Haseeb Qureshi, Advisor to Metastable Capital: The Smart Contract Wars of Crypto’s Future

Haseeb Qureshi is an advisor to Metastable Capital. In this conversation, Haseeb and Anthony Pompliano discuss how success metrics for blockchain protocols are different from traditional companies, why narratives follow rather than lead, how to think about the smart contract wars, and why Bitcoin holders are so important. -----BlockFi allows you to keep your crypto, put it up as collateral, and receive a USD loan funded directly to your bank account. They do loans ranging from $2,000 to $10,000,000, and they're perfect for helping you reach your financial goals of all sizes. Visit BlockFi.com/Pomp to learn more about putting your crypto to work without having to sell it. -----If you enjoyed this conversation, share it with your colleagues & friends, rate, review, and subscribe. This podcast is presented by BlockWorks Group. For exclusive content and events that provide insights into the crypto and blockchain space, visit them at:https://www.blockworksgroup.io

• 0:01Speaker 00

  What's up everyone, this is Anthony Pompliano. Most of you know me as Pomp. You're listening to Off the Chain, simply the best podcast in crypto. Let's kick this thing off.

• 0:12Speaker 00

  In this conversation, I talk with Haseeb Qureshi, formerly of Metastable Capital. We discuss how success metrics for blockchain protocols are different than traditional companies, why narratives follow rather than lead, how to think about the smart contract wars, and why Bitcoin holders are so important. I really enjoyed this conversation. Haseeb is incredibly intelligent, and I hope you enjoy it as well.

• 0:36Speaker 01

  Anthony Pompliano is a partner at Morgan Creek Digital. All opinions expressed by Pomp or his guests on this podcast are solely their opinions and do not reflect the opinions of Morgan Creek Digital or Morgan Creek Capital Management. You should not treat any opinion expressed by Pomp as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his opinion. This podcast is for informational purposes only.

• 1:03Speaker 00

  Alright guys, bang, bang. I'm here with Haseeb. It is Thursday of Blockchain Week, so everyone is still surviving. Thanks for coming in this morning and doing this.

• 1:15Speaker 02

  Yeah, thanks for having me.

• 1:16Speaker 00

  For sure. Alright, so for those that don't know, maybe let's go over your background first, so you can kind of understand your perspective, and I'll get into some of the things I want to talk about.

• 1:23Speaker 02

  Totally. So I'll give you a very short version of my background. So before I ever got into the tech industry, I used to be a professional poker player. Did that for about five years.

• 1:33Speaker 00

  Were you any good?

• 1:34Speaker 02

  I was pretty good. I was sponsored by Fullkill Poker, played high stakes poker.

• 1:40Speaker 00

  Online or?

• 1:41Speaker 02

  Mostly online. I was mostly underage while I was playing. So I was playing around 16 till I was 21 professionally. Anyway, so after that, I ended up getting into the tech industry, teaching myself how to code. I ended up working at Airbnb, and that's kind of where I first caught the crypto bug. So I worked for a little while at earn.com, did some security research. I ended up working on a startup with a buddy of mine, and then I joined Metastable Capital, which is a crypto hedge fund based out of San Francisco. And I left there a couple of months ago, and now I'm just doing the... Their crypto world tour.

• 2:16Speaker 00

  Yeah. There's a ton of stuff going on, so it'll keep you busy for a while.

• 2:20Speaker 02

  That's right. That's right. Yeah, there's no shortage of stuff keeping me busy.

• 2:22Speaker 00

  For sure. All right. So you have a bunch of these unique views. One of the things I want to talk about that we shared before the show, let's just start with this idea of a lot of things that happen in crypto are different, right, in terms of the way that we look at what makes something successful, a project or a company successful.

• 2:40Speaker 00

  In the traditional tech world, there is this thought that there's revenue, right? So if you're make profitability, that's a good signal of a strong business. But then also in the more kind of innovation technology world, there's the idea of usage, right? And so how do you get more, a lot of users getting on their thing? And you'll hear a lot of social networks or messaging applications talk about, you know, daily active users, number of messages sent, time spent, all that kind of stuff.

• 3:05Speaker 02

  Yeah.

• 3:05Speaker 00

  Those are the really kind of what I'll call the metrics of value in the traditional world. In crypto, it's a little bit different, right? And so maybe kind of unpack a little bit, you know, what do those metrics look like on how to measure the success of something?

• 3:18Speaker 02

  Yeah.

• 3:18Speaker 00

  And how you think, you know, it's a little different than the traditional businesses.

• 3:23Speaker 02

  Right. So traditionally, the way you look at a business, you know, generally speaking, when you're looking at,

• 3:30Speaker 02

  you know, consumer software companies, right, you're looking at monthly active users, daily active users, revenue per user. In crypto land, it's not really obvious that that quite translates. So you look at something like DAP Radar and you'll see daily active users, right? But to my mind, and usually the number you'll see is pathetic because, you know, it's in the single thousands, it's in the hundreds, right? But generally speaking, I think this is the wrong way to measure value running through these systems. Because these systems are, you know, they're primarily financial in nature. So if you measure the daily active users for something like, let's say something like Tron Bet, right? Which is basically just like Satoshi Dice on Tron.

• 4:09Speaker 02

  Well, this, it's a gambling application and the amount of revenue that this thing generates is dependent on the amount of value flowing through the system. And if somebody's betting, you know, $10,000 a bet, then that's worth a lot more than 1,000 people betting $1 each. Right? So, and if you sort of scale this argument up, look at something like MakerDAO. MakerDAO has, you know, the CDPs is in like the thousands, right, low thousands, something like that. But There are so many folks who have so much capital locked up into CDPs that the total revenue that eventually flows to maker holders becomes actually really significant even though the number of users is quite small. So, you know, I sort of analogized it earlier to the idea that, look, if you have, you

• 4:51Speaker 02

  know, 10 million users, but they're all, you know, you're monetizing them with ads, right? So you have just some website that's static and you're showing banner ads or something, right? You're not making a ton of revenue on each of those users, so you multiply this really big number by this really small amount of revenue. However, if you're, let's say, an enterprise software company and you're selling, you know, million-dollar enterprise packages, then you, with only a few users, end up creating a huge amount of revenue. And so you see different applications along this continuum, right? Ones that generate very little revenue per user, and so they need a lot of volume, and ones that can generate a lot because they scale with the financial use case. So, that's for the application side. Now, for something like Bitcoin or Ethereum, I think, you know, the only thing that we

• 5:34Speaker 02

  really know how to measure these things was just how long are people holding them, right? Because ultimately, that means, look, they're, they're holding on, they're taking them out of circulation, and they are, you know, net long, this asset. So, that we know how to measure.

