EP #32 Why Cryptocurrency Is Still Relevant in 2023 w/ Bill Barhydt

In this episode, Bill and Peter discuss the basics of crypto, how to get involved in the crypto world, and how the banking system will evolve. You will learn about: 21:09 | The 101 of Cryptocurrency 50:51 | Building Confidence In A System That Is Fully On The Internet. 1:20:17 | What Will Be The Tipping Point When Crypto Takes Over? Bill Barhydt is the founder and CEO of Abra, an all-in-one mobile wallet that allows its customers to buy, sell, trade, store, and borrow cryptocurrency. Barhydt is a serial entrepreneur who has worked with NASA, the CIA, and Goldman Sachs. Learn more about Abra. _____________ I only endorse products and services I personally use. To see what they are, please support this podcast by checking out our sponsors: Levels: Real-time feedback on how diet impacts your health. levels.link/peter Consider a journey to optimize your body with LifeForce. _____________ I send weekly emails with the latest insights and trends on today’s and tomorrow’s exponential technologies. Stay ahead of the curve, and sign up now: Tech Blog _____________ Connect With Peter: Twitter Instagram Youtube Moonshots and Mindsets Learn more about your ad choices. Visit megaphone.fm/adchoices

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

• 0:02Speaker 00

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• 0:30Speaker 01

  You think about all the frauds that have happened and all of the things that just we kind of repeat, long-term capital management in the prime broker space, the late 90s, now of course FTX. This stuff becomes, you know, almost impossible in a DeFi world. Now, we need probably another five to 10 years to really harden DeFi from a security and implementation perspective, but it is getting exponentially better already every few months.

• 0:59Peter Diamandis?

  And a massive transform to purpose is what you're telling the world. It's like, this is who I am, this is what I'm going to do, this is the dent I'm going to make in the universe.

• 1:11Peter Diamandis?

  Everybody, it's Peter. On this episode of Moon Shots and Mindsets, I'm with Bill Barhydt, who is the CEO and founder of Abra. It is a crypto bank, it's full disclosure, where I hold my Bitcoin and Ethereum. The world's seen ups and downs, and it's seen a number of exchanges go out of business over the last year, and a lot of folks are scared, they're concerned. It's like, what do I do? Well, Bill walks us through what's really going on out there. He builds an analogy, says, listen, the early days of the internet, the technology was working, right, in terms of all aspects of the internet, but a lot of companies were failing on top of it.

• 1:55Peter Diamandis?

  In the same way, the technology for cryptography and for Bitcoin and Ethereum, it is all working. We've had a number of nefarious players, who'll go into the details there. We'll be talking Talking about what his holdings are, how much he holds of his cash in crypto, how much of it is in Bitcoin, Ethereum, and why? We do an extraordinary 101 on the entire crypto arena. What is Bitcoin? What is Ethereum? What is DeFi? So if this is early in your investigation of this world, please check it out. Bill is brilliant. He is one of the top thinkers in this field.

• 2:39Peter Diamandis?

  Stanford, CIA, NASA, Goldman Sachs, and then seeing the opportunity around Bitcoin and starting Abra, really one of the first crypto banks. So what I got out of this episode were a number of things. Number one, the failures we've seen over the last year really have their roots in greed and do not actually disrupt my faith in crypto as a place to store my assets. Number two, Ethereum may be a little more of an advantage for my investing dollars than Bitcoin today, and we'll explain why. Number three, we're at about 200 million wallets,

• 3:23Peter Diamandis?

  and when we get to a billion wallets, that's Bill's prediction for when we'll see Bitcoin really skyrocketing up towards a million dollars a coin. That's just three of probably 10 takeaways. Enjoy the episode. Hi, everybody. Welcome to Moon Shots and Mindsets. Today is a conversation I've been waiting for with a dear friend who, for me, is my go-to thought partner and leader and really visionary in the field of all things crypto, a gentleman by the name of Bill Barnhite. Bill, a pleasure to see you. Hey, Peter. How you doing? Good, good. I'm in cold and rainy Santa Monica. How about you, Dave?

• 4:04Speaker 01

  Yeah, last day in Miami, so back to the, I'm flying into the rain in a few hours, so I'm gonna enjoy the last couple hours in the sun.

• 4:11Peter Diamandis?

  My goal for this conversation is to really dive into what is the state of crypto today? The state of Bitcoin, Ethereum, what's safe? What's going on, given all the recent meltdowns? What can people sort of derive from that and hope for in the future? At the end of the conversation, my hope, Bill, is that we're gonna have some clarity on what happened and where people who want to be using crypto, using Bitcoin, Ethereum, or other coins, where it's safe? And in the long term, what is the vision? Where things can go? Let me do a proper introduction of you. Bill is the founder and CEO of Abra.

• 4:54Peter Diamandis?

  And full disclosure, I use Abra. I'm an advisor to the company, so I'm definitely biased in this conversation and thankful to have Bill as a friend. Bill has a distinction of having dropped out of Stanford Graduate School, along with folks like Larry Page and Sergey Brin, all the greats dropped out of Stanford, I think. Was working at NASA at the time. Previous to that, was working in cryptography at the CIA. Your bio is like perfect for everything you're doing. And then became a senior analyst at Goldman Sachs, early at Netscape with Marc Andreessen. That was, probably got some cool stories there. And then you founded Abra. So here's the question.

• 5:37Peter Diamandis?

  What was that event that you said, "There is an opportunity and I want to create this thing called Abra"? What was the original vision? Because for a lot of folks, for me, the founding story of an entrepreneur, that energy, that aha moment. So what was it for you?

• 5:55Speaker 01

  So, for me, it was a convergence of like so many different things in my career. From earliest cypherpunk days, I had hair down on my shoulder, the earring, the whole thing, you know, we were all about. Where is the money for the internet? Where is that digital money? And a lot of us thought that that problem was unsolvable. The idea of trustless money. That documented all the way back in books that I can show you from the 80s and 90s to work that I had done in emerging markets. I had started a foundation in Haiti where we were trying to do remittances and mobile money on the ground after the earthquake back in 2004, 2005. And it was a disaster dealing with international regulations.

• 6:40Speaker 01

  Multiple countries, state MSBs and money service business regulation in the United States, international correspondent banking law which came to the forefront when we kind of canceled Russia after the Ukraine invasion by shutting off their access to SWIFT. And, you know, but I was trying to help people sending $50 around, right? Haiti happens to get a third of its GDP from taxi drivers here in Miami and New York sending money home.

• 7:04Peter Diamandis?

  And people don't realize the overhead cost of doing that.

• 7:08Speaker 01

  Crazy, right? It can range from 6 to 20% of funds depending upon the competitive nature of the market. But that's only one of the problems, right? After the earthquake, the Western Union outlets were flattened. So the United States Army was flying, helicoptering cash into Haiti in order to deal with the problem because the outlets were under rubble. And so I was looking at ways to use feature phones because they didn't even have, you know, smartphones. A lot of them still don't or data access, right? So anyway, so I was fighting all these battles, many of them losing battles. And I'm knee deep in the tech as it relates to what we call financial engineering.

• 7:49Speaker 01

  And there's always been this kind of underground movement to apply cryptography to money. And there's been events that, that kind of, you know, the tech nerds attend over the last few decades related to what we call financial cryptography. And, but we've never been able to solve this so-called double spend problem. And that was the problem that Bitcoin solved. So back to your original question, when I saw that this guy or group or gal, whoever it was, thought that they had really solved the double spend problem, I was like, there's no way. I mean, you know, bright minds have been trying to solve this problem for two decades since, since public-private key cryptography existed and no one has been able to solve it.

• 8:27Peter Diamandis?

  How many times did you read the white paper and call bullshit?

• 8:30Speaker 01

  Well, okay, so I wouldn't say I call bullshit because I read it like probably sixty, ninety days after it was published on the cryptography mailing list and I was like, I kind of understood it. And my first reaction was, I think this guy thinks that he's going to use every single computer in the world to solve this problem, which is what mining is meant to do. And I said, well, that's not realistic. And that's part of why I'm convinced, by the way, that Satoshi is not an academic. Because it's, on the one hand, you could say it's an elegant solution, but it is without a doubt the most inefficient solution you could probably come up with. I mean, Bitcoin is without a doubt the most inefficient transaction processing system ever created, but it wasn't created to be efficient. It was created to solve the double spend problem, right?

• 9:13Speaker 01

  When you're at Goldman, it's all about cost per transaction cycle. And you drive that down, you know, in the nineties it was via Linux, in the early 2000s it was via Linux, and now it's via other means and, you know, et cetera, et cetera. And that's not Bitcoin, right? But it exists to solve a very different problem. Eliminate the state, eliminate trusted third parties. And then, so I came back to it a few months later, and I said, I said, yeah, you know, I actually think this could work. It's crazy. It requires mass adoption to work. It's one of these things where it really only works well if everyone is using it. Just because of the nature of mining and proof of work and nodes, the security of Bitcoin

• 9:58Speaker 01

  increases as the amount of computation power increases, the number of nodes increases, the number of wallet increases, et cetera, et cetera. And I said, okay, that's, it's interesting. And so finally, I kind of dug in, and within a year, I was all in.

• 10:11Peter Diamandis?

  So this is what, 2010, 2011?

