Marco Santori: The Godfather of Crypto Law

Marco Santori is the President and Chief Legal Officer of Blockchain, the easy way to send, receive, store, and trade digital currencies. In this conversation, Santori and Anthony Pompliano discuss what Santori's original conversations with federal regulators were like, how the SAFF Document became so popular, why ICOs have essentially disappeared in the U. S., and what Marco believes is the most view of crypto's potential impact on the world.

• 0:02Speaker 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.

• 0:15Speaker 00

  Marco Santori is the President and Chief Legal Officer of Blockchain, the easy way to send, receive, store, and trade digital currencies. In this conversation, we covered what his original conversations with federal regulators were like, how the SAF document became so popular, why ICOs have essentially disappeared in the US, and what Marco believes is the most optimistic view of crypto's potential impact on the world. I really enjoyed this conversation, and I hope you like it as well. This podcast is presented by Blockworks Group, the only blockchain event and media production company I trust. If you're an investor, lawyer, accountant, or entrepreneur, and want to attend exclusive events and dinners, visit them at blockworksgroup.io. I promise you won't be disappointed.

• 0:59Speaker 00

  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.

• 1:26Speaker 00

  Before we get into this episode, I want to give a quick shout out to one of our sponsors. Soluna is a blockchain computing company powered by its own renewable energy. The team is planning to build a 900-megawatt facility on top of a 37,000-acre location, one of the best wind sites in the world in southern Morocco. You'll hear more from them later in this episode, but I'd love if you could go check out their website. You can find them at soluna.io.

• 1:50Speaker 00

  Alright guys, I'm super excited about this episode. We've got Marco here. You've been in crypto for a really long time, and you've got all kinds of interesting perspectives. So thank you so much for coming and sharing with us.

• 2:01Speaker 01

  Thanks for having me. I'm glad to be here.

• 2:02Speaker 00

  Absolutely. Alright, so for those that don't know, let's just go through a quick background on you, and then we can talk about how you originally got into crypto early on.

• 2:11Speaker 01

  Yeah, happy to do it. So my name's Marco Santori. I'm the President and Chief Legal Officer. At Blockchain, Blockchain is the world's largest software platform for digital assets. Though you probably, you probably know us because of the wallet. You probably know us because we have almost 30 million wallets, although today we may have actually crossed that mark, but 30 million wallets all around the world. We aren't like an exchange. We're not like the custodial providers. We are a place where you don't really go to speculate. You go to actually use this stuff. You go to, to hold and buy, to, to hold and send and actually, you know, use functional cryptocurrencies.

• 2:49Speaker 00

  Got it. And so let's talk about pre-Blockchain, right? So you're 2011, 2012 originally discover crypto?

• 2:59Speaker 01

  Yeah, 2012, late, late 2012, I helped form a, a currency trading fund for people who were, they weren't doing anything interesting. They were like shorting the euro or something. And, but at the end of the day, you know, they, they joke with me and they say, oh Marco, you know, ha, ha, ha, what we're really doing is trading crypto. Well, back then they just said Bitcoin. And back then it was, it was a joke. There really weren't that many people trading Bitcoin, certainly not successfully. But they referred a client to me who actually was. And that person referred somebody to me and that person referred somebody to me. And I started posting on Bitcoin Talk. If you've, if you've ever been on, if you've ever been on Bitcoin Talk, you can still see the tweets. They are, they are totally cringe worthy. It's, you know, hi, my name is Marco Santori and I'm a lawyer and I want to learn more about Bitcoin.

• 3:46Speaker 00

  Epic.

• 3:47Speaker 01

  And, and the word got out, there was a lawyer, there was a lawyer in Bitcoin. And, well, I, then I was the chairman of the Regulatory Affairs Committee for the Bitcoin Foundation, back when that, back when that was a thing. I was the, among the first team of, I think, five or six of us who went down to DC and explained to the federal government, this is Bitcoin. This is how it works. This is.