• 5:46Speaker 00

  Now, let's take Bitcoin and Ethereum as kind of two separate systems, right?

• 5:51Speaker 02

  Sure.

• 5:52Speaker 00

  With Bitcoin, the store of value use case has, you know, been beaten to death, and the static supply, right?

• 6:00Speaker 02

  Yeah.

• 6:01Speaker 00

  Of just, this is a scarce asset. Obviously, the longer you hold, right, the less that there is circulating, and so therefore the ones that are circulating become more valuable, right?

• 6:09Speaker 02

  Right, right.

• 6:10Speaker 00

  With Ethereum, it's a little bit different, right? It's not as scarce of an asset. It's got a little bit different promise to the user, or at least the narrative is different.

• 6:19Speaker 02

  Yeah.

• 6:20Speaker 00

  Do you think that the number of people, or, I'm sorry, the amount of Ether that is held is as important as the amount of Bitcoin that is held? Or do you think about those two things a little differently, given the systems?

• 6:33Speaker 02

  Yeah, that's, that's an interesting question. I mean, there, there are a few...

• 6:36Speaker 00

  Like, there's some, there's some similarities...

• 6:38Speaker 02

  There are, there are. There are. I mean, so, so one thing I would say is that...

• 6:43Speaker 02

  Like, the idea that Bitcoin is special is, in some way, a relatively new idea. Like, this didn't exist at the time that Ethereum was first developed. Like, well, this is like, store of value is only Bitcoin, and nothing else can really be that. And you've probably read some of this, you know, archaeology that some folks have done of like, how Bitcoin narratives have evolved over time. Where first it was payments, and then it was machine-machine stuff, and then it was like, oh, well, it's gonna be a store of value, it's digital gold.

• 7:10Speaker 02

  You know, the narratives in some way, like, they're, I don't think they are leading so much as they're following what's going on with prices and how people respond to these things. So here would be my claim, right? Right now, the inflation rate between Bitcoin and Ethereum is actually pretty similar. So they're both like around 4%. Now Bitcoin's gonna have within a year, so that'll be knocked down to like, you know, close to 2.

• 7:34Speaker 02

  Ethereum, on the other hand, has no predetermined monetary policy. They, if you listen to what the court devs say, they say, you know, it will probably be going down as we go into proof of stake, but, you know, there's no really hard promise or commitment. One, to be a deflationary currency. They've never signaled that they intend to be a deflationary currency, the way that Bitcoin is, but more specifically, they haven't committed to any specific monetary policy quite yet, right?

• 7:59Speaker 00

  It's definitely nowhere near as rigid as Bitcoin, which is almost, you know, it's not impossible to change, but it would be an incredible lift and very unlikely.

• 8:07Speaker 02

  I totally agree, totally agree. It wouldn't be called Bitcoin anymore if somebody decided to fork the monetary policy and everyone moved over, we'd call it something else. So I think, you know, at the end of the day, that rigidity around monetary policy is really important, right? But the difference in the inflation rates is not significant and won't be significant. You know, maybe in a year it'll become a little bit more significant, but the reality is, the dominant thing that's moving the prices of these things is not the inflation rate, right? The dominant thing that's moving the prices for these things is just the demand for these particular assets, right? The balance of supply and demand.

• 8:38Speaker 00

  It's almost that, I think you're saying, right, and correct me if I'm wrong, is that the inflation rate has an effect, but it is drastically less of an effect than the demand component of it.

• 8:48Speaker 02

  That's right, that's right. And clearly, those things are linked in some way, in that people, you know, people look at Bitcoin and say, well, this is a deflationary asset, that's awesome, that's what I want, right? But the inflation itself is not driving the value, right? The inflation, by definition, is a tiny amount of this currency in the differential between Bitcoin and Ethereum.

• 9:07Speaker 02

  It's more that... Everybody else sees what everybody else sees, right? It's sort of Keynesian beauty contest where everyone thinks that everybody else thinks that Bitcoin is going to keep going up because of its deflationary nature, right? But there's no reason in principle why as more people keep coming into the space. I mean, that's the primary thing that drives the demand for these, the prices for these things. The more people come in the space and buy this stuff, the more things go up, right? Now, inflation is a downward force on that, right? But if you have more than enough people coming in, it doesn't matter. You break through that ceiling and the prices go up, right? The same thing could happen to Ethereum. I mean, obviously, it has been for, basically, since it launched. The question is, how long can that continue, right?

• 9:49Speaker 02

  I mean, most currencies have a national rate of inflation, in large part because, like, more people are born and more, you know, more GDP naturally is created over time. So that might mean that in a steady state, even if Ethereum has 3% inflation, it might be like, well, that sort of keeps up with the national growth rate.

• 10:06Speaker 00

  Yep.

• 10:06Speaker 02

  Or maybe the growth rate is even bigger than that. So it's, to my mind, the monetary policy of Bitcoin is not what determines its price. It's, in a way, what determines its value on the market as a particular kind of product. That, but that product as a whole is what determines its price.

• 10:24Speaker 00

  Got it. And so how do you think about value in terms of the protocol versus the applications, right? People are very familiar with this whole idea of fat protocol thesis.

• 10:33Speaker 02

  Yeah.

• 10:33Speaker 00

  In the internet, it was not the fat protocol thesis, right?

• 10:37Speaker 02

  Right, right.

• 10:37Speaker 00

  All the applications accrue the value, not the protocol.

• 10:39Speaker 02

  Yep.

• 10:39Speaker 00

  Crypto, where are you at with kind of where that value accrual happens?

