthony Pompliano?

  on a public ledger. And she's yelling and screaming about it. And it's like, I understand why. And you know, it's a rational position for her to take and other politicians. But it does feel a little bit like, hey, this is the system that you always wanted. It just is not wrapped in the kind of box that you would expect it to come from.

• 1:00:28Speaker 03

  Yeah. I mean, if you designed the financial system from scratch, they would have looked anything like the financial system we have. Of course not.

• 1:00:34Anthony Pompliano?

  Yeah. Joe? My turn. Let's go.

• 1:00:41Anthony Pompliano?

  Inflexible.

• 1:00:43Speaker 03

  Oh, inflexible is a good one. So this

• 1:00:45Anthony Pompliano?

  Go.

• 1:00:47Speaker 03

  Nice roll.

• 1:00:49Anthony Pompliano?

  As if Joe wrote the diet. I rolled it.

• 1:00:52Speaker 03

  Yeah, I guess I can't congratulate myself on writing.

• 1:00:57Speaker 03

  So this is one that economists like to say. So if you compare Bitcoin and gold, when the price of gold goes up a lot, the supply of gold, the rate of increase of supply of gold goes up. New mines come online.

• 1:01:11Anthony Pompliano?

  Yep.

• 1:01:11Speaker 03

  I promise we'll get to the point here. And you know, they produce more gold. And so there's a supply response, which attenuates the price impact. And it's the same on the downside, when the price of gold goes down a lot. There's less gold mined. And so the downside volatility is less. Now Bitcoin is perfectly inelastic from a supply perspective. The supply doesn't care where the price is, ever at all. And a lot of economists say, well, that's actually kind of a nice feature that gold has, where you have this supply response that actually smoothes out the volatility a little bit. With Bitcoin, all demand changes are expressed purely in price. You know, with of course, the exception

• 1:01:54Speaker 03

  of the halvings, we can debate the importance of those, maybe on another episode. But so that's the critique.

• 1:02:01Anthony Pompliano?

  Nick thinks the halving wasn't priced then.

• 1:02:06Anthony Pompliano?

  Go ahead, go ahead.

• 1:02:07Speaker 03

  Second episode on that. So this is like an educated, this is a critique you might hear from like an economist, like a smart economist that doesn't just dismiss Bitcoin entirely.

• 1:02:18Anthony Pompliano?

  Like a Steve Hank or whatever.

• 1:02:20Speaker 03

  Well, he's, I don't know if he goes to that level of sophistication with this critique.

• 1:02:25Anthony Pompliano?

  I think actually the only thing that Nick and I have ever disagreed on is having priced in or not.

• 1:02:31Speaker 03

  That's probably it. Yeah. We're still at odds on that.

• 1:02:35Anthony Pompliano?

  Yeah. All right. Let's, rather than me roll, let's do three minutes. What is your argument for why it is priced in?

• 1:02:43Speaker 03

  Just that market participants are generally aware of the supply schedule and you know, that information should in theory be expressed in the price. So that's, that's my view.

• 1:02:56Anthony Pompliano?

  So I agree that that is theoretically what should happen. Bitcoin specifically is unique in that one. It's not like, like if a stock, right? Was to say, hey, in two weeks, we're going to issue these shares. People would have to learn about it, have to internalize what that meant, and then act in that two week period, right? So they're kind of don't have like a, I know how many blocks until the next halving today, right? So I've got four years to kind of prepare, three years, whatever. So that is a positive for the argument of it being priced in. Where I disagree is that I actually don't think 50% of people who hold Bitcoin could describe to you how the halving works.

• 1:03:38Speaker 03

  That's fair. That's fair. So there is an argument to be made regarding the sophistication of investors or if you're sort of marginal investor. My response would be what actually matters is not your average investor, but the price setting investor, you know, the enemies that set the price. And so your opinion in the market is weighted by, you know, by the amount of capital you have, you know, the market cares about your opinion to the extent that you're a large market participant. And so, you know, I would probably discount the expertise or lack thereof of like the smallest holders.

• 1:04:15Anthony Pompliano?

  So the other thing that I think about a lot is, and I'm putting in the chat right now for everyone who's listening, the onthebrink.shop where you can go get the dice.

• 1:04:25Speaker 03

  Yeah, they're just going to run out in a second.

• 1:04:29Anthony Pompliano?