• 4:12Speaker 01

  This is the blockchain and we actually projected a copy of blockchain back then, blockchain.info up on the screen and took them through a transaction and said, "This is a Bitcoin address. It has an associated private key," you know, and took them through the whole thing. And the look of wonder and confusion and disgust in some of these regulators and policymakers faces back in 2013, it's something that has stuck with me for a long time. But after that, I was a partner at Pillsbury and a partner at Cooley, two global law firms where at Cooley, I worked on the SAFT project framework, which we published with Protocol Labs. And then recently, I left private practice. I caught the virus,

• 4:57Speaker 01

  as you like to say, and I went all in crypto and now I'm the chief legal officer at blockchain.

• 5:02Speaker 00

  So what's fascinating to me is in 2013, the federal government, right, is actually listening to private citizens describe a digital currency, what it is, how it works, what the advantages, disadvantages are, et cetera. And this is really before most people in crypto today even knew what this stuff was. So the federal government was actually pretty far ahead in terms of at least being aware and hearing about it. But it sounds like they weren't very receptive, right? So they were listening, but maybe they weren't actually hearing what was going on.

• 5:35Speaker 01

  Well, so to start from the first principle, the US was in 2013 and remains the farthest ahead on crypto policy almost anywhere in the world. And that's a crazy thing to hear. It's certainly a crazy thing for me to say because I can't say that about a lot of places in US policy. But crypto is one of those places where the US federal government got this stuff. It understood. What this stuff can do and took reasonable approaches to it before any government did. And now we have Japan with a license, South Korea considering a license.

• 6:17Speaker 01

  Some places, some smaller countries, geographically smaller, have jumped ahead because they can move faster, right? But here in the US, we've got federal government, plus we have 53 other sovereigns that we have to deal with. So things can move a little bit more slowly here. And it has, it's been a long conversation. But, you know, I have to say, so far, the federal government has not taken crazy positions on crypto.

• 6:44Speaker 00

  Yeah, they've actually been very measured. They've taken their time to understand this stuff. Especially when you compare them to China or other jurisdictions where one week they're banning something, the next week they're not. And just the uncertainty, I think, is one thing, right? So if you don't know what the position is, that's a risk that you have to deal with. But I think it's even worse when there is kind of the jarring or chaos of the regulation actually changing on a pretty consistent or frequent basis.

• 7:13Speaker 01

  Yeah, absolutely. And today, right, everyone's talking about the SEC and the CFTC. And I have my thoughts on why that is and how that happened. But back in 2013, nobody was talking about the SEC's involvement in crypto or the CFTC's involvement in crypto, and not just because, you know, certain internal champions in those agencies weren't there yet, but really because Bitcoin was just money and that's all there was.

• 7:41Speaker 00

  So what were people talking about, right? So they're not talking about securities, they're not talking about kind of all of the things that are being talked about today. What was that conversation? Was it just, I want to understand, right? I'm a regulator and I want to understand this stuff? Or was it some deeper conversation?

• 7:53Speaker 01

  There were two things that regulators were worried about. One, money laundering. They wanted to make sure that illicit activity wasn't happening on these financial networks and there weren't any black holes where the government didn't have visibility. The second thing was prudential concerns. They wanted to make sure that at the end of the day, your uncle or your aunt or whomever you were sending money to got their money. Those are the two very different concerns under the law. And the federal government mostly was concerned with preventing illicit activity, anti-money laundering. The states mostly don't play in that sandbox. They're not concerned with AML, with the exception of New York and maybe a little bit in Arizona.

• 8:34Speaker 01

  States are mostly concerned with making sure that the people who are supposed to get their money at the end of the day, like in the case of MoneyGram or Western Union, get their money at the end of the day. So it was two very, very different concerns, competing against each other. And of course, crypto entrepreneurs got in the middle.

• 8:55Speaker 00

  Absolutely. And last question about this, but when you guys go down and you have these conversations, there's probably some follow-up conversation or whatever, and you guys leave, what's the feeling among the pro-crypto private citizens? Is it, man, this is really depressing, these people don't care? Is it frustration? Do you leave actually encouraged? What was that reaction to those meetings and conversations?

• 9:18Speaker 01

  It depends who you speak to. When you're on social media and you're reading about the next thing happening in crypto in DC, it always seems to be something.

• 9:26Speaker 00

  Yep.