• 10:44Speaker 02

  Yeah, so I've been thinking about this question a lot lately. So if you look at the way that Joel Menegro initially posted the thesis of fat protocols, right? People sort of treat it as a theory. It wasn't really a theory, it's more of an observation. It's like, hey, look, isn't it weird that like Bitcoin is super valuable and none of the businesses seem to be nearly as valuable as the protocol itself? And you keep noticing that pattern over and over again.

• 11:07Speaker 00

  Well, and let me caveat this.

• 11:10Speaker 02

  Yes.

• 11:11Speaker 00

  The businesses that are built on top of Bitcoin, it's not the businesses that are built around Bitcoin, right? Because, for example... The most of the exchanges, if you invested in the seed or series A and bought Bitcoin on the same day, the equity has accrued more value. It's accelerated faster than Bitcoin's price.

• 11:29Speaker 02

  Yes.

• 11:29Speaker 00

  But that's a business not built on top. It's built around infrastructure, right?

• 11:33Speaker 02

  Yes.

• 11:34Speaker 00

  You're specifically talking about the businesses built on top of the protocol.

• 11:37Speaker 02

  That's right. That's right. So the question you want to start with is why? And Joel Menegro doesn't give an answer to the reason why. And it's very hard to come up with a good reason why. But why is it that the thing, you know, take Ethereum, it's a more obvious example than for Bitcoin, because Bitcoin is relatively scarce number of things that you can really do on top of it. But for Ethereum, the whole idea is that you can do things on top of it, right? So why is it that things on top of it are accruing so little value relative to the core protocol? So there are a couple of ways to answer that question. The first and most obvious way is that, well, the core thing, right, the core, the native token, whether it be Bitcoin or Ethereum, it has this money-like property, or it sort of serves as like a call option

• 12:21Speaker 02

  on this thing becoming money. And that can be really valuable, because it becomes money, then that's a huge TAM, and so on and so forth. And it just happens to be the case that all of these things have built into the base layer, this money-like token. And if we treat that thing as money, then it becomes really valuable, and that's why it's accruing so much value relative to the other businesses, right? So that's one way to justify the fat protocols' observation. But I think it sort of falls short, in my mind, in large part because none of these things we're really treating as money, especially not right now, and not anytime soon, and we haven't in the past. So one way I've been thinking about it is that protocols are fat when they're monopolies.

• 13:04Speaker 02

  And so here's what I mean by that. You know, if you imagine in your head like the fat protocol stack, like the way he draws it, right, there's like this big fat thing at the bottom, which is the core protocol, and then these like tiny little businesses on top. And if you think just like classical economics, right, when do you see distributions like that? When do you see that like, one layer captures almost all the profits and everybody else is commoditized? Usually, it's when that person has a monopoly, right? And so what does it mean to have a monopoly at a protocol? I think what it means is that basically there is no substitute for this particular part of the chain, right?

• 13:39Speaker 00

  So basically, the monopoly is more in the the structure and the design, right, than it is in, let's say, usage or some other.

• 13:47Speaker 02

  Well, I think it's it's both, it's both.

• 13:50Speaker 00

  But do you think that it's the the usage comes because of the monopoly in the structure, right? So for example, take smart contracts, right? Ethereum has a massive lead, right? We can get into kind of how you think about the smart contracts playing out. Is that because they were just first? Is that because of the structure? Like, how do you think about the quote-unquote monopoly they have today? Like, why do they have that monopoly?

• 14:14Speaker 02

  I mean, that's a really tough question to answer. Let's rewind back. Let's rewind back to when Ethereum hit the peak of like, you know, 1200 or whatever it was. A lot of that was clearly driven by the ICO bubble, right? And why was Ether so valuable because of the ICO bubble? Ether itself ICOed, you know, however many years ago, but all these other ICOs were driving up the price of Ether. Why? Because the only way to raise money on Ethereum at that time through an ICO was raising it in Ether, right? Ether was the reserve currency for ICOs. In a way, Ether had a monopoly on being the the mechanism of fundraising, right? Now, when that fell apart and the ICO bubble really died down, that ceased to be the case.

• 14:57Speaker 02

  Now, there are many stablecoins on top of Ethereum, right? Pretty soon, we're gonna have Cosmos and Polkadot and the ability to tokenize assets from other chains and use them on a chain like Ethereum or any other smart contract platform. And what that means is that now Ether is not the only game in town, right? Ether now has to compete as a monetary asset against all of these other potential ways to raise money. This is a competitive force, right? This basically says, hey, Ether, you need to fucking lower your price because there are other people competing now for the same monetary layer that before you were the only way for anybody to get access to the monetary asset.

• 15:35Speaker 00

  So it's almost saying if you're the only one, you have the monopoly and the demands there, price will be high.

• 15:39Speaker 02

  That's right, that's right.

• 15:40Speaker 00

  But rather than in a traditional business where when competition comes in, margin shrink, here is there's price compression because of the increased competition.

• 15:50Speaker 02

  Right, because there are substitutes, right? So, you know, in Bitcoin... There are no substitutes, right? There is nothing else you can use. If you want to use the Bitcoin chain and you want to have a Bitcoin-like asset, there is literally no other game in town, right? There's nothing that even comes close to the properties of Bitcoin.

• 16:08Speaker 00

  Well, and it's properties and adoption.

• 16:09Speaker 02

  Yes, exactly. I mean, that's part of it, right? Like, the idea of having this massively censorship-resistant, totally immutable, you know, chain that's very unlikely to be modified, or, you know, the governance is likely to change, et cetera, right? That, if you want that, there's nothing else that competes with it, even close to competing with it. That's what makes Bitcoin such a monopoly in its own category of being a sort of, you know, speculative store of value. For Ethereum, and I think for many of the other assets going down the chain, this will be increasingly less true over time. It was true early on, just because of technological limitations. But as the space opens up to more competition, I think all of that is going to go down.

• 16:54Speaker 02

  So I think what we will eventually see, as the space matures, is massive compression on everything besides Bitcoin in terms of the sort of fatness of the protocols.