• 10:15Speaker 01

  2010-ish, yeah. And then I met, I was traveling a little bit because of the work I was doing in the money transfer world. And I had, I attended TED conference every year, and I told them about my research in this area to try to see what was going on. I was trying to get the mining software to compile, which was a nightmare in those days. And they said, you should talk to, you should do a TED Talk on this because I don't think anybody really understands that this is a big deal. I said, I don't think anybody's even heard of it. Never mind understands that it's a big deal. Silk Road had just started, it was trading for like maybe a buck. Right? And you can only get it on Mt. Gox, which we all know what happened there. And or maybe maybe those of us on the inside know, but Mt. Gox was kind of the first failure that preceded FTX by like, you know, 10 years.

• 11:00Speaker 01

  And there was, you know, some supposed fraud and theft going on there, not to the obviously degree of FTX, but the entire space was very small. It was like a billion dollars at the time, whereas now the space at the time of FTX was a trillion dollars, right? Which is insane. And so, you know, I ended up doing this TED Talk in 2011, and I think Bitcoin maybe was $1.50, $2. I think maybe it got up to $3 and then back to $1. And oh my God, it went from $3 to $1. It was all fraud. The whole space is going to die. And, you know, so that was the first kind of 75% pullback we ever had in price, right? And now it moves $2 a second in price.

• 11:40Speaker 01

  And so, you know, I've seen, you know, kind of back to your original opening commentary about where this market's at, I have to separate in my mind, trading and price and the value that the movement from a technology perspective is bringing. So if you go back to like, like 2000, right? The dot com is imploded. It's all garbage. The internet was a waste of time. The internet was working just fine. It was scaling. You had, you know, you had new backbones being built to basically interconnect, you know, to lay the lay the groundwork for future home internet. You had fiber being laid. You

• 12:22Speaker 01

  had, you know, the beginnings of these Web 2 apps that were being built, and everything was working fine. What wasn't working well was public markets and retail investors who were getting crap dumped on them way too early in an investment cycle. And so the crap got flushed out from 99 to 2003-ish, right? Or 2002, 2003, as maybe if those of you who were alive remember.

• 12:49Peter Diamandis?

  Still very painful memories.

• 12:51Speaker 01

  Yeah, for a lot of people and, and I get it, right? I was part of it and I remember, you know, I had some investments that went to crap and, and some of that made money and, and but, but I remember thinking, none of this matters long-term for the viability of the problems that the internet itself is going to solve. The adoption is growing exponentially. It can't be stopped. Then of course, you know, I think it was 15 or 16 years ago today, Steve Jobs announced the iPhone, which basically created a second revolution there around access. And it didn't matter that the public markets, I mean, not, not, not to downplay the value of the money that people lost, because we're going to come back to that, it relates to

• 13:36Speaker 01

  crypto, but, but the space of the internet providing information access to the, to the billions of people who could use it for the first time, plowed ahead, exponential growth, and we know where we're at today. And it's invaded every single part of our lives. And I would certainly just as soon give up pretty much every other vice in my life before I give up access to the internet and, and my phone.

• 14:04Peter Diamandis?

  There's another important part there, which was in the 99 to 2000, uh, early 2000 period, it was the consumer feeling comfortable putting their credit card in, right? It was consumer adoption of trust, right? It was, uh, it was this strange, uh, mechanism of exchanging money for products that was, can I believe it? Is it going to get stolen? And I think that same, that same situation is present here in, in the whole crypto space.

• 14:37Speaker 01

  Yeah, I worked on this, even in my Netscape days, I worked on one of the first credit card gateway, uh, still a trip down memory lane today, credit card gateway projects for the, for the internet. And, um, it was a disaster at the beginning because we had two versions of the Netscape browser. We had the version that you could use in the US. And then because, um, you know, Netscape, we created SSL, which is the S in HTTPS. And I was a little involved in that because I worked on creating, setting up some of the certificate authorities outside the US. When you set up a web server, you have to put a certificate on there in order to create the encrypted connection. We had a second version of the browser. That we were allowed to export because the encryption in SSL was considered munitions-grade cryptography laws dating back to World War II.

• 15:19Speaker 01

  Which meant that the SSL version that we could export, you could hack. And everybody knew it, that the NSA could hack the version of SSL that we were exporting. And so, of course, I'd go to meet with all these banks and ISPs and e-commerce players and the AOL equivalents in Europe. And they'd say, "Well, F this. We're not going to basically support this. You know, it's a disaster." And so, of course, eventually, we figured it out. Phil Zimmerman put his famous PGP key on his shirt in order to prove that your export laws were nonsense. And eventually, you know, other competitors like Opera and others started building browsers in Europe to get around the export regulations. And finally, the Commerce Department capitulated.

• 16:03Speaker 01

  And my point is, is that we've been dealing with this Commerce Trust issue for a long time. So, the broader point that I wanted to make as it relates to kind of crypto is that the internet plowed ahead. Right? The technology, the entrepreneurs, the underlying research, the infrastructure. It just continued to evolve, be built. The adoption was exponential. Crypto is seeing a similar thing play out. The difference with crypto versus most tech is that because of the tokenomics of a lot of these protocols, the public has access to buy a lot of these tokens very early in the lifecycle of these projects. As opposed to, let's say, stock that you might sell in a very early-stage venture capital

• 16:48Speaker 01

  deal where the public has no access because it's not traded, it's a private company. Right? And so, that happened a little bit in the late-stage dot-com era when companies were being pushed into public markets very, very early.

• 17:00Peter Diamandis?

  This is a really important and beautiful analogy here, right? Because the whole point is, if you're wealthy enough to take the risk... Right, if you're a investor who is able to lose the capital in the venture markets, if you're an accredited investor, then the Securities and Exchange Commission says, "Okay, you're smart enough or dumb enough to lose the money." But you're right, companies were just going public. I remember the ridiculous evaluations and they were being, it was pumped and dumped. And yeah, the crypto market right now, all the tokens and coins that are being put out there and anyone can buy them.

• 17:43Peter Diamandis?

  And it's all being purchased on a hope and a prayer and what their friend told them at 4:00 AM in the morning.

• 17:51Speaker 01

  Right. Now, if I would, I don't develop kind of base layer protocols for crypto. I don't do that. If I was, I would figure out a way to do it where it was fairly distributed like Bitcoin, right? Where there's no buddy who got a bunch of tokens upfront. Even Satoshi and the few Genesis blocks had to use hardware to mine. It didn't pay very much because they weren't competing, but they did the same thing with their laptop that, you know, a mining farm does with millions of CPUs today, running in Texas on its own grid. Okay, that's fair. You could make the case that, you know, the way Ethereum did it was fair because they

• 18:33Speaker 01

  didn't open it up to a large retail investor base until the network was actually running and you couldn't really buy and sell it at large scale. That's not completely true, but it's mostly true. Most of these protocols today, they become accessible to the retail investor very, very quickly, often before the product is live. I have a problem with that. But it's also the free market. Okay, so I also don't believe in the accredited investor rules and I know that I'm in a minority in that space. I think if you can go into a casino and drop $10,000 playing roulette, I think you should be allowed to do this. Now, I don't think, I think you should be punished if you're pushing fraudulent stuff on the consumer, right? So that's where I come out on that as well.

• 19:16Speaker 01

  So, but these are a bunch of different issues intersecting at the same time. Okay? The technology works. The idea that you can have decentralized computing, decentralized smart contracts to replace the banking stack, to replace gaming, to replace money, that is working.

• 19:39Speaker 01

  Right. If you look at the companies that failed, it was centralized actors in this crypto space that failed. DeFi or decentralized finance kept working.

• 19:49Peter Diamandis?

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• 20:29Peter Diamandis?

  If I eat bread by itself, I get this prolonged spike in my blood glucose levels. But if I dip that bread in olive oil, it blunts it. And these are things that I've learned from wearing a continuous glucose monitor and using the Levels app. So Levels is a company that helps you in analyzing what's going on in your body. It's continuous monitoring 24/7. I wear it all the time. Really helps me to stay on top of the food I eat, remain conscious of the food that I eat, and to understand which foods affect me based upon my physiology and my genetics. You know, on this podcast, I only recommend products and services that I use, that I

• 21:11Peter Diamandis?

  use not only for myself, but my friends and my family, that I think are high quality and safe and really impact a person's life. So check it out. Levels.link/peter. Give you two additional months of membership, and it's something that I think everyone should be doing. Eventually, this stuff is going to be in your body, on your body, part of our future of medicine today. It's a product that I think I'm going to be using for the years ahead and hope you'll consider as well. So I want to take a second and talk through the terminology here. For folks who are coming to this in the beginning, you know, you've purchased some Bitcoin or Ethereum, but you're not really sure what's different between a token and coin.

• 21:55Peter Diamandis?

  What's a, we talked about Abra as a bank, what exchanges, DeFi, security. Could you give us the 101 here to define the terms?

• 22:04Speaker 01

  Yeah, let's do a primer on all the moving parts here and break it down. So what's really interesting about Bitcoin is it's that it's the first money that we've ever had for the internet. So we're going to put Bitcoin in its own bucket. Bitcoin represents something totally new that has never existed before Bitcoin. And that is decentralized money that runs on the internet that you don't need to trust any third party to hold or use, right? And you basically can choose to hold it by holding a private key. You can either memorize it in your head, have it on a piece of paper, put it in a hardware

• 22:47Speaker 01

  wallet, put it on a phone, and no one else can ever see it if you do it that way. Or you can trust a third party like Abra or a crypto exchange or a bank to hold your Bitcoin. That's Bitcoin and does nothing else. You can move it between two people, you can hold it, that's all it does. It's really meant to act as like a digital gold and eventually act as the base layer for a new monetary system.