• 9:27Speaker 01

  But in reality, nobody in DC is talking about crypto. There's very few people there. There's very few people who are concerned with it. There are very few people that it's on their radar. There are staffers that are very deep in this stuff, but there's maybe a dozen of them on the Hill. There are great policy shops like Coin Center. There are new trade organizations forming, but as far as regulators and policymakers, well, I should say as far as policymakers go, like the legislature, Congress, not a whole lot of discussion about this stuff. There's a few different bills pending, but in the day-to-day, it's not very popular. Regulators, though, there was a point there when half of some of these agencies' resources

• 10:11Speaker 01

  were dedicated to making a statement in this industry.

• 10:15Speaker 00

  Do you think that the policymakers aren't focused on it because of an opportunity cost? So there's just so much other things going on that this is so small today compared to the other stuff?

• 10:26Speaker 01

  That's really all there is. I mean, over the last few years, we've entered a period of political discourse in this country that has overshadowed so much of the rest of our public lives that...

• 10:40Speaker 01

  You know, crypto hasn't been as high on the radar as it could have been.

• 10:45Speaker 00

  And, okay, so that's super interesting, right? Because basically, clients brought you Bitcoin, and you start kind of understanding it, etc. What was the reaction inside of the law firms at the time, right? So the policymakers, you know, I got that. That's kind of a natural reaction from them. The law firms, you know, these are clients, right? You're supposed to be trying to help them accomplish their business goals and things like that. But are there people in that law firm that are, you know, this stuff is illegal and we should not play in it? Was everyone pretty open-minded? What was that like?

• 11:16Speaker 01

  Maybe I was really lucky, but each of the three law firms that I worked at that had, where I had a crypto practice, were encouraging, supportive. They wanted me to do more. They were happy that I was out. When I was, you know, when I was first starting out in crypto, they were kind of surprised that we now had like a fintech practice, right? We went from litigating these laws to actually advising on them, which is a jump that, you know, not all lawyers make. And then by the time I got to Cooley, I mean, we had built one of the biggest practices in the industry, and it was sort of a thought leadership practice in a lot of ways. And there were, there

• 11:56Speaker 01

  were risks around that, in that, you know, people, there are always people who don't want, who don't want to upset things, who they don't want to upset the apple cart. But I got to tell you, there are very few of those in the law firms I worked at. And by the time I got to Cooley, we were all just thrilled to be able to do this kind of work, the kind of work that most lawyers never get to do.

• 12:20Speaker 00

  Absolutely. All right. So as you're kind of working through, you know, a couple of years there, ICOs, utility tokens, and eventually the SFT, all pop up, because previously it'd just been Bitcoin only, right? And so now we get to, oh, there's Bitcoin, and there's this other stuff. What's kind of your early experience with ICOs and the idea of a utility token or non-Bitcoin type, you know, assets?

• 12:47Speaker 01

  You know, back in 2013, we just called this stuff Bitcoin 2.0.

• 12:53Speaker 01

  And no way he was talking about crypto generally. The cryptographers were not yet up in arms for losing their precious crypto namesake to the cryptocurrency people. The thought was that maybe one day you'll be able to use Bitcoin for something other than money. That was the baseline thought. You know, we call these entries in the blockchain, we call them Bitcoins, but are they UTXOs? What are they? They're nothing, they're just entries that we happen, that are scarce and we happen to call them money. And there was a thought that one day it could be more than that. There was a thought that you could use these entries, you could call them something else.

• 13:35Speaker 01

  And so the first, one of the first implementations of that was something called colored coins, which is an unfortunate name, I think. But the idea being that you could color, if you could imagine a coin, a physical coin, you could color it in purple, right? After you've taken it out of the bag of coins and throw it back into the bag, you can always be able to trace it no matter where it went. Those were no longer fungible, sort of non-fungible coins. Now we call those NFTs, non-fungible tokens, when we implement them on Ethereum. But back then, that was still like sci-fi, that was science fiction. And there were some implementations of that, like Matt, it was colored coins, Master Coin.

• 14:13Speaker 00

  And what were people using the colored coins, right? So somebody comes up with, hey, we should color the coins and kind of create these non-fungible assets, but what was the thought process behind creating them?

• 14:25Speaker 01

  I think it was mostly experimentation. These people didn't really know where the meats and bounds were. They didn't know what this was going to be, what applications, what use cases this was going to be good for. So the simple ability to do it was kind of mind-blowing.