• 17:04Speaker 00

  Got it. And I guess as you're seeing this play, let's keep going down the Ethereum rabbit hole a little bit. By far the most dominant smart contract platform. Is it defendable, right? In the sense of 10 years from now, Ethereum's still kind of the king? And I'll caveat this, or kind of compare it to take Bitcoin. Bitcoin's properties, I think, nobody else has closed. Adoption is actually a huge defendable mode.

• 17:29Speaker 02

  Yep.

• 17:31Speaker 00

  Could be wrong, but I just don't see anyone unseating it for that specific use case, right? Ethereum feels to me like it is more vulnerable. Doesn't mean that it's going to get unseated, right? But it just feels like it's not quite as defendable as, let's say, Bitcoin's dominance for that use case.

• 17:44Speaker 02

  Right.

• 17:45Speaker 00

  So how do you think about, you know, the smart contracts? And how this is going to play out? You know, and maybe not even like, hey, who's going to win? But just like, what are the key components to pay attention to as this plays out?

• 17:56Speaker 02

  Yeah. So it's clear there's a huge battleground that's shaping up right now. We can see, you know, the army is coming over the hill, right?

• 18:03Speaker 00

  They're all aware of where each other are.

• 18:05Speaker 02

  That's right, that's right, yeah, yeah. And, you know, there's a sense in which like, everybody wants to be there first, but nobody really wants to be there first because it's like, you're the first one to get pounded on. So, you know, you see like Algorand and Affinity.

• 18:16Speaker 00

  You want everyone else to kill each other, and then you come in.

• 18:17Speaker 02

  That's right, that's right, yeah, yeah. That's ultimately what you want. And so... Nobody wants to look stupid being the first person out there and then just get chopped in the back of the head. So here's my take, right? It's very clear Ethereum is not going to be able to compete on performance within the next couple of years, right? Ethereum 2.0 is extremely far away in terms of like having enabled smart contracts. That is like the last phase of Ethereum 2.0. First they'll have just staking and then transfers and then data, which is still pretty tough to work with, before they actually get full smart contracts working. So three to four years from now, that's a lot of time for the ball to be in motion.

• 18:58Speaker 02

  And I think it's pretty plausible, if not likely, that somebody else is able to run away with anything that requires high meaningful levels of throughput, right? I mean, the saving grace for Ethereum is that maybe Layer 2 really catches up. So we've seen things like these ZK rollup chains, plasma chains, different designs for ways that even with a fairly non-performant base layer, you can build somewhat high throughput applications. But it's just going to be a lot easier and a lot nicer if you have these new next-generation blockchains where you can do everything at the base layer, you don't have to think too hard about it, you don't have to have some crazy fancy design and exit games and all this bullshit that goes into making Layer 2 really work robustly. Everything is just easy, right?

• 19:39Speaker 02

  Now, that said, it's a little bit too easy to claim that, well, you know, performance is, you know, once we have high-performance chains, people will just go there, right? Because we already have some high-performance chains. We have EOS and Tron, and think what you will of them, and I don't think much of them. But there's clearly, like, they are not being tested in terms of their scalability.

• 20:00Speaker 00

  Yeah. Do you think that it's, I always think of this as trade-offs, right? So if you want high throughput, you have to give up something else in many cases, and it might not be one for one, but there's just, you know, design decisions you have to make.

• 20:12Speaker 02

  Totally.

• 20:13Speaker 00

  Do you feel like the high throughput, even though people are focused on it, maybe that's the wrong thing to be focused on, because the ones that have the high throughput, people aren't using, they're not, you know, it's all the downsides as to why you probably don't think as highly of them?

• 20:28Speaker 02

  Right.

• 20:29Speaker 00

  Is it because that's the wrong thing to focus on for a smart contract-type platform? Or is it just we're so early that we don't really know how this plays out?

• 20:36Speaker 02

  Right. I think we don't know yet. So if you, I mean, if you look at EOS and Tron, right, and these are actually super interesting case studies in like-

• 20:43Speaker 00

  Yeah. If you come at this stuff from a, we should encourage experimentation, right? And we should see as many attempts at success as possible.

• 20:50Speaker 02

  Right.

• 20:51Speaker 00

  It's fascinating to watch all this play out.

• 20:52Speaker 02

  For sure, totally, totally. And like, you know, both EOS and Tron are interesting places to move the lever in terms of decentralization versus throughput versus, you know, centralization and so on. I mean, I think, I, I, I question their motives sometimes in the way that they run those, those businesses. But I think in principle, something should exist there, where those things live. However, there's this really fascinating dichotomy that you see in the way that these chains are being adopted. Right. Where if you look in China, right? In China, people love Tron. They love EOS. They're like, if you find like the very best, brightest entrepreneurs, they're like, well, yeah, of course I'm going to build on Tron. That's where the users are, right? Like, what else would you do? If you look in the West, you look at all the high, like the high profile, really respectable teams here,

• 21:37Speaker 02

  they would not touch either of those chains with a 10-foot pole.

• 21:39Speaker 00

  Yeah, it's the exact opposite. They actually make fun of them.

• 21:40Speaker 02

  Yeah, exactly, exactly, right? And a large part has to do with like the developer culture, where in the US, it's like, kind of like, look, I wouldn't be caught dead writing PHP, right? Like, look, if, if I can't get like a cool hipster language to write with, then like, I'm just not going to write code at all. Whereas in China, like, they just don't give a shit. They're much more pragmatic, much more just about, look, let's just build a business and get real users. Right? And so that, that's kind of led to the fact that, you know, in, in the West, we look at chains like Tron or EOS, and it's just like, they, they seem like ghost towns in terms of, you know, what is actually built for a Western American audience with like high, you know, high-quality entrepreneurs and developers and so on. There's not really a lot there. So the one question is, okay, well, maybe what they need to start building these businesses on these,

• 22:22Speaker 02

  you know, next-gen blockchains, is just one that's kosher enough that like, you know, a high, high-quality team could be like, cool, I'll build on Algorand. Or, cool, I'll build on, you know, whatever, Spacemash, blah, blah, blah, right? And hopefully, this is one thing that I personally am betting on, is that that's part of what unlocks this next generation of businesses that were held back by, by Ethereum. And the fact that Ethereum is just so unscalable, that it's hard to build high-throughput businesses on top of that. The scariest thing is if we get those chains and no one uses them.