• 23:13Peter Diamandis?

  And just take a second here, you know, the reality is you can move millions of dollars in seconds. And there is an advantage there. I mean, it's interesting, most people don't realize the reason that the US Treasury decided to only, the maximum currency we have is a hundred dollar bill to make it difficult to move large amounts of money for nefarious purposes, right? It used to be, I think we had probably like $10,000 bills, you know, decades, decades ago. And then, of course, moving gold is very heavy metal, so it's a challenge.

• 23:56Peter Diamandis?

  So it's being able to move things very rapidly any place around the planet for effectively frictionless, very little cost. So that's a major advantage as well.

• 24:06Speaker 01

  And that's also done, what you're describing is done for the bad actors because good actors are, you know, the government's definition of good actors is basically people moving ones and zeros around anyway. The paper cash never moves anymore. A lot of it's just held at the Fed and banks are basically moving ones and zeros around. So Bitcoin itself, think of it as basically a base layer monetary system that for the first time requires no banks, no government, no trusted third party.

• 24:35Speaker 01

  Only thing it requires is the internet and there's even projects that have been done to basically do this over radio satellite connectivity that doesn't even require, you know, ethernet type of connectivity itself to continue running because the, you know, obviously the internet is normally required to access a Bitcoin note.

• 24:53Peter Diamandis?

  And Bitcoin is unique, Bill, because there is no other, I mean, there are other versions of Bitcoin and Bitcoin could be duplicated, but the fact of the matter is it's pervasive and the number of holders and miners make it massively dominant. What's going on there?

• 25:11Speaker 01

  It's got the network effects, right? So it's got probably 100 million plus holders now, if not more. It is the only large scale, what we call proof of work mined cryptocurrency. And that means that it uses this mining concept where a bunch of computers are trying to solve a game every 10 minutes in order to win more Bitcoin. And in theory, they're expending energy in exchange for winning the Bitcoin. And they're also processing any transactions that were pending from the previous 10 minutes that they can fit into their kind of checkbook, if you will, during the next 10 minutes. That's what these miners

• 25:52Speaker 01

  do. And in exchange for that, they simply compete to win Bitcoin for processing these transactions. And it is the only network of that type that has achieved massive global scale. And kids are forking Bitcoin at MIT all the time. Just go into the GitHub or whatever, source code, you fork it, you create a new version. Litecoin was created that way, right? For example, it's kind of like a silver, and a lot of the Maxies hate it when I say this, we've like a silver to Bitcoin's gold, but, but it's, it's, it has, you know, and some of these forked projects are interesting for a couple of reasons around Bitcoin itself. I'll get into Ethereum in a second in our primer. But, but like you think about Litecoin and some of these other projects, they fork Bitcoin and then these PhD grad students,

• 26:37Speaker 01

  they start testing different things that you don't want to test on the Bitcoin network. Bitcoin is like, you know, our friend Michael Saylor says this, it's like gold. Well, you can't change the atomic structure of gold. So it should be very hard to change the structure of Bitcoin. And he's right, it shouldn't be impossible because it is software, but it should be very hard. So you don't want to basically be doing like a Windows-like upgrade every two weeks for Bitcoin. That would be very bad, very risky, right? So that's one of the great things about these forks that these kids from MIT and other places do, that they can test all this crap that they want to try. Like, there's all kinds of new algorithms and technologies and, you know, ZK snarks

• 27:19Speaker 01

  and Mimblewimble and all these other buzzwords that they throw out that they're testing on these forks of Bitcoin. And sometimes the new technologies make their way into Bitcoin and most times they never do. And that's great. Okay? So a lot of that forked stuff is a testbed we need to move the space forward. So that's part one in the primer is that we now have a decentralized monetary network in Bitcoin that we've never had before. Right? And it gets, the more it gets used, the more secure it becomes. That's a feature of the network.

• 27:54Peter Diamandis?

  Got it.

• 27:56Speaker 01

  Somebody came along a few years after Bitcoin and said, hey, you know, Bitcoin is great for all the reasons I described, but what if we could add programs to Bitcoin? Meaning, you could actually have programs inside of Bitcoin. We call these programs smart contracts. They're smart because they run out on the internet without a trusted third party. So you're not using a cloud service to run your software. You're using the entire internet to run your software. That was the idea that Vitalik had, Vitalik Buterin, the creator of Ethereum, had was to basically extend the idea of Bitcoin with smart contracts. And again, that became Ethereum.

• 28:40Speaker 01

  And so Ethereum effectively acts as the world's computer. What do I mean by that? So the world's computer is different from client-server, where you have an application running on a server and you can access it via your smartphone app or a web browser. It basically uses all these nodes running all over the internet to run. And it used to use a proof-of-work model, very similar to Bitcoin, to run these smart contracts.

• 29:09Speaker 01

  And because of the computing power and energy consumption required by Bitcoin, the Ethereum community decided to migrate to a different technology platform called Proof of Stake. There's a lot of resources online about how Proof of Stake works, what it is, but it uses, the most important feature is it uses 99% less energy than, or more percent less energy than Bitcoin itself, and sets Ethereum up to scale to Visa and MasterCard like numbers. Meaning Bitcoin itself is not very scalable, and it's not meant to be. Again, it was not meant to be efficient, it was not meant to be scalable, it was meant to solve one problem, and that was to be decentralized and be completely trustless.

• 29:54Speaker 01

  And it does that incredibly well. Whereas Ethereum, because it's meant to be the world's computer, actually does need to scale. So what they need to do is they need to make a trade-off, which you're always gonna have to make now in this new kind of blockchain world, between a certain amount of scalability and a certain amount of security, which Proof of Work provides for Bitcoin. And so Proof of Stake is setting up Ethereum to scale to Visa and MasterCard like numbers over the next couple of years. Okay? And there's a lot of resources you can go to online around some of the new technologies that you're gonna see that help Ethereum to scale. So this is part of the point I was trying to make before, that with all of this stuff,

• 30:35Speaker 01

  this bad stuff that people are hearing about, online about exchanges and whatnot, the technology here is plowing ahead. Bitcoin was upgraded last year, Ethereum was upgraded last year, it's about to be upgraded again in the spring, another major upgrade. And these upgrades are super important for Ethereum to become the backbone for the future of banking, you know, gaming, and a whole bunch of other, you know, applications that we can talk about. All right? And so now, there are competing technologies to Ethereum, right, that offer smart contracts. Some of your, some of our viewers here maybe have looked at them to buy the tokens, but

• 31:19Speaker 01

  Solana would be one, Cardano would be another one, and there are others. Okay? And they're all basically those levers that I talked about, they're using the levers in different ways to make different trade-offs. Right, um, and that services different communities over time and the competition is great. Now, from a price perspective, because all these tokens are publicly available, they do kind of tend to move in, in, in sync. Right, with, with the exception that it all kind of moves with network effects. So the stuff that gets the most network effects is the most volatile, up and down.

• 31:58Peter Diamandis?

  And is price simply a function of demand and supply? Is it basic economics here?

• 32:06Speaker 01

  No, it, it, well, it depends on your definition of basic economics. But if you actually look at price charts for things like Amazon in the nineties, when money was really cheap. Um, it looks a lot like what was happening with Bitcoin and Ethereum at similar points in time. Plus the network effects of adoption. Right, so folks like Paul from Real Vision, others have looked at this from a macroeconomic perspective. We've looked at it as well. The two things, the three, there's three things that really matter for exponentially growing technologies. When you're trying to price them in public markets. Number one is money supply. Things that move exponentially get an outsized price movement when the money supply is increasing. That's number one. That includes tech stocks, the FAANG stocks, et cetera, et cetera.

• 32:50Speaker 01

  And they also are more volatile to the downside.

• 32:52Peter Diamandis?

  And, and the reason for that, Bill?

• 32:55Speaker 01

  Investors have more money, investors have cash that they have to put somewhere with the expectation that the money is free. And that there's more money coming because the money is free. And so the expectation is these things are growing faster, so we should put the money there. Makes sense, okay?

• 33:08Peter Diamandis?

  Yep.

• 33:08Speaker 01

  Like Tesla, right? It, it, it's not because everybody thinks Elon the genius, it's because the damn thing's growing so much faster than everything else. But in a down market, when they're tightening the money supply, the things that move exponentially tend to move down faster. It turns out crypto is no different in that regard. So that's point number one. Point number two is it's relative, as I said, to exponential growth. So if you have an asset that is growing exponentially, like Amazon was in the late nineties. Right, it got the, the, the huge benefit of the move up and also lost eighty percent of its value in two thousand. And just like Bitcoin and just like Ethereum. I can show you stock, stock charts that are scary because they look, you, you wouldn't know the difference unless I told you which one you were looking at.

• 33:52Speaker 01

  Right, so, um, you know, and, and, and then there's a third aspect to this, which has to do a little bit more with the application of it, meaning, what am I using Bitcoin for? What am I using Ethereum for? But, but believe it or not, it's the first two that in the early days are driving the price even more, the network effects and the money supply. All right. Now Ethereum is interesting because it has all of these applications that are live now. Um, you know, there's three kind of killer apps that are already basically generating billions of dollars in revenue. So people who stake Ethereum or process Ethereum transactions actually make a lot of money.