• 14:45Speaker 00

  Yeah, it's super interesting how some of these ideas already in a short, you know, five, six year cycle have already kind of gone away and come back, right? So non-fungible tokens being a prime example of, you know, it's popular in 2013, 2014, they go away, then all of a sudden they come roaring back, backed by VCs, you know, and kind of now the new hot raging thing again, and maybe they're not as new as people kind of originally thought. All right, so let's talk about ICOs and the utility tokens, right? So we go from the colored coins to eventually somebody says, hey, I'm going to create a new blockchain that has differences or improvements to it, and I'm going to raise capital for it via a new funding mechanism. What is the reaction there, you know, from your perspective?

• 15:30Speaker 01

  Well, I think the fundamental innovation was that people realized it was more than just Bitcoin. And if, you know, people ask me why I think the price run-up of 2017 happened, and I usually tell them, I don't have a whole lot of thoughts on price. I don't have a whole lot of thoughts on speculation. And, but this is one of those exceptions in that I do know why that run-up happened, and that's because people realized there was more to this than just Bitcoin. And that's not to diminish the impact of Bitcoin, it's to highlight the public perception around the industry. And so when people started to realize there was more to this than just this one asset,

• 16:15Speaker 01

  this one money that some people preferred, the government money for certain applications, I think that expanded a lot of people's minds. They started to realize, oh my gosh, this technology is actually really encompassing. It could change almost everything that we do. And, look, it sounds trite now, but the introduction of smart contracts changed the way that people think about blockchains. It was no longer, blockchains were no longer just a vehicle for like libertarian money, right? They were a vehicle for implementing business logic in a trustless way.

• 16:54Speaker 01

  And that meant a lot of different things. For example, you know, for example, creating tokenized assets, but also being to programmatic, but also being able to programmatically do things with those assets in a way that you never had to really trust some central intermediary that that brought the power of Bitcoin outside of just the world of money and into the world of, well, anything that has a value.

• 17:21Speaker 00

  Absolutely. And so where's the SAF come out of this, right? So does Protocol Labs come to you guys and say, we need some sort of standardized documentation in order to empower the funding of all this? Is this something where you guys are working with a single client and say, well, we need to make sure that we're really thoughtful about this? Kind of how does that originate from an idea? And then eventually, how do you go and build it?

• 17:45Speaker 01

  Well, Protocol Labs came to me as a client and I advised them on a number of different, on a number of different matters. And one of them was the, the sale of this instrument that people were using. We didn't invent it. People were using this thing called a SAFT, Simple Agreement for Future Tokens, which was, of course, just a simple agreement for future equity that somebody had held down control and pressed F and replaced equity with tokens.

• 18:16Speaker 00

  So originally, there's no, there's really no innovation other than swapping out the word equity for token?

• 18:20Speaker 01

  That's it. That's the end of the conversation. No, we, we saw this thing and we thought, wow, this is, a lot of people are using this and it's, it's kind of toxic in a lot of ways. If, if you look at this document there, it just didn't make a whole lot of operational sense in the way that, the way that people were using it. That said, we had this notion that maybe it could, if we used it correctly. And so you have to understand the SAFT in context, well, the SAFT project in context. It was the first self-regulatory reaction to this rash of pre-functional token sales, which people colloquially called ICOs, Initial Coin Offerings. People came up with a bigger and better Ethereum or a bigger and better Bitcoin,

• 19:06Speaker 01

  something they thought was going to be better than what's out there. And in order to raise money, what they were doing was just selling this very basic token, which was, if you're familiar with the expression, a can of trading sardines. It didn't actually do anything. The sardines weren't actually good for eating. They were just good for trading. And so it gave rise to this speculative frenzy that when we looked at this, we thought, wow, there's actually investor protection risks involved in these pre-functional token sales. We think that these aren't just, you know, consumer goods. They're people that are buying these things for speculation. There's nothing wrong with that, but you know, there are laws about things that are buying, people who are buying speculative goods that are reliant on the efforts of the issuer of that good. There are the securities