• 22:53Speaker 00

  How much of, let's say, the, the winners, right? And I don't even know if there's going to be one winner, or let's say two or three. Right? But, but just, there's going to be a set of winners, could be one or many. How much of that is driven by the technical capabilities versus what I will call the marketing and adoption? Right? So like- In traditional businesses, we see all the time where, you know, the the Betamax or VHS is like the perfect example, right? Where we see like inferior technology win simply because they have a better message, they get better adoption, it happens faster, you get network effects and it's over.

• 23:27Speaker 02

  Yeah, yeah.

• 23:29Speaker 00

  Is that part of this? Or do you feel like the best technology actually can win and should and ultimately will win?

• 23:36Speaker 02

  It's definitely not the case, the best technology will win.

• 23:38Speaker 00

  Okay, all right.

• 23:39Speaker 02

  I think there was.

• 23:39Speaker 00

  Still is a component of the adoption.

• 23:40Speaker 02

  For sure, for sure. I think there was a moment in time where that was true.

• 23:43Speaker 00

  Okay.

• 23:44Speaker 02

  And that moment has long passed.

• 23:45Speaker 00

  Okay.

• 23:45Speaker 02

  Right, like, there there are now so many, there are so many different, uh, so many different, you know, plates to eat from at this point, right? That like, ultimately, in order to even get on people's radar, in order to get entrepreneurs to adopt you, you have to cut through the noise, right? I mean, just look at CoinMarketCap, right?

• 24:01Speaker 00

  Yeah, yeah, yeah.

• 24:01Speaker 02

  So many of those things claim to be smart contract platforms, right? Like, how would you know the difference if not for a good go-to-market and distribution strategy?

• 24:08Speaker 00

  I I always laugh and say, uh, you know, look, Bitcoin could be a smart contract platform, right? Like, you know, if you looked at it through that specific lens, like, yes, you can do some type of smart contract, whether it's sidechains, you know, all this stuff.

• 24:18Speaker 02

  That's right.

• 24:19Speaker 00

  If that's the one you're competing for, right, then that's how you would describe it.

• 24:23Speaker 02

  Right.

• 24:23Speaker 00

  I think, actually, the people who have been really intelligent, it's like, hey, smart contracts are actually going to end up being a core component or a core functionality of pretty much almost every chain, right? It's just programmable contracts, right, or code.

• 24:35Speaker 02

  Right.

• 24:37Speaker 00

  It's what else can you do? It's how do you do it, right? It like, the differentiator is not that, hey, you have a smart contract capability, right? Everyone's gonna have that. It's all these other components, is it high throughput? Is it this? Is it that?

• 24:47Speaker 02

  Right.

• 24:49Speaker 00

  Is that part of what is keeping Ethereum so relevant and so, you know, powerful? It's just the fact that they had the initial adoption and now they kind of have, um, like, the inertia behind them? Or do you feel like there's just not a great other option yet? And so people, people are willing to leave, you know, in droves if something else comes along?

• 25:11Speaker 02

  So that's a tough question.

• 25:12Speaker 00

  Almost like the stickiness.

• 25:13Speaker 02

  Yeah, yeah, I wish I knew the answer to that.

• 25:14Speaker 00

  Yeah.

• 25:15Speaker 02

  But like.

• 25:15Speaker 00

  I want you to tell me.

• 25:16Speaker 02

  Totally, no, no, no, it comes back to this, there's this famous saying, I can't remember, some, some, some bank robber who was asked, why do you, why do you keep robbing banks? The answer is like, because that's where the money is, right? And so why do people keep building on Ethereum? Because that's where the money is.

• 25:30Speaker 00

  Yep.

• 25:30Speaker 02

  Right? It's where the, I mean, the users who do exist, that's where they are. All the value locked up in DeFi, that's where it is, right?

• 25:36Speaker 00

  And it's also the most proven chain that we have that have a lot of this function out.

• 25:42Speaker 02

  For some definition of proven.

• 25:44Speaker 00

  Yeah, of course.

• 25:45Speaker 02

  Yeah.

• 25:45Speaker 00

  Well, we're just like compared to EOS, et cetera, right? It's just, I think Ethereum, people are comfortable with it. They've got the most experienced writing in it, like, like there, there's libraries, right? I mean, like all these things that, again, aren't necessarily the, the component that makes you successful. It helps along the way, it reduces the friction, right, to being successful.

• 26:05Speaker 02

  It does, it does, but at the same time, it's like, it's, it's a really, it's an extremely constraining chain to build on, right? Like, there are some things you just literally can't do. Because either one, it's too fucking slow.

• 26:16Speaker 00

  Yep.

• 26:17Speaker 02

  Or it's too expensive. Like, it'll just bankrupt you to, if you have to write to every single block in the Ethereum blockchain, it's just too expensive.

• 26:24Speaker 00

  Yep.

• 26:25Speaker 02

  Right? So, you know, if you look at a chain like EOS, where it's just a tiny, tiny fraction of a cent to, to send a transaction, just because, you know, there's not that much contention for blocks. That, there's a different kind of business you can build there, right? You can subsidize people's first interaction with you if you want, right? You can say, great, I'll pay for your gas on your first transaction, totally free, and that's sustainable. Right? Whereas, you know, I saw that CryptoKitties, they're, they're launching a new blockchain game. And they aren't, you know, they raised like $30 million or something. And part of that they're using to subsidize their gas cost for your first interaction with, with that, with that application. They need a lot of money to do that.

• 27:02Speaker 00

  Yeah, yeah.

• 27:02Speaker 02

  Right? Like, you can't do that if you're, you have some guy in your garage, like bootstrapping your own little game.

• 27:06Speaker 00

  Yep.

• 27:07Speaker 02

  And that's a, that's a meaningful constraint. And chains that have better economics and are much cheaper to administrate and have, you know, much higher throughput, ideally would ameliorate some of that, some of that difficulty. Right? All that stuff adds together to make one package of, you know, what is, what does it mean to build your business on one chain versus another?

• 27:27Speaker 00

  Got it. And so, you know, we've talked about a different, a bunch of different features and components of these chains. One of the things that. Kind of was a narrative left has kind of seen a resurgence mainly because of non crypto stuff is privacy, right?