• 34:38Speaker 01

  Okay, and the money comes from three applications. The first is DeFi, right, or decentralized finance. So back to our primer, what is decentralized finance? So that most people have no idea how the banking system works. Right, what's the difference between a checking account and a money market account? All I know is if I move my money over to the money market account, I get a little bit more interest. Why? Why is that happening? The average person has no idea why that's happening. There's a reason why it's happening, right? The bank is putting the money to work and, and, you know, repo transactions and other things that actually generate income and you get a tiny, tiny, tiny piece of that. Okay. Whereas in checking accounts, it's, it's more of a reserve model and therefore there's, there's generally no interest paid. And, but there's a whole bunch of, there's a stack to the banking system of services

• 35:22Speaker 01

  and interconnects and interbank lending and Federal Reserve interconnects and SWIFT and all this other stuff that no one has any idea what it means. But it's all necessary to make the current system work. Decentralized finance attempts to take that entire system and rebuild it basically without the banks, without the Fed, right? Banks are closed way more than they're open. Stock markets are closed way more than they're open. Right? You know, not, not even counting holidays, just nine to five. Stock markets are closed, or closed like 18 hours a day. DeFi is meant to be open 24/7, have no borders, be always on, right?

• 36:06Speaker 01

  The first kind of like killer, these truly decentralized application for consumers, right? Uh, was actually music file sharing. Right, so the first kind of file sharing sites that you couldn't shut off were an example of a decentralized application. Right, so Napster was one that was centralized and it got killed, got crushed. Right, and so then everybody moved to decentralized systems. And so BitTorrent being the most famous one, which is where the bit comes from and Bitcoin. And, you know, to this day it runs. Whether you like it or not, it's there, just like some P P A.

• 36:44Speaker 01

  Okay, so DeFi is basically taking lending, Forex, the ability to move between coins, the ability to borrow, the ability to issue equities and moving all of that into smart contracts running on the Ethereum network or competitors to Ethereum. Taking everything that we've built since Bret Woods in the United States and rebuilding it on smart contracts.

• 37:11Peter Diamandis?

  And Bill, you know, I looked into DeFi, I never dove into any of the liquidity pools or exchanges there, but the returns were crazy that were being offered.

• 37:25Speaker 01

  It's very simple, in the early days of these systems, there's not a lot of users. And so the early users are getting outsized benefits of, you know, because there's two parties with transaction, I have to pay the other party to incentivize them in the transaction. And so that will stabilize into normalized interest rates, fees over time as more and more people enter the system. But the beauty is there's no company in the background making decisions. The network figures it all out on its own. What interest rate do I have to pay to get more money in the system in order to lend more? It's all automated. So when companies were dying, when BlockFi died and Voyager died and Celsius died, FTX

• 38:10Speaker 01

  died, they were centralized actors making very bad risk management decisions. And we didn't know that until they died. You could look at these smart contracts, right? And they were working just fine. As a matter of fact, some of the companies that died had lent money to these contracts and they had to basically pay back the loans or they were going to have their collateral liquidated. So they wouldn't pay back the courts, but they paid back the DeFi contracts because the DeFi contract wasn't willing to negotiate. It was literally going to liquidate them. And the court said, we get it. You have no choice. Do what you have to do. Right? And so that's just proof that the DeFi model worked. It's getting a massive amount of investment. It will continue to do so. It is the future of banking.

• 38:52Speaker 01

  But we're in year, look, the term didn't exist four years ago. It's brand new. So we're in year four or three of 20 in order to rebuild the banking stack. And it's incredibly exciting. And it's accelerating. Right? I predict that in 20 years, the highest market cap banks in the world will be based on DeFi rails.

• 39:13Peter Diamandis?

  If somebody new to this wanted to explore DeFi, what would be, besides, you know, popping up and watching a few videos, what would be their on-ramp there?

• 39:24Speaker 01

  Yeah, I mean, there's so many, there's another podcast called Bankless. They dig in. It's a little bit technical. It's not a good primer if you're not already into it a little bit. There, if you just basically Google DeFi, I can send you some links for the show notes. We've done a bunch of podcasts on it at Abra. We have a show called Money Talks where we've dug into what DeFi means, how it works. It's not for the faint of heart, but once you go down the rabbit hole, it's super exciting just to realize that you think about, like I was watching the Bernie Madoff documentary. Crazy what happened there. You think about all the frauds that have happened and all of the things that just we kind of repeat long-term capital management in the prime broker space, the late 90s, now, of course, FTX.

• 40:09Speaker 01

  This stuff becomes, you know, almost impossible in a DeFi world. Now, we need probably another five to 10 years to really harden DeFi from a security and implementation perspective. But it is getting exponentially better already every few months. Just given the sheer brain power that's moving into it. But yeah, we can provide some links there. I think that some primers that are super interesting. So that's one application, right? So back to the primer. So we have DeFi. Then you've probably heard of stablecoins, right? So what is a stablecoin? A stablecoin is a way of taking a dollar. And making it available as a cryptocurrency token itself. And why would someone do that?

• 40:52Speaker 01

  So the original reason ironically was was that exchanges couldn't open bank accounts because they were considered high risk businesses, just like cannabis companies or firearm sales, money service businesses like Western Union, totally legal businesses, regulated, licensed, but for whatever reason, the government considers them high risk, so they couldn't get a bank account. So somebody invented this idea of a stablecoin. They said, hey, our company can get a bank account. So we'll put a bunch of dollars in the bank, equal to the amount of dollars that you're depositing, and we'll give you back tokens equal to the value of the dollars, down to the penny. And you can move it as many pennies as you want around, as many dollars as you want around, and the dollars in the bank simply won't move. And that's what a stablecoin is.

• 41:36Speaker 01

  It would be like having poker chips in the physical world that you would spend at a store, knowing you could go back to the casino, you go back to the Bellagio to get your dollars out of the token. Okay. Got it. I wouldn't recommend that, by the way, but but but you know, it's the kind of analogous idea. Now, it's incredible from its early adopters in the exchange space, which was the use case, that couldn't get a bank account. Now it's used for cross-border money transfer, supply chain finance, DeFi, lending, cross-border lending, remittances. It's insane how and and and exciting how the stablecoin space has quickly evolved,

• 42:17Speaker 01

  entrenched itself in so many applications, just like DeFi is rebuilding that stack. There's a whole new kind of industry revolving and evolving around the stablecoin space, including some exciting work on the regulatory front. And there's a competitive aspect to that with governments now looking to potentially do this, right? Stablecoin is the phrase that we tend to apply to private companies doing this, like Circle or Tether. These are private companies set up by entrepreneurs with venture capital funding in most cases. Then there's the central bank digital currency, where governments might be looking to issue their own version of what we're calling a stablecoin. But it's not actually a stablecoin because they don't need to put a dollar in the bank

• 42:59Speaker 01

  because they're the ones creating it. So meaning if the government issues a digital dollar, that is the dollar. The token itself is the dollar. I have a major problem with that, but there's a lot of different opinions on it. My biggest problem with the digital dollar model or the central bank digital currency model is, is that China's version of this can track everything you do, everything. So, once you start spending that digital you want, they know everything about you. They know the entire history of every movement of that digital you want and everything you've purchased with it, who you've given it to, where you've been, et cetera, et cetera. I have a major problem with that because if you're using paper money, the government doesn't have those rights because technically it's impossible to track, right?

• 43:44Speaker 01

  So, so anyway, so that's the stablecoin, right? And then the third is this new area that, that we've all been talking about and I know you've been looking at as well, which we call, you've heard of this, this three-letter acronym, NFT. NFT stands for non-fungible token. So, stablecoins are meant to be fungible, meaning my dollar should be the same as your dollar. Okay, not always true, but, but it should be true. Um, and, and so, uh, an NFT is non-fungible insofar that my piece of art is not the same as your piece of art. The key to your house is not the same as the key to my house.

• 44:29Speaker 01

  So, you can basically create digital tokens that exist on the Ethereum blockchain that aren't fungible with each other. And, and the space that has gotten the most traction in this area so far is digital art, which makes sense because art is not meant to be fungible, right? Meaning my art object is not the same as your art object. But the applications here are endless, probably even bigger than,

• 44:54Peter Diamandis?

  We could spend an entire day on that.

• 44:56Speaker 01

  But big.

• 44:56Peter Diamandis?

  On that conversation.

• 44:57Speaker 01

  Exactly. Exactly. So, huge massive space and also emergent from the Ethereum network itself. Actually has its roots back to Bitcoin, which is a long conversation, but really emergent in the Ethereum network itself. So, those three killer apps, decentralized finance or DeFi, stablecoins, NFTs, all built on Ethereum, all processing trillions of dollars in transaction volume today.

• 45:23Speaker 01

  Doesn't care, the network doesn't care about exchanges, doesn't care about the price, doesn't care about FTX or fraud, it just works. Again, just like the internet worked in 2000 when pets.com and others were dying.

• 45:37Peter Diamandis?

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• 47:06Peter Diamandis?

  in terms of sleep, Peak Rest is my go-to supplement. Hope you'll enjoy it. Go to mylifeforce.com/peter for your discount. I mean, I think this, this point you've made now four or five times is probably one of the most important points out there, which is the fundamental technology is not the issue and is not what has caused the challenges we've seen over the last, over the last year in particular. And I do love the analogy, I do the internet, because today we don't Take a microsecond to think about whether the Internet is safe, secure, if it's working. If you see it there, it's well represented and it is, you have a, you know,

• 47:50Peter Diamandis?

  five nines reliability that it's going to execute as you expect it to. And I think, where are we? How far out are we, do you think, on, in the crypto world from that same level of confidence?