  The other thing I think about is when the halving occurs, there's more media attention, obviously. As more media attention, some people say, hey, I should go buy Bitcoin, whatever. And the additional user who joins, heard about Bitcoin recently, probably doesn't understand it, and is bringing additional demand that previously wasn't priced into the market all around that event. And so naturally, you just can't have it priced in. I think the argument would be if people have seen it three, four times, and they know that that's going to happen, then I guess they could price in that way. But it just feels like there's too many, it's too complex for it to be fully priced in. And I think if you zoom out, it's just like, well, 18 months later, the price is way higher. So is it always

• 1:05:10Anthony Pompliano?

  something other than the halving? Or is it have some impact, right? Or, and would you argue that maybe that is the pricing in?

• 1:05:16Speaker 03

  Yeah. So like, my view is that like Bitcoin is generally a function of, the price is a function of demand side characteristics as opposed to supply side. And the demand is a function of popular adoption. So it could be that we're basically describing the same thing, but with different language, where, you know, the world gradually discovers the utility of Bitcoin. And as they discover it, they adopt it. And one of the things that is utility is the supply schedule.

• 1:05:46Anthony Pompliano?

  Yeah.

• 1:05:47Speaker 03

  And so that could be one way to sort of harmonize our views.

• 1:05:50Anthony Pompliano?

  I will say that there's not many things in Bitcoin that can be said by two people who are both pro Bitcoin, that could create massive bifurcation of the community. If you were to tweet, the halving was not, or the halving was priced in, and I tweet the halving was not priced in, we'll both have, both sides screaming at us that we're right and wrong. And so it just feels like one of those topics where it's impossible to prove or disprove, but people have really strong opinions about it.

• 1:06:19Speaker 03

  I think in theory, you should be able to assess the veracity of the claim from, just by looking at the data and treating it like a, you know, natural experiment, looking at a bunch of halvings on a different coins. I don't know if anyone's done that analysis. But you could do an event study, probably.

• 1:06:38Anthony Pompliano?

  On other blockchains, yeah.

• 1:06:39Speaker 03

  Yeah, but you know, I guess, you know, some people would say it doesn't hold on other blockchains, it's a Bitcoin specific thing. So then it's more difficult because then we only have like three data points.

• 1:06:50Anthony Pompliano?

  I will say one thing about the Bitcoin community, it has forced me to be a much, much, much clearer thinker, because basically when you know that you're going to say something, the first thing I think of now is, okay, what are all the ways that some idiot on the internet is going to come and attack me? And the idiot could be pro Bitcoin or not pro Bitcoin, but like, there's always the reply guy, there's always whatever. And it does in some weird way force you to think more clearly and kind of more thoroughly before you say stuff.

• 1:07:14Speaker 03

  Yeah, I mean, my best critics for my writing are like anonymous accounts on Twitter. And so I think about them when I write, like, am I going to enrage them?

• 1:07:23Anthony Pompliano?

  Joe and John run two of them and they're actually...

• 1:07:27Speaker 03

  That would be me lately.

• 1:07:29Speaker 05

  I'm laughing because I'm on the Brink, on thebrink.shop and he has a mug that says the price, the having was priced in.

• 1:07:38Anthony Pompliano?

  So you can go, you can buy that as well.

• 1:07:40Speaker 03

  While supplies last.

• 1:07:44Speaker 03

  The having was priced in, that's my favorite mug.

• 1:07:47Anthony Pompliano?

  That is, that is pretty good.

• 1:07:48Speaker 03

  I like the wizard.

• 1:07:49Anthony Pompliano?

  Are we going to get in a, are we going to get in a dueling, a dueling e-commerce shop? Do we need a mug that says the having was priced in?

• 1:07:57Speaker 03

  You're giving us a lot of free promotion. Maybe I'll have you on my show and then we'll do your e-commerce shop.

• 1:08:02Anthony Pompliano?

  This, this is not in the store though.

• 1:08:05Speaker 03

  Uh, it's not. So we're probably going to add it, maybe, depends if you guys like it. You're my alpha testers.

• 1:08:10Anthony Pompliano?

  Yeah, we like it.

• 1:08:11Speaker 03

  But you know, it's my three favorite things, Bitcoin, USA and Camo.

• 1:08:17Speaker 03

  So.

• 1:08:17Anthony Pompliano?

  What a pitch.

• 1:08:18Speaker 03

  Put them all together.

• 1:08:20Anthony Pompliano?

  All right.

• 1:08:20Speaker 05

  I like it, it's cool.

• 1:08:21Anthony Pompliano?

  Everyone, we appreciate you guys tuning in today. Where can we send people to find you on the internet?

• 1:08:26Speaker 03

  Twitter, number one place, nick underscore underscore Carter. That's two underscores.