• 27:42Speaker 02

  Yeah.

• 27:43Speaker 00

  And, you know, I think that's Facebook is, you know, they'd be the first ones to say, hey, they haven't had the most luck there. They're now getting into crypto, right? And so you've got some unique thoughts around this, like privacy as a feature.

• 27:55Speaker 02

  Yeah.

• 27:56Speaker 00

  Talk like about like, what does that mean, right? Because we've talked a lot on the podcast about like privacy by design, but like, what do you mean by privacy as a feature?

• 28:03Speaker 02

  So this is a really interesting idea. I think it's like, I think Kyle from MultiCoin talks about this a lot.

• 28:08Speaker 00

  Okay.

• 28:08Speaker 02

  Like the idea that you're great. Yeah, that's right. That like great artist steel and so great, you know, great chain steel. So there's this idea that like, well, okay, you know, you look at a system like Zcash or like Monero and it's like, well, you know, if we have a sufficiently complex smart contract platform, we can just like implement, you know, the ZeroCoin protocol on top of a smart contract platform and get the same properties, right? So there's, there's companies like Aztec, ZK Dye, there, there are a number of different projects that are, I think Zether is another one, a number of different projects that are trying to implement privacy on top of other chains, right? So I mean, obviously Ethereum is the most common, common one, but in principle, you could implement privacy primitives on top of Bitcoin, on top of, on top of really any, any chain that's sufficiently manipulable, right? Now for Bitcoin, I think it'll basically never happen.

• 28:54Speaker 02

  And I think it would actually be super fascinating if we actually came to a point where there were some ideological battle over Bitcoin becoming private because of the fact that Bitcoin has become so financialized and the fact that it becomes much less auditable.

• 29:05Speaker 00

  Yep.

• 29:06Speaker 02

  If it, if it sort of goes, goes dark.

• 29:08Speaker 00

  Yep.

• 29:09Speaker 02

  But take something like Ethereum, right? Question is, okay, Ethereum 2.0, much higher throughput, much more scalable. Could they add privacy on top of it, right? Now, they would never add privacy at the base layer, but somebody could go in and they could build privacy into, you know, they could write a smart contract that allows you to make private payments, right? Would something like that displace Monero or Zcash?

• 29:29Speaker 00

  Because basically what you're saying is if the core protocol itself is not private, there's an ability to build, it sounds like two separate things. So one is you could basically take Ether, for example, and you can put it into private scenarios, right?

• 29:44Speaker 02

  Yes.

• 29:44Speaker 00

  So the infrastructure provides privacy, so it's a private wallet, it's a private exchange, you know, all this kind of stuff.

• 29:49Speaker 02

  Right.

• 29:50Speaker 00

  But then there's also. Privacy of Ether itself, right? So there's a way to take Ether and make it now private, not just the infrastructure around it.

• 29:58Speaker 02

  That's right. So you could make like a sort of meta Ether on top of Ethereum that is fully private.

• 30:03Speaker 00

  Without setting off the trolls, it would be like Ethereum private.

• 30:07Speaker 02

  It would be like Ethereum private. I don't know if anybody should go do that, but.

• 30:11Speaker 00

  We are not condoning that.

• 30:12Speaker 02

  That's right. That's right. That would be a good name for it. So the really interesting thing there is I, so as much as I love those projects, I think they're fascinating. Works of cryptography and engineering to make those things work. I'm very skeptical that those kinds of things will work relative to chains that are tailor made for privacy. And there are a few reasons why. One of the reasons why is that there are other aspects of the system that leak privacy. Like the network layer, for example. It's very hard to make that private unless you make the whole thing private by design.

• 30:48Speaker 00

  So you're saying that you are more bullish on taking Ethereum or some other component and adding privacy as a feature of it?

• 30:56Speaker 02

  No, the reverse.

• 30:57Speaker 00

  The reverse.

• 30:58Speaker 02

  I'm less bullish on that. I don't think that fundamentally that's going to work or be a good replacement for a Zcash or a Monero.

• 31:04Speaker 00

  Got it. So the Zcash and Monero, because it's more holistically designed for privacy as the core component.

• 31:09Speaker 02

  That's right.

• 31:09Speaker 00

  That's the book.

• 31:10Speaker 02

  That's right.

• 31:10Speaker 00

  That makes sense to me.

• 31:11Speaker 02

  And I think the other reason why, which is something that's really gone underappreciated in a lot of these projects, is that all of these privacy chains have had massive bugs in the past, right? Like they've had places where the privacy was totally broken. Or, you know, Zcash recently had this massive inflation bug that they managed to catch and kind of keep under wraps. Then eventually disclosed once they moved over to Sapling. Imagine if that had happened in a smart contract on Ethereum, right? If that happened in a smart contract on Ethereum, you're hosed, right?

• 31:43Speaker 00

  Game over.

• 31:43Speaker 02

  Yeah, nobody, Ethereum is not going to hard fork just for your one smart contract, right? Now, if you're Zcash, you can hard fork the chain and like everything's cool because it's all one big experiment. Like to try to make this cryptography work and like, look, there's no way that that's the last bug we're ever going to have in these systems. So I think at some point, we are going to find some smart contract that has private tokens on it on Ethereum or something. And it just gets broken. And all the money suddenly is just orphaned. It's just like floating out there and nobody can get any of it. And that will sort of be like a DAO hack type moment. People will be like, shit.

• 32:15Speaker 00

  Absolutely.

• 32:16Speaker 02

  This is hard.

• 32:18Speaker 00

  What's your thought around the software bugs, right? So when people ask me all the time, they're like, what would be the, what's the thing I most fear as to Bitcoin not being successful?

• 32:29Speaker 02

  Yeah.

• 32:30Speaker 00

  And I think a lot of people talk about regulation, like all these like external forces, right? I always just go back to a software bug, right? Like, to me, that is the the most critical thing and could tank the system as fast as possible. And also the thing that I personally have the least control over or understanding of.

• 32:48Speaker 02

  Yeah.

• 32:49Speaker 00

  So it's scary and it also could be impactful, right? How do you think about that, right? Is my fear unwarranted, right? And then I guess just like, how, how important is that, right? Or how likely is it that that actually is something that could happen?