• 48:09Speaker 01

  Yeah, I see where you're going. So, let me put it this way. When you could first process credit card transactions on the Internet, back to your earlier comments about the trust, the first companies to adopt this were nefarious actors. There was a lot of porn, there was a lot of garbage, there was a lot of frauds and scams. I would posit that there's probably even more of those frauds and scams today than there were in the early days of the Internet. But nobody talks about it anymore. We don't talk about it as much anymore because it's been totally diluted with all of the positive stuff. Everything we use the Internet for all day long, right? Buying stuff on Amazon, you know, using Netflix, you know, using your iPhone, you know, using your dating site.

• 48:51Speaker 01

  All the positive stuff that we use smartphones for. I believe that the positive applications of crypto are going to dilute all of the bad stuff in the same way that it happened on the Internet itself. We're already seeing it with the examples I just gave you, okay? With Bitcoin as sound money. Now, look, if you're in Ukraine, we have employees in Ukraine, at Abra, all right? If you're in the Ukraine, Venezuela, Turkey, even Russia, this is not pie in the sky stuff. You have problems with the banking system and money right now and you have a very good chance of being using Bitcoin right now or stable coins right now.

• 49:34Speaker 01

  This is real for these people. We're talking about hundreds of millions of people, right? And that's not to mention, you know, just... Poverty famished countries that are starting to look at Bitcoin to very quickly make internal payments because they can't get cash out into these places. And by the way, cash is disgusting from a health perspective. So if you're in a war zone or a place, if you're in a place where, you know, I, I, well, I was in Haiti at the earthquake, earthquake, we had a big cholera problem. And so because I was traveling a lot, I was asked to help the UN people out and bring cholera medicine with me. And, and one of the things that I learned very quickly was, was, you know, if you're handling money, unfortunately, you have to wear gloves because it's disgusting what's on the money. And, and, and that's true in the US, by the way, it's, it's not picking on Haitians, right? I mean, if you

• 50:19Speaker 01

  actually do an examination, there's, there's fecal matter on the average five dollar bill, right? So, uh, and, and my, my point, my, my point is, is that if you're in these areas, there's a really big advantage to actually having a digital bearer instrument because you can't have a bank account. The Haitian government can't afford to open bank accounts for people holding 50 cents. Right? So, so this model is infinitely cheaper for them to be able to, to do that. Right? So these people are using this technology today. So to your, to your question though, about, you know, how far until it becomes kind of, you know, either mass adopted or whatever, you're not going to know it. Meaning you don't know how Netflix works, or your view, most people don't know how, yeah, you do,

• 51:02Speaker 01

  but most people don't know how Netflix works. Most people don't know how Google search works. Like, just like they don't know how the banking system works. And, and there's a lot of complicated internet technology going on behind the scenes to make it work. Like I said, banks are going to adopt DeFi, you're not going to know it. That's when we know that it's here to stay.

• 51:21Peter Diamandis?

  There is a challenge though, that I have faith in the internet, to use that generalized term, because I know I'm using it on a thousand different, uh, apps and, and, and, uh, and applications.

• 51:38Peter Diamandis?

  If I don't know that I'm using a Bitcoin or Ethereum network, is it going to provide the same confidence to me when I'm thinking about it?

• 51:49Speaker 01

  Yeah, it depends who, when you say, who is me in this question, right?

• 51:54Peter Diamandis?

  In this case, it's the average user, right?

• 51:56Speaker 01

  Yeah, if it's the average consumer, there's a lot of cases where, you know, if you're in, like I said, if you're in Ukraine or in a war zone or in a country where the banking system has gone to shit or in Argentina where it goes to shit every 10 years, right? You are going to know that you're using Bitcoin. You are going to know that you're probably holding a dollar stablecoin because you don't want to trust the banks. So those people have an acute need.

• 52:21Peter Diamandis?

  Yeah, this is one of the conversations that I had with Michael Saylor, which is, you know, if you truly want to create abundance in the world, you're going to have to adopt Bitcoin or Ethereum or basically a cryptocurrency that allows you to retain the value of the work that you've been creating before centralized banks destroy it for you.

• 52:45Speaker 01

  Yeah, Bitcoin is the ultimate insurance policy on government policy run amok for 50 years, right? One of the charts I've shown, and I've shown it at your events, is basically what happened in 71, when we came off the gold standard. And the price of goods and services in the West basically went from Bretton Woods in the 40s was like this. 1971, price of goods and services went like this. Why? Well, the whole point of taking us off the gold standard, it was a bait and switch. Bretton Woods turned into one big bait and switch. And Nixon got on TV and said it was really about the FX traders and all this. And it was all basically pulling the wool over the average person's eye because he knew that in 50 years, everybody who voted for him was going to be dead anyway. So it didn't matter, right?

• 53:29Speaker 01

  It really was, it was one big bait and switch. So now, you know, the money becomes worthless, now worthless, well, at the time worthless, now worthless. And that's what happens when governments do this. Argentina is unbelievably efficient. It's like having a matrix every generation. And they've become exceedingly efficient at destroying the people living inside the matrix. And now we finally have an alternative in Bitcoin where you have the ultimate insurance policy. As long as you have access to the internet. You have access to Bitcoin and the governments by and large can't stop it. Even China with all the the hemming and hawing that they've done doesn't stop their population from holding Bitcoin because they know they can't.

• 54:12Speaker 01

  They they've stopped the miners from accessing the electricity grid, but they can't stop their own people from holding Bitcoin.

• 54:18Peter Diamandis?

  Bill, let's turn the conversation to Abra. When was the company founded? What was your your sort of moonshot, your your massive transformative purpose, your MTP as I call it?

• 54:30Speaker 01

  So I started Abra in 2015 ish timeframe. I had some ideas earlier than that vis a vis the money transfer stuff I was working on. I saw where Bitcoin was going. There was no Ethereum yet even, and I wanted to build a new type of bank that really leveraged Bitcoin and then cryptocurrency to replace all of the arcane stuff and democratize access. I wanted to build the first bank that everybody in the world could use. Today, every bank gets a moat based upon jurisdiction, like a lord getting a, you know, knighted by a a king that says this is your title to this land. And and it's an artificial like, you know, moat around your business that the government gives you.

• 55:14Speaker 01

  Crypto undoes that. I wanted to basically because I I knew that people were going to need help to navigate this stuff. Like the the computer science PhDs can hold keys to Bitcoin and and and use hardware wallets. The average consumer has no idea what I just said. So how are you going to navigate this world? So I wanted to build the first bank that helped everyone on the planet navigate this world, whether it was just to get access to my Bitcoin, get access to my Ethereum, build lending systems that can take advantage of this technology so that I could lend to people in Mexico, Philippines, Central America, India, wherever, maybe wealthy people in the West are lending to people in the East who need it.

• 55:58Speaker 01

  And because those markets are now global, the rates plummet over time because the markets are more efficient. Right? So my idea was to build a global banking system that democratized access to all these services using crypto rails. And that's what we're doing today.

• 56:14Peter Diamandis?

  And it's amazing. I mean, I think.

• 56:19Peter Diamandis?

  I first heard about Abra, I guess you and I met in the in the earlier days around the Singularity University world, and I became a user of Abra just because I felt like the policies you had in place made it safe and it was easy to use. And most people don't know is if you're holding your private keys, you know, written down a piece of paper or memorized what the case might be, and we should talk about the difference between the two, that that those that Ethereum, that Bitcoin, isn't working for you. And if I've got in my Abra account, it's earning interest for me, which is which is an advantage. What what makes Abra different and what makes Abra safe? What's your, you know, when people

• 57:04Peter Diamandis?

  say, well, none of this stuff is safe?

• 57:06Speaker 01

  Yeah, and and a lot of it's not. And so it's it's a tough, it's a tough thing for the non-tekky to navigate. And and so, you know, we're recording this in early January, and we can recap what's happened in the last six months.

• 57:23Peter Diamandis?

  I'd like to do that, too.

• 57:24Speaker 01

  You know, Abra's competitors have pretty much, Abra's competitors have pretty much all died, right? And so what really separates us, besides the fact that we're still here servicing our clients who are happy that we're still here, what really separates us is is we've taken tried and true risk management processes from the traditional banking world, and we've overlaid them into this new cryptocurrency banking markets. We call it crypto banking. And crypto banking is different because it's always on 24/7, right? It's cross-border, it's global in nature. It uses this new kind of smart contract technology. So we have to make that easily accessible. If you're borrowing money, which you can do in Abra, right? We use crypto rails in the background, but it doesn't look like

• 58:08Speaker 01

  that to you as a consumer. You're just borrowing dollars. Okay. And and so, you know, we've really tried hard to make it easily accessible, extremely secure. I don't think we've, I'm quite positive, we've never had a hack at Abra in all the years, the billions of dollars we've moved around, the millions of consumers we've served, never had a hack. And I'm pretty sure with the way we do things, it's probably, I don't see how it would be possible to hack Abra. So there's that.

• 58:34Peter Diamandis?

  That is not a challenge, by the way.

• 58:37Speaker 01

  No, no, please. I, you know, as a known person out there in the Twitter sphere, crypto Twitter, the sharks are in my moat 24/7. So I, you know, it's crazy what I have to deal with. But, but then there's the compliance aspect of this, right? So we're a highly regulated company. People refer to crypto as the Wild West. And in many ways it is, but it's, people are usually astonished as to how regulated centralized actors are in this space. Sam Bankard-Fried, SBF, in the US particularly, but also in other countries in Europe, SBF was arrested because the laws that he broke were very clear. Right? They didn't make up the laws after he was arrested. The laws already existed.