• 19:47Speaker 01

  laws. And so the SAFT project, well, I should say the SAFT framework generally says, look, you can use this very simple document. You should negotiate it. It should include the additional investor protections that you want and that you should apportion risk. But at the end of the day, you should use it and sell it as a security because that's what the thing is. When someone buys this document, this SAFT, well, they're buying it with the expectation of profit from the efforts of others, from the efforts of the issuer. And if you know, in the United States, that is of course the Howey test for what is an investment contract and therefore a security. But then, once those tokens, once

• 20:28Speaker 01

  those tokens work, once they actually are put to their intended purpose, once, once anyone who buys them is no longer reliant on the efforts of the person who issued it, well, I mean, there are risks there, but they're not investor risks, are they? They're like the risks of someone who buys a used car. It's like, yeah, maybe the engine doesn't work, but that's not because someone failed to expend their efforts. And so you need disclosures around like their finances. Like, who cares if Ford goes bankrupt next year? The question is, does my engine work? And so there are consumer protection laws that you should apply at that point. So that was the, that was the breakdown of the, of the SAFT framework. And we released the SAFT project white paper around this time last

• 21:12Speaker 01

  year. And about a month later, we stopped seeing ICLs in the United States. The SAFT framework, for better or for worse, became a market standard in the US.

• 21:26Speaker 00

  Yeah. You've used a terminology, pre-functional token sale, right? Or pre-functioning token sale. And my guess is that you're using that in a very intentional way because that describes a token having to do with the Howey test and things compared to if I just go on Coinbase and buy Bitcoin, for example, right?

• 21:52Speaker 00

  Where do regulators in the United States right now, from your perspective, shake out on the difference between that pre-functioning token and then the circulating or functioning token on a network, say like an Ethereum today, where we are?

• 22:07Speaker 01

  Yeah, so after we released, after we published the white paper, a month later, the ICO started to kind of trickle off and disappear. And then a few months, well, several months after that, actually, just this summer, the director of the Division of Corporation Finance at the SEC gave a speech, which was not officially the SEC's position. It isn't law, and it's not even binding on the SEC. But he said, "Look, there's been a lot of talk around what is and isn't a security in the world of crypto. Here's what I think personally."

• 22:45Speaker 01

  And what he said is important, but it's also important how he said it, right? And then he says, "Look, this isn't law, but look, realistically, the head of the, the director of the Division of Corporation Finance is a pretty important guy, and it's up to him in his official capacity to determine what is and is not a security from the SEC's perspective." And this is what he said. He said, "Yeah, your pre-functional, post-functional distinction is right, but it's actually not the whole story. There's more to it. There's a question, there's a whole litany of things, there's a whole litany of questions you can ask to try to figure out where your risk of being a security is." And some of those things included, how many people actually own the token?

• 23:30Speaker 01

  Is it just concentrated in the hands of a few people, a few whales, right, that are going to dump on a bunch of retail investors later? Did you sell it using speculative language? You try to whip up a frenzy with a countdown timer and all these things we see in ICOs? And there's a few more. You can check it out. You can check out the text of the speech online. But I think people today are still, they still want more. I personally think we've gotten as much as we could really ask for in such a difficult determination. But... SEC has said recently, I think just yesterday or two days ago, I should say,

• 24:13Speaker 01

  Bill Hinman again, the Director of the Division of Corporation Finance, just said, actually, you know what, we gave you a lot. We gave you this heuristic, this sort of, you know, this fuzzy, this fuzzy list of questions to help you think about this, but we're going to give you some plain English guidance. And I don't know when that will come. I don't think anybody, maybe the SEC itself doesn't even know precisely when it'll come, but it's an important question, and it's not wrong that they've taken their time to answer it.

• 24:40Speaker 00

  Yeah. And he made it sound, when he said this, that it's near term, that could be weeks, months, you know, I don't think, to your point, anyone really actually knows, but it sounded like, the way I read it, is they hear that people are saying, we want more clarity.

• 24:56Speaker 01

  Yeah.

• 24:56Speaker 00

  Right? And some of that's coming from institutional investors, some of that's coming from projects that want to actually, you know, kind of push the envelope in a compliant way. But I do think it's interesting, he has kind of led the charge in some of the public comments, right, given where, you know, he sits in the organization. How does the SEC and other Western, you know, North American regulators compare to the rest of the world, right? So we talked about their approach in terms of they're definitely more tempered and kind of patient and maybe focused on learning first before they actually act. But from an actual regulatory guidance standpoint, do they look at it differently? Or is it just their approach is different, but everyone's coming to the same conclusion

• 25:41Speaker 00

  around this stuff?