• 33:06Speaker 02

  Yeah. I mean, honestly, my answer would be that I don't think that's for Bitcoin specifically.

• 33:12Speaker 00

  Okay, for Bitcoin specifically.

• 33:13Speaker 02

  For Bitcoin specifically, I don't think that's a fear worth having.

• 33:14Speaker 00

  Okay.

• 33:14Speaker 02

  And there are a few reasons why. So one is that Bitcoin is completely auditable, right? There's, there's really nothing that fancy in Bitcoin. Like, it's actually all fairly straightforward cryptography. This stuff has been battle tested longer than anything else, and it changes fairly infrequently, right? And in large part, what that means is that there's not a lot of room for error, right?

• 33:34Speaker 00

  It's part, part of the design of the development process.

• 33:37Speaker 02

  That's right, that's right.

• 33:38Speaker 00

  Slow and methodical.

• 33:39Speaker 02

  That's right, that's right. Like, it's all, you know, this is, this is the mothership. This is like the nuclear launch codes. We are extremely careful.

• 33:45Speaker 00

  It's like $150 billion today. We're not going to screw this up.

• 33:48Speaker 02

  That's right, that's right. But here's the thing, let's say that it did get screwed up, right? Let's say that, you know, there was this famous inflation bug a while back that didn't end up getting exploited. Let's say it did get exploited, right? The nice thing about Bitcoin is that it's very easy to see, right? The moment that happens, what do you think happens? Every exchange stops trading, right? People stop, people stop registering transactions as being valid on the main chain. People realize like, shit, there's about to be a chain reorg. You know, everybody in core comes online, they go and fix the bug, everybody realizes, look, that block is invalid because it broke the canonical rules. And things, things will roll back, there'd be like, you know, four, five, six, 10, 20 block reorg, that'd be very sad, but then we'd move on with life and Bitcoin would still be Bitcoin, right?

• 34:26Speaker 00

  Do you think that that would be? I don't want to say fatal, like I don't think it would be.

• 34:30Speaker 02

  I think the answer is no, it would not be fatal at all.

• 34:33Speaker 00

  Not necessarily to the chain, right? The chain would continue.

• 34:35Speaker 02

  Right.

• 34:35Speaker 00

  But do you think that it would change the value proposition of Bitcoin? And this is somewhat tangential, right? Into the whole Binance.

• 34:43Speaker 02

  Yeah, yeah, yeah.

• 34:43Speaker 00

  The hack, etc. Like, to me, it's, the tech would play out how it would play out, right? So, so I frankly don't have enough of an understanding as to exactly how you would execute the reorg. Why? How many blocks back? All that kind of stuff?

• 34:54Speaker 02

  Yeah, yeah.

• 34:54Speaker 00

  So I'm just gonna say developers are smart and they would figure out how to execute that correctly.

• 34:58Speaker 02

  Right, right.

• 34:59Speaker 00

  What I, I personally look at is, does that change the narrative? And does it diminish or at least kind of minimize the value proposition of Bitcoin? Because now, we did reorg, right? There was a problem. Like, like it just takes away some of the, the core components that we all brag about Bitcoin for.

• 35:19Speaker 02

  Yeah. I mean, honestly, my answer is no.

• 35:21Speaker 00

  No.

• 35:21Speaker 02

  I don't think, I don't think it changes it. I think it's one of these things that before it happens, people think that it's gonna be some terrible life-changing event. And then it'll happen, it'll be like, wow, that was weird. And then we'll move on and Bitcoin will still be Bitcoin.

• 35:30Speaker 00

  Very interesting.

• 35:31Speaker 02

  I, what I think is much more concerning is the economic model, rather than the security model, right? So, I mean, you, you just mentioned the Binance hack, right? The Binance hack, perfect example of this, right? When that thirty million dollars worth of Bitcoin was stolen from Binance, if they had decided, I mean, thirty million dollars is a lot of days of block rewards, right? So technically, I think there was like thirty blocks when they, when the, the idea was floated. Of like, hey, why don't we maybe incentivize a reorg? Thirty blocks is a lot to reorg, right? Normally, I think the, the largest organic reorgs that we've seen in like the last four years are like three blocks. Nothing longer than that.

• 36:04Speaker 00

  Literally ten x.

• 36:05Speaker 02

  Yeah, yeah. So that's like massive, massive reorg, right? If you do a hundred blocks, that's when shit starts breaking, right? Like, like your nodes will start failing. Like, transactions basically get reversed in a way that can't be replayed because of the, uh, the coin maturation of, of block rewards. So, a lot of stuff gets really janky if you reorg past a hundred blocks. But like, a hundred blocks is still, you know, that's still worth more than thirty, or less than thirty million, right? So it would be in Binance's interest if they got had to go and do this really, really massive reorg, right? Now... In a world where we see hacks like this and people realize like, look, I don't know, I lost a lot of money, dude. I don't know, a hundred million dollars a lot. Yes, I understand

• 36:48Speaker 02

  I'm hurting Bitcoin or whatever, but like, I just need, I need to make my investments whole, right? They would be, in some sense, they'd be crazy not to try to get some of that money back, right? Even if, you know, it's in their own economic interest, even if the value of Bitcoin drops somewhat. If it, you know, depending on their balance sheet, if it drops like 50%, but that's more than 50% of their balance sheet, it's in their interest to do that, right? If that sort of thing starts happening and we start seeing massive reorgs on the Bitcoin chain, when it's operating normally, when everybody agrees like, yeah, this is how Bitcoin works, right? This is supposed to be the economic model. You start seeing miners diverging from the idea that their Nash equilibrium, their optimal play is to be honest and follow the longest chain. When that changes, that's

• 37:30Speaker 02

  when I'm more concerned for Bitcoin, right? When we start seeing shenanigans like that as being normal and just happening as like run-of-the-mill events, that's when I think the value proposition of Bitcoin starts becoming more tenuous.