• 59:17Speaker 01

  The regulations that he broke and the rules he broke and the laws he broke existed in many cases for years. Right? So there are very, I think, clear sets of regulations in G7 in particular. It's very clear. US, Europe, Japan, even China. It's pretty clear what you can and can't do. There are some questions in the securities market that the SEC needs to get their act together on, and I hope they will eventually. But, but by and large, we know what the rules are for how we need to operate, and we can tell our clients what those rules are. So if you think about what's transpired this year, right, so most of our competitors are no longer operating.

• 1:00:00Peter Diamandis?

  Can you list some of the ones that have gone down?

• 1:00:03Speaker 01

  Sure. FTX, Voyager, BlockFi, Celsius, Vault, and there's more. I'm stuck there. It's unbelievable. Now, I say unbelievable, but honestly, I've made this point to investors in the past that I've talked to in private about why I thought many of these companies were going to go away. And I say, "Yeah, Bill, but they are competitors. We understand. You're trashing your competitors." I'm like, "No, I like some of these CEOs." You know, some of them I don't like, by the way. You know, like there's a couple that I actually was friendly with. And... But I'm sorry, but they didn't really understand traditional risk management. Either they didn't come from financial services, or they didn't hire the right people. And we talked to their clients, we knew what was going on.

• 1:00:46Speaker 01

  And so if you look at things like long-term capital management in the prime broker space. Long-term capital management was basically one of the largest prime brokers operating. They were basically borrowing from every other prime broker in the space. And they were reusing the same collateral over and over again. It's called rehypothecation. The problem with rehypothecation means you're so over-leveraged that if the value of the collateral falls and you start to unwind, the system collapses very, very quickly. And there is no bag to hold, right? That's what happened with LTCM. Now, that's what happened here. Because basically Bitcoin went from 68,000, 69,000 back in March of last year, I think it was, or May of last year,

• 1:01:31Speaker 01

  to today, I think it's trading at about 17,000 in early January when we're recording this. That's a large drop. But again, we've seen that drop three or four times before in the crypto space, and we may see it again. The difference is, we didn't have these crypto banking players in this space the last time this happened. So all of them were lending to each other, it turned out, right? Just like LTCM. It doesn't matter what the product is. It can be wood chips. It doesn't matter, it could be ice cubes. If the value of the ice cube is 68,000 and it falls to 17,000 and you're all lending ice cubes to each other, you have a big problem.

• 1:02:08Peter Diamandis?

  You're screwed. And so the temptation for them was what? Just make more money? The temptation was faster growth?

• 1:02:16Speaker 01

  Why does leverage always rear its head in markets where the government is printing money? It's all greed. It's always greed, right? So rehypothecation has been the bane of the banking system existence for decades.

• 1:02:33Speaker 01

  Now, that's most of the players I mentioned. On top of that, we had one very special player, who not only was doing the rehypothecation that I was talking about, which is excessive leverage, they were committing outright fraud, which is the FTX. Now, the history there is, is that they had FTX, which is the exchange that everybody knew, because it's on the Miami arena, it's on umpire uniforms. Turns out, by the way, that those were customer funds that they were using as marketing dollars. Right, same fraud, but it's worse. So Sam started out, Sam Bankman-Fried, SBF, started out basically with a hedge fund. Very similar story to, not a hedge fund, a trading company. Very similar story to Bernie Madoff, actually.

• 1:03:18Speaker 01

  Very profitable, totally legit. Just like Madoff's original company was totally legit. The irony there was Madoff never needed to start a hedge fund. He was making tons of money with his market making company, which was totally legit. Same with Bankman-Fried. He was basically doing totally illegal arb trades in Bitcoin and other cryptocurrencies a few years ago, printing money for himself. Decided that, hey, you know what? I could actually front run everybody if I actually had my own exchange for my own market making and trading business, which in every other product category is totally illegal, by the way. You can't own both companies. There's a reason for that. But he went one step further.

• 1:04:01Speaker 01

  Remember I told you earlier when we were talking about stablecoins, that the exchanges couldn't get a bank account, which is why stablecoins existed, because they didn't have to hold cash anymore. They could hold stablecoins. Well, FTX was no different. They couldn't get a bank account. But their trading company could. Hedge funds get bank accounts all the time. So they said, oh, while we're trying to figure this out, why don't we just have FTX clients who are wiring us money, wire the money to our hedge fund, to our trading company? Which is a big, big no-no. Illegal, bad, unethical, like, not, i- i- independent of his intentions, you don't do it. It's just, any, any, any compliance officer who's in their first semester of, of school should say, don't do it.

• 1:04:45Speaker 01

  Somehow, not only did this happen, it never stopped. Never. And so all of the client money was being wired unbeknownst to clients directly to their trading company, Alameda.

• 1:04:59Speaker 01

  And most clients never knew it. Eventually, Alameda was just treating that like their own slush fund. I don't know if it was upfront or at the end or both. But they were just, they were basically taking money from a totally different company. They had no right to those, to that money and they were trading it and losing most of it. And it made, they made it worse by printing their own token. And then using that token as collateral to do more of that leveraged borrowing that I was talking about before. So you had this, this, this never ending circle of printing your collateral to borrow money, taking client money and just spiraling out of control. The price falls.

• 1:05:42Speaker 01

  Somebody in the press gets wind that the balance sheet isn't what they want you to think it is. Withdrawals start happening. That's when the rehypothecation starts to unwind. That's when it unwound with Bernie Madoff, when the 2008 crisis happened. That's when it unwound with long-term capital management, when there was a crisis there with the prime brokers. And the late 90s, and that's when it happened when FTX, when clients started withdrawing their money. And then all of a sudden, everybody was standing naked at the beach when the tide went out. And there was not enough blankets to go around.

• 1:06:13Peter Diamandis?

  Insane.

• 1:06:14Speaker 01

  Yeah. Yeah, crazy.

• 1:06:17Peter Diamandis?

  And, and in a, in a industry that was partially regulated. What level of regulation are we going to see as a result of all these, these shutdowns?

• 1:06:28Speaker 01

  Well, look, if you are committed to fraud, you may get away with something. Like I said, it doesn't, the product is less relevant, meaning this has happened with equities. It's happened with home mortgages. It's happened now with crypto. It's happened with gold in the past. You know, if you commit fraud, you go to jail, or you should go to jail, right? You know, I'm a libertarian, but I, I believe if you cheat people and there's, there's clear laws about theft. There are consequences and there have to be. So the question is, what level of proactive policing makes sense in the banking system? The banking system has very clear rules and setup.

• 1:07:10Speaker 01

  That's why Abra, we've, we announced in the fall that we're forming Abra Bank, which is going to be a state chartered. Depository institution, which is subject to banking oversight, capital requirements, public disclosures, all the things that, in my opinion, the crypto exchanges, we're not an exchange, we're crypto banks, should be doing, right? And I hope that they'll basically adopt either banking or securities rules over time, not just, they operate mostly as money transmitters ironically, which is more like Western Union. That doesn't really make sense to me. You know, basically Coinbase and OKX and other exchanges and Binance, they basically operate like Western Union. In 2022, that makes, 23, that makes no sense.

• 1:07:54Speaker 01

  Anyway, there are banking rules that much more easily and straightforwardly address this. You just have to step up and do it. It's harder, that's why they don't do it.

• 1:08:03Peter Diamandis?

  Has anybody stepped up, has anybody stepped up to this level other than Abra that you know of?

• 1:08:08Speaker 01

  Not that's live. I know in the background, others are starting to talk about it, like Kraken, but they're taking a different approach, which is more complex, so it's going to take them longer, from what I've been told by the regulators. And so I think we'll be the first that's live with this banking model later this year.

• 1:08:22Peter Diamandis?

  Amazing. There's a saying out there in the crypto investing world, you know, not your keys, not your tokens, basically saying you should hold your Bitcoin or Ethereum on a hardware wallet that you keep in your safe versus holding it on an exchange. And for a lot of exchanges that went down, that would have been the smart move. You know, I have some amount of tokens I have on a hardware wallet, but the majority of my holdings are in Abra. What's the argument for holding your crypto in someplace like Abra?

• 1:09:01Speaker 01

  Yeah, so it's very simple. Look, so if you have a degree in computer science, I would strongly encourage that, even if you don't do it long term, that you learn how public-private key cryptography works, so you can hold crypto, and that's one use case of it. So is secure email, by the way. It's the same thing. And learn how that works, because it's the basis for the Web 3.

• 1:09:23Speaker 01

  The average consumer, first of all, my mother wouldn't understand what I just said. Alright, so there goes your question right out the window. Now you have, I think, two PhDs, okay? So I would expect you to understand what I just said, alright? The average person has no chance. So, so that's why I said, once DeFi and these other technologies are everywhere, most people won't know it, just like you don't know how the, how, how does Netflix stream a movie in 4K? That seems very complicated to me, right? Well, you don't have to know, just push play, it's all good, right? And you can, if you want to, there's plenty of articles that describe how real-time streaming protocols work, by the way. You can go read them if you want to. There's plenty of articles that describe, if you're in Afghanistan, or in Argentina, or in Ukraine, and you want to hold your own Bitcoin, which you probably should.