• 25:42Speaker 01

  Yeah. This is more a question about the law than it is about the regulators who interpret and apply the law.

• 25:47Speaker 00

  Okay.

• 25:48Speaker 01

  Because in the, in the United States, the SEC, you know, isn't, isn't a judge. They're not, they're not the courts. They are plaintiffs. Now, they're much more powerful than other plaintiffs, right? But the question is really about what is the law in the US versus what is the law abroad? And it's, it's an important, it's an important question, because when it comes to money services laws, like, you know, anti-money laundering and consumer protection and that kind of thing. Everyone around the world, they're pretty uniform on this. We have something called the FATF, the Financial Action Task Force, that ensures harmony and commonality among those laws. That doesn't, I mean, there are analogous bodies in the world of securities,

• 26:29Speaker 01

  but in the US, the perimeter that you draw around what is a security is enormous as compared to the rest of the world, because we have this notion of an investment contract, which doesn't exist in most other jurisdictions. There are things called collective investment schemes in other jurisdictions, but they're much more restrictive, because other jurisdictions generally have what's called a positive listing system. They say, "Look, these eight things are securities," and they stop. In the US, we say, "These 30 things are securities." Also, there's this catch-all called the investment contract. Then, most of these tokens, we argued in the white paper, that were sold pursuant to ICOs, well, I should say, in most of these

• 27:14Speaker 01

  ICOs, there was an investment contract created.

• 27:18Speaker 00

  Got it. And so we'll come back to this idea of an investment contract in a second, but before we do that, let's talk about blockchain and kind of your role there, right? So you're in private practice, you've got all these clients, you're one of the foremost thought leaders when it comes to applying the existing laws to this new technology, new industry. Why leave? Why kind of get out of the direct legal private practice and go more on to the operator side?

• 27:46Speaker 01

  You know, as you like to say, "I caught the virus," but the thing is, I caught the virus in 2012.

• 27:54Speaker 00

  So, okay, you gotta tell the story, right? So before the show, we were talking, and I actually didn't know this. So as everybody knows, I've been using this tagline, "The virus is spreading for a while now," and the thought process was, the idea of crypto was going viral, right? And people were, as they learned about it, they would tell their friends, and it just kind of continued to permeate through society. But you said that the word "virus" is not new to crypto, so maybe tell that story.

• 28:19Speaker 01

  I'm shocked. When I first saw you tweeting about, you know, "The virus is spreading," I assumed you were referring to what we always used to say back in 2013, which for 2012, for that matter, that Bitcoin is the mind virus. Once you catch it, it's actually tough to stop thinking about it. Not just because it's an amazing invention and is filled with so much possibility and power, but also because it starts to make you question things that you always sort of held as obvious, as axiomatic. And that's one of the great things about being a lawyer in this space is you get to revisit first principles. Most lawyers don't get to do that.

• 29:04Speaker 01

  They sit behind a desk and like securitize the same asset over and over again, or they litigate the same kind of case over and over again. And we got to make people think about money in a way that they never did before. I mean, I'd consider it a victory to get people to think about something in a way that they never really did before. And Bitcoin did that for all of us.

• 29:26Speaker 00

  Yeah, it's fun.

• 29:27Speaker 01

  It is. It's a blast, especially again, for lawyers who aren't really known for having a fun job. It's not like suits.

• 29:34Speaker 00

  Yeah, it's not like suits. All right, so you're there, you get the mind virus, or the virus spreads to you and you leave. And so talk a little bit about what you're doing at Blockchain today.

• 29:45Speaker 01

  Yeah, so I worked with a lot of different crypto companies over my years in private practice. And I was impressed by a great many of them. At the end of the day, there was one that was really fighting for the things that I believed in. Individual financial freedom, taking ownership and control of your money. And the exchanges weren't doing that. Especially in 2017, what we saw was the headlines start to shift toward Lambos and Wen Moon and stuff like that. And it's exciting and it's part of what has gotten a lot of people into crypto, but it wasn't for me, right?