• 37:40Speaker 00

  I mean, look, in this, I think is related to the idea that like, you know, CZ just mentioned it, like it was like an offhand comment kind of, right? In a live stream a couple of hours after it happened, right? So, I mean, anybody who watched that, you know, he just wasn't himself, right? And so, he's kind of looking, he's got all these ideas, whatever, he mentions it, and there was such a visceral reaction to this, right? I mean, just went through the entire community and it was highly debated. That's because of it being such a big event.

• 38:11Speaker 02

  Right.

• 38:12Speaker 00

  If it becomes steady state and it almost like the visceral reaction goes away because everyone just expects it to happen all the time.

• 38:18Speaker 02

  Right.

• 38:18Speaker 00

  I think that that's what you're talking about.

• 38:19Speaker 02

  Totally. And notice the way the response happened, right? It was like, it was a religious outpouring. It was like blasphemy, right?

• 38:25Speaker 00

  Literally, some people said that.

• 38:27Speaker 02

  That's right. That's right. And, and so here's the question, right? Like, why do people feel the need to respond that strongly to the proposition? And the reason why is that they know that in some sense, it is economically rational for somebody who loses that amount of money to incentivize a reorg to get some of their value back, right? That- Bitcoin sort of works on this assumption that people don't coordinate in that way. Right. We know that if they do coordinate, if they do collude, Bitcoin breaks. Bitcoin only works if you assume that people are not colluding, right? Or they're not cooperating in that kind of way.

• 39:02Speaker 00

  Or if they're trying to, they can't actually do it.

• 39:05Speaker 02

  Right, exactly, right. So in a way, like, we have these sort of weird, squishy assumptions inside of Bitcoin, which with the internet and with mining pools and with all this stuff is like, kind of not true, right? We know that like, all the people who own all the mining pools can just call each other on the phone. They're probably all in the same WeChat group or Telegram chat or whatever, right? And like, you know, if, if, let's say, there was, there was some massive bug, they would all turn their miners off, right? They wouldn't want to be mining for 20 blocks if they were just wasting money and electricity, right? So we know that in some sense, clearly, they can coordinate. The, the, the real, the blasphemy was, shit, he's actually going to try to coordinate, right? And it's scary to know how easy it would be.

• 39:43Speaker 00

  Well, and I also think it's, not only is one person going to try to coordinate, it's one person that's a lot of influence and reach.

• 39:49Speaker 02

  That's right.

• 39:50Speaker 00

  So if they said, hey, let's coordinate publicly, probably could get some, some coordination there.

• 39:55Speaker 02

  Oh, absolutely, absolutely.

• 39:57Speaker 00

  For sure.

• 39:57Speaker 02

  Yeah.

• 39:58Speaker 00

  I could talk to you forever. For those that don't know, he's got to run and go catch a flight. I don't want to make him late because then he'll be mad. But before I let you go, I'll just ask three quick rapid-fire questions.

• 40:07Speaker 02

  Go for it.

• 40:08Speaker 00

  The most important book you've ever read?

• 40:09Speaker 02

  Most important book I've ever read, probably Siddhartha by Herman Hesse.

• 40:12Speaker 00

  Okay, why?

• 40:15Speaker 02

  It, it's, it's one of these books that makes you, makes you question what it is you're trying to do with your life.

• 40:24Speaker 00

  Oh, interesting, okay. What is the one thought that you have in crypto that a high majority of other people would disagree with you on, like, your most controversial thought?

• 40:32Speaker 02

  Ah, jeez. Most controversial? I guess, I guess, probably, so actually, I did, I did a debate with Preeti Kasthary on True Story about this, that I don't believe that Bitcoin will ever be more than a store of value.

• 40:48Speaker 00

  Okay.

• 40:50Speaker 00

  What is the upside potential if that is true? Let's say that's the absolute bullish case and it happens.

• 40:55Speaker 02

  Yeah.

• 40:56Speaker 00

  What does that upside look like?

• 40:57Speaker 02

  I mean, the upside is still fairly substantial, right? Like in the trillions of dollars that market has, it becomes this sort of digital gold-like sort of value asset. But I don't think there's any world in which Bitcoin becomes money.

• 41:06Speaker 00

  Becomes like the global reserve currency.

• 41:07Speaker 02

  Yeah, I don't think that.

• 41:08Speaker 00

  Come back to most foreign company crypto.

• 41:10Speaker 02

  Very good, damn it.

• 41:13Speaker 00

  He thought he tricked me.

• 41:14Speaker 02

  I'd say Morgan Creek.

• 41:16Speaker 00

  No, no, no, come on. Wait, well, let me ask this. What type of company? Do you think it's exchanges? Do you think it is custody? Like, what's an area that you think is really important?

• 41:26Speaker 02

  Yeah, I mean, I mean, all of those things are really important. I mean, I guess I'd have to, I guess I'd have to say Binance.

• 41:35Speaker 00

  Binance is liquidity.

• 41:36Speaker 02

  Binance, I mean, it's part of it, right? Like, I don't want to give just like a boring answer like, well, yeah, liquidity markets, whatever. I think, I think the answer is that, you know, decentralized exchanges have kind of gotten a bad rap over the last year because they, in a sense, they've kind of failed, right? They don't have a lot of, a lot of volume. But in a way, Binance kind of proves the idea that like, it's sort of a decentralized exchange, all but in name, right? Where it's like, that's basically what we imagine a decentralized exchange would be like. It's like, you know, it's ported in Malta, it like trades anything, like they'll, they'll list whatever the hell is going on. They're just like very opportunistic and people love that shit. And they VPN into it from everywhere in the world and they want to get on there.

• 42:09Speaker 00

  And there's probably people who don't like it, but the majority of people love it.

• 42:12Speaker 02

  Right, because ultimately what they want is liquidity, right? And that's kind of the story of decentralized finance, that yeah, anybody in the world just VPN in and trade their assets, right? There's, there's a kind of beauty to it that I think sometimes goes underappreciated. You're welcome.

• 42:24Speaker 00

  Absolutely, awesome. All right, look, you gotta go catch this flight. I really appreciate you doing this. We have to have you back because we could talk for hours.

• 42:31Speaker 02

  Totally.

• 42:31Speaker 00

  Thanks so much for doing this.

• 42:33Speaker 02

  Yeah, it was a lot of fun.