• 1:10:08Speaker 01

  If you're in the Ukraine, teach your mom how to do this, because she needs to know. My mother doesn't need to know this right now. But if my mother ever does need to know, I'm gonna teach her. So that's related to your question, right, about average. So, so our take is, is that everyone in our space is entitled to personal agency over their digital assets. So 24/7, for the stuff that you haven't invested into the yield product, you can withdraw 24/7, if it's in a trading account. If it's in the yield product, you have seven-day access to it. Unless you're in one of our term offerings, which functions more like a CD security, where you might be in for three months, or six months, or, but then you just withdraw when you're done, if you want to go to a hardware wallet. But again, 99% of our users don't understand how they work.

• 1:10:54Speaker 01

  There was a, a case that, and he was very public about it, and I, I really applaud him for doing this, because he didn't have to do this. A very well-known Bitcoin developer had his private key hacked, that he was storing on a private server. Now you should say, "Oh my God, how in the world?" And we're talking about hundreds of Bitcoin here, okay? How is this possible? How could this happen? And it's still unclear, like he's still, we're starting to get any things of how it happened. You know, if he can't do it...

• 1:11:23Speaker 01

  How is the average consumer supposed to do this? Now, he was doing it in a way which was very convoluted and, you know, not what you would do, but, but, but it still happened. The average consumer is gonna need help. And Abra is here to give that help.

• 1:11:39Peter Diamandis?

  Abra is the go, is the easy button for, for people. I mean, for me, at least, it's the easy button, right?

• 1:11:44Speaker 01

  Perfect. But you have access 24/7 to go into your Abra app on the phone and say, I want this on my hardware wallet right now.

• 1:11:54Peter Diamandis?

  Yep.

• 1:11:54Speaker 01

  And it will be moved.

• 1:11:55Peter Diamandis?

  Yep.

• 1:11:56Speaker 01

  And that's a core tenet of what we do. And we do believe in the ethos of, of, of not your keys, not your coin, because we're a trusted third party. We get, we, we understand our responsibilities. That's why we've said we need to be a bank. There's no other way. Right? But even the bank should be sending the message that you have access to your stuff 24/7. If you're using any other bank in the United States, you don't have access to do a bank wire 24/7. Bank wires are only processed during the week, like six to seven hours a day.

• 1:12:24Peter Diamandis?

  It, it, it is going to be thought of as crazy. Like you had to actually go to the bank or call them on the phone and only during a certain hour you could move your money. It's like, it's insane. I mean, we're, the, the whole, the whole underlying elements of, of exponential technology is the speed of the world is accelerating. Right? It's the convergence of these technologies and it's the ability to do a multitude of things faster than ever before. And the speed of capital is driving the economy and driving increasing abundance.

• 1:12:59Speaker 01

  One point I was gonna make, so you know, Marc Andreessen has this, this manager of software is eating the world. And if you think about it, we all have access to the, to our mobile versions of our bank accounts. But they're the same mainframe-based systems that are managing your bank account, basically as they were 40 years ago. They've been upgraded over time, but they're basically this, people who wrote them in Fortran are long gone if it's at Citi or some of these other arcane places and God, God help us if they knew those people. They, yeah, right. So, so they're long gone. But we've never had a wholesale software is eating the world for money itself and the banking systems themselves. The mobile interface, yes, but the money itself and the banking systems itself, this represents that. And that's cool.

• 1:13:44Speaker 01

  And that's why if you've ever done a bank wire, you know that the process never goes well, ever. Right, but when you do this and after you've done it once, the process always goes well because you know how to do it. It's it's it's easy, right? And and so this is the and it's cross border and it's global. It's not Zelle, which is just US, right? It's everywhere. Anyway, so we have we have several million users. We operate in over 100 countries. We've processed billions of dollars in transactions. Our largest backers are American Express, HDM, which is a finance subsidiary of Foxconn, a bunch of venture firms in the blockchain and traditional VC space, RRE Ventures in New York, Lera Hippo in New York, First Round

• 1:14:27Speaker 01

  Capital has been with us since the beginning. Fantastic group, Blockchain Capital. And yeah, so we're we're not going anywhere. We're here for the long term.

• 1:14:37Peter Diamandis?

  It is extraordinary, and I'm just so proud, Bill, of what you've built and just the moves you've been making. Hey, everybody, this is Peter. A quick break from the episode. I'm a firm believer that science and technology and how entrepreneurs can change the world is the only real news out there worth consuming. I don't watch the crisis news network. I call CNN or Fox and hear every devastating piece of news on the planet. I spend my time training my neural net, the way I see the world, by looking at the incredible breakthroughs in science and technology, how entrepreneurs are solving the world's grand challenges, what the breakthroughs are in longevity, how exponential technologies are transforming

• 1:15:19Peter Diamandis?

  our world. So twice a week, I put out a blog. One blog is looking at the future of longevity, age reversal, biotech, increasing your health span. The other blog looks at exponential technologies, AI, 3D printing, synthetic biology, AR, VR, blockchain. These technologies are transforming what you as an entrepreneur can do. If this is the kind of news you want to learn about and shape your neural nets with, go to dmandis.com backslash blog and learn more. Now, back to the episode. Let's let's talk in the last few minutes about where where Bitcoin is going. I have seen your presentations over the years. I've seen presentations

• 1:16:03Peter Diamandis?

  from a multitude of really the smartest thinkers in this in this area. And the predictions

• 1:16:11Peter Diamandis?

  Have been off for the last few years. But at the same time, you know, I'm speaking to Kathy Wood on the stage at a Binance 360. Was it last year? And when she says, listen, it could get to a million bucks a coin. I fundamentally believe it. And I do believe it. But my first gut reaction is when we're seeing hyperinflation and when we're seeing a lot of concerns about stability in the world. I, my gut feeling was always that people would retreat to something like Bitcoin for stability, for safety. And that would drive the price up. What's wrong with that basic thesis?

• 1:16:54Speaker 01

  Nothing. So, so money, dollars and Western currencies lose three to 6% of their value a year and have unabated since 1971. That's that chart basically I showed you, which, which basically shows that, you know, price inflation. There's currency inflation, right? Which is what we did at the beginning of COVID during, through a quantitative easing and, and, and the largest amounts ever since 2008. And then there's price inflation, which usually follows, not always, but usually follows suit. And, and price inflation basically is anywhere, which basically means your money is, becomes worth less and eventually worthless if you live in Argentina, for example. Four to 6% a year, three to 6% a year. Now, if you take, let's, let's make it four at the low end, right?

• 1:17:39Speaker 01

  So you do, you know, 1.04 to the 25th power.

• 1:17:45Peter Diamandis?

  Yeah, goes to zero. Yeah.

• 1:17:47Speaker 01

  Right. Okay. So that's how much less your money is worth in 25 years. Right? Now, if you were born in 1970 and your parents have been saving for you since 1970, right? And, and you, you do the factor of the time value of money and you apply this on there, you're, you're basically doing Fred Flintstone where you're spinning your wheels because your savings rate combined with the, the rate at which your money becomes worthless is the same. If you have, as opposed to that inflationary asset, which is traditional fiat money, a deflationary asset, which means you know exactly what the fixed supply is going to be over time, which is what Bitcoin is, you have the opposite. Right? Its value relative to goods and services should go up over time, not down.

• 1:18:33Speaker 01

  Right, so if you actually see pictures where you see how many Bitcoin it takes to buy a loaf of bread, you know, it actually, the number, the amount goes down over time because it's deflationary, as opposed to dollars where the amount goes up over time. It costs more money to buy the same loaf of bread over time, right? That's the beauty of having a deflationary asset. That was the original intent, by the way, of our monetary system. And it's the original intent of most monetary systems. They all start off with the greatest of intentions. This is the premise of Ray Dalio's latest book, Changing World Order, right? The premise of Bretton Woods, which was the monetary system we set up after World War II, was that it would be based upon a gold standard. Everybody would use that

• 1:19:16Speaker 01

  gold standard. The United States, because to the victor goes the spoils, would be the ones to issue the global reserve currency, and we would manage everyone's gold. It was a bait and switch. We reneged on that promise. It is what it is, right? And, but, but, you know, not to just piss on the US, every country that has been in this position for the last 600 years, according to Dalio's research, has done exactly the same thing. Everyone. Because it's human frailty, right? Bitcoin represents, sorry, Bitcoin represents an opportunity to eliminate the possibility of human frailty.

• 1:19:46Peter Diamandis?

  Yeah, so it's just ultimate power corrupts ultimately, in that regard?

• 1:19:51Speaker 01

  Yeah.

• 1:19:51Peter Diamandis?

  I mean, a government able to print on money.

• 1:19:53Speaker 01

  Right. That's why, to Kathy Wood's point, if you do the inverse, and you just increase the value of Bitcoin, times the amount of inflation, plus factor in the exponential adoption, right? The 1.04 probably becomes something more like 1.25. Do that to the 15th, to the 20th power, you get $2 million.

• 1:20:19Peter Diamandis?

  The other, the other point, I think that's important in this, the conversation I had with, with Mike Saylor and with Kathy, which is the adoption of Bitcoin by institutions. It's, you know, we're seeing, we've seen it from just a few computer geeks to, so high-risk investors and venture capitalists, to now financial institutions, and having folks like American Express plugged into Abra.

• 1:20:46Peter Diamandis?

  When do we start to see what's going to be, what should folks be watching out for? That will be a, the ultimate tipping point for, for Bitcoin?

• 1:20:58Speaker 01

  I think that a billion wallets is the magic number to basically say Bitcoin is going to hit a million dollars within a couple of years of hitting a billion wallets with, with real balances. Right now it's probably a fraction of that.

• 1:21:15Peter Diamandis?

  Where do you think we are now in terms of wallet? Where are we now, do you think?

• 1:21:17Speaker 01

  Maybe 200 million, probably less in terms of, of active balances. So, you know, look with, with where we're headed, I believe we're in a deflationary environment now and that the Federal Reserve is a trailing indicator on reality. I understand why they're doing that. I get it, but it's crazy, but I understand why they're doing it. And they're a trailing indicator and the trailing indicator is basically going to say, hey, you know, we've overshot the mark again, which is what they believe they have to do. And at that point, it's game on again in order to stave us off from, from the next great recession, which is coming. And they're going to basically go back to what they've done for 50 years, which is print more money. And at that point, you know, Bitcoin went up, what? So we went from

• 1:22:00Speaker 01

  3,000 to 6, 65,000, let's say. So roughly, let's say roughly 20x in the next run-up. So let's say maybe 14, 15x in this one. Each run-up seems to be a little bit less. So that could easily put us in the 250,000 to 300,000 range. And then in the run-up after that, you're probably looking at, you know, anywhere from one to one and a half million at least. And, and so, but, but these numbers are not crazy when you think of it in terms of where Bitcoin is in its adoption curve and compared to things like Apple and Google and Facebook and Amazon and, and the increase in the money supply that's going to happen over this coming 10, 15-year timeframe.

• 1:22:39Peter Diamandis?

  I don't want to put you in a position of giving financial advice, but I do want to talk about how someone who is sitting with

• 1:22:48Peter Diamandis?

  Enough capital that they can think about putting some into into the crypto marketplace. And they have cash in the bank and they have equities. They own some Amazon and some Apple and some Tesla and a few other things. They own some real estate and thinking about Bitcoin as an asset class for diversifying your portfolio. How should someone think about that? Let's, you know, risk balancing, but there's a risk also of not holding some Bitcoin in your portfolio.

• 1:23:23Speaker 01

  Yeah, I, I'll tell you, all I'll do is I'll tell you what I do personally and why.

• 1:23:28Peter Diamandis?

  And I'll tell you what I do.

• 1:23:30Speaker 01

  Yeah, so I have, I have like, let's say I have 100% of a certain amount of assets. Let's say, in my case, it's higher because the amount's gone, the value's gone up so much over time. But let's say, let's say you start off and, you know, you have reasonable net worth and you want to put 20% of your assets in crypto. Maybe for most folks it might be 10. Some folks start off with five and then it gets to 10. But I started, most people that in my world that I deal with are putting somewhere between 5 and 20% in the crypto. My personal allocation is 60% Ethereum, 40% Bitcoin for any new money coming in.

• 1:24:11Speaker 01

  And obviously, the Ethereum appreciates faster, but it's also more volatile. And that's because of the applications that I mentioned mostly. And Ethereum has become deflationary now faster than Bitcoin because of its migration to proof of stake. They're not paying out rewards like they were before on such a large scale that the staking rewards are actually lower than the proof of work rewards. So it's becoming deflationary faster. But that's my preference. And I'm also very comfortable with the fact that You know, there's a very good chance that if we get to 250,000, whatever I haven't sold or used for other things, might fall 80% before it gets to a million and a half. And I have a mental model and a financial model in place for how I want to manage that.

• 1:24:53Speaker 01

  And, and, um, it's not let it ride, it's, it's conviction around where I believe this is going and why. Right. For all the reasons we just discussed, you know? And if, if you need this money to pay rent and the rent is in dollars, not in Bitcoin, then you need to hold your, your money in the asset that you're paying those bills in for at least several months. And, and that is financial advice, by the way. And, and, and don't have a hundred percent of your stuff in something that is wildly volatile. And I'm not just talking about crypto, I'm talking about anything. And, and everybody should have a certain amount of their, you know, savings in, in, in fiat for immediate expenses going out at least a few months.

• 1:25:38Speaker 01

  And then for your, for your savings and investments, you, you need to decide what you have conviction around, in my opinion. I have conviction around all the things we just discussed and I, and I act accordingly. I personally don't hold stocks anymore. I used to, I have a few small holdings here and there. Um, but, but, you know, I, I've, and I've allocated accordingly. And, um, my kids are much younger, for example, they do hold some stocks. And, and so we're more, a higher percentage in stocks than versus, versus crypto, but they also have a lot of crypto and they also understand why. And they can make those decisions for themselves now, for those that are old, the two that are old enough.

• 1:26:17Peter Diamandis?

  Yeah, I, I said, I'll mention what I do. I, I've been rebalancing my portfolio to have 20% in crypto. That's sort of my baseline, uh, right now. And I may increase that over time. I, I think, uh, for me, it's real estate and, and equities and a few other, uh, financial tools. And then historically I've been 80, 20, 80% Bitcoin, 20% Ethereum.

• 1:26:44Peter Diamandis?

  And you're getting me to rethink that. Were you more Bitcoin years back?

• 1:26:52Speaker 01

  Yeah, I mean, well, look, at the beginning, it was all Bitcoin because there was nothing else. And then my conviction that I had a huge percentage before COVID of my net worth in Bitcoin, bigger than it is now, and I sold some and actually moved some to Ethereum. And as stable coins and NFTs and particularly DeFi started to evolve, I became extremely bullish on Ethereum. And at that point, I allocated a bigger percent to Ethereum, but that Bitcoin is still there and, you know, it's, I really consider that my safest holding, honestly, of everything that I own, except maybe my home.

• 1:27:32Speaker 01

  Just, you know, just because I know that, like, you know, to Michael Taylor's point, it's that atomic gold structure that you don't change. And there's never going to be more than 21 million. I know how to move it to a hardware wallet if I need to, and it just works.

• 1:27:49Peter Diamandis?

  Yep. You know, my niece got married last, last summer, and I remember when you'd get married or to have an important birthday, you'd get a, you know, a government savings bond given to you. And so now I've started giving Bitcoin as the, as the gift for, for folks getting married or, yeah, or graduating. So I think that's an interesting, because it is an investment in the future, which what government savings bonds used to be in the, in the past as well. I have one final question. I'm curious, the, the foundation blocks of, of crypto, of Bitcoin in particular, the

• 1:28:32Peter Diamandis?

  Genesis blocks, will we ever see any of them sold?

• 1:28:35Speaker 01

  That's a great question. For Bitcoin, I don't think so. I think the keys are gone.

• 1:28:42Speaker 01

  I have my theories as to how Bitcoin was created, and I think that there were some deaths involved with this Dave Kleiman guy and some other folks that were involved, and this Craig Wright fraud, I think, was tangentially related, and I think the keys are probably gone, which is why, you know, this fraudster is out there doing what he's doing because he's trying to figure out how to finagle access to stuff that he doesn't have access to. So, my gut tells me that the genesis keys for Bitcoin are gone. Now, Vitalik does own his early blocks of Ethereum, but Ethereum is much more spread out via the earliest blocks, and so you can't really dilute the, have an outsized impact on the network by selling.

• 1:29:24Peter Diamandis?

  I do have one other question. I think that, something that's interesting, there was a much higher concentration of crypto held by whales years ago, and the drop in price has really allowed for a redistribution, hasn't it?

• 1:29:44Speaker 01

  A little bit. You know, but there are still some pretty big whales in the Bitcoin space, but, you know, another interesting phenomenon related to that is, there actually is earlier research on this topic. So, somebody in the Austrian School, Hayek actually wrote a book on privatization of money in the 70s, before the Internet, obviously before crypto, and he hypothesized on what would happen if money became private, and he actually predicted it would be hoarded first because it would be deflationary and it would be so valuable. And it's exactly what's happening with crypto. And you can actually read the rest of the playbook. He actually predicts what's going to happen. The value goes up, eventually you hoard it because the value's going up so fast, and then eventually it becomes worth so much

• 1:30:28Speaker 01

  that you loosen up the purse strings because it doesn't make sense. It doesn't make sense to continue to hoard it the way you have been. And I believe that's what's going to happen with Bitcoin and Ethereum and maybe a couple of the other protocols over time. But it certainly seems to be playing out Hayek's playbook that he wrote in his, I forget what the book was called, privatization of national currencies. I don't remember exactly what it's called. I've got a long book list that I share with people, but that was definitely an interesting insight that he had 50 years ago.

• 1:30:59Peter Diamandis?

  Listen, I do love Abra. It's easy to use. It's always there. It's been, you know, I have my Ethereum, my Bitcoin in the interest-bearing accounts. And, you know, it's nice to have that money working for me. Someone interested, where do they go? How easy is it to start an account?

• 1:31:21Speaker 01

  Yeah, you just go download the Abra app, or you can basically, if you're one of our private clients, you can go to abra.com and click on the private banking page and fill out the form there. And so you can either download the app on the App Store, search for Abra and crypto, or go to abra.com. Either way, you'll get to us. And it's super easy. You'll be online and onboarded in minutes.

• 1:31:44Peter Diamandis?

  Bill Barhite, congratulations for standing the test of time and building something with solid foundations. And I love your MTP, your moonshot of really making this accessible to the world. Because capital is energy, and energy is the ability to make the world a better place. So, thank you for all you do.

• 1:32:06Speaker 01

  Yeah, capitalism is the tide that raises all boats.

• 1:32:21Speaker 00

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