• 30:28Speaker 01

  Some people have said that Bitcoin is a tool for overthrowing oligarchs and despots wrapped up in a get rich quick scheme. And that may be the case. I don't know about overthrowing oligarchs and despots and all that. But I do know that the get rich quick part of that story started to pull so much of the narrative.

• 30:57Speaker 01

  Away from why I was involved in this in the first place, which was to give people control over their finances in a way that they couldn't achieve in the traditional banking system. I mean, you know, there are people, not just in this world, not just in this state, but in this zip code, who can't get a bank account without being charged $15 a month for inactivity fees. It is expensive, right, to be poor in this country and in much of the world. People don't use blockchain just to speculate. They don't use it to buy something for a dollar and sell it for two. They use it so they can actually, they can actually, well, use crypto.

• 31:41Speaker 01

  So that some people use their blockchain wallets as their primary banking source. And you can do that. We've done it and we've supported it as successfully as we can over the last years to the point where now there's 30 million different wallets doing that. So the difference between what blockchain does and what most other exchanges, for example, do is, well, you have your coins. You have your private keys. When you have coins on an exchange, for example, and you want to send those coins, you want to use them, you want to do something with them. If they're tokens that run a decentralized application or it's just Bitcoin and your coins are on an exchange,

• 32:24Speaker 01

  what you do is exactly what you do with your bank. You say, "Dear bank, dear exchange, can I please, pretty please, have my money back?" And you know what? Send it over to Alice or Bob. And sometimes the exchange says no. That's not, that's not why people use Bitcoin. That's not why people got into this in the first instance. Or they say, "Yes, but only so much." Right, "Yes, but only so much," right. Right. Exactly. You can only send $25,000 a day. Yep, exactly. And blockchain from the beginning was pure software and it still is. We never take custody of your funds. We never take control of your funds. We give you software so that you can interact directly with the Bitcoin network. If an exchange gets hacked...

• 33:08Speaker 01

  The wallet can get emptied. If blockchain gets hacked, we don't have your money. That's the difference. You can store the very same coins in a blockchain wallet at the very same time they are being stored in any number of other industry standard software wallets and spend them out from underneath it. That is self custody. That's what it means to have control and power over your own money. And that's kind of the point, right? So when I had the choice of which company to go to to really drive this forward, I chose the one that really instantiates the values that I hold there.

• 33:44Speaker 00

  Yeah, it's funny. I've got a funny euphemism and then I've got a serious one, but I say that most of our parents grew up with sex, drugs and rock and roll, right? And we grew up with Lambos and Moons. So when you kind of think of that, like, I don't know who's winning on that trade.

• 34:00Speaker 01

  Yeah.

• 34:01Speaker 00

  But I do think the other thing, you know, look, we've gone around the country and we've been talking to everyone from institutional investors down to family offices, high net worth individuals, and just kind of general what I would consider the retail investors of crypto. And we hold these events in these different cities. And the thing that's always struck me, when people ask me, what's the most surprising thing throughout all of those conversations with different people? It's how many people actually believe and question the very kind of core elements of crypto, right? So they don't trust the traditional banking system. They have questions about the fiat currency system or the Federal Reserve, right? All of these elements that I think they're a

• 34:45Speaker 00

  little scary to think about at first, right? And they're probably not the first thing that you're going to go and publicly talk about until you're really comfortable with your own thoughts, with your own opinions, you've had enough conversations. But it's always shocked me at how many people have the exact same feelings that you just described where you had your pick to go to all these companies and you end up being attracted to the one where it really is about financial freedom. It really is about, you know, a different system or an alternative system giving people choice.

• 35:15Speaker 01

  Yeah. And so I talk to investors actually about this all the time, not people who invest in crypto, but.

• 35:22Speaker 01

  I talk to like venture capitalists, for example, all the time. And they say, what's the difference between you and the big exchanges out there? Like, why, why should we invest in you and not to make exchanges? And, you know, in my opinion, that sometimes those big exchanges are good investments. But there's a, there's a market difference in our customer base versus theirs. Their customers go there to take their dollars and turn them into more dollars. Put dollars in, there's a ticker that goes up and down, you take your dollars out. People don't come to blockchain to do that. People come to blockchain to use their money. We provide liquidity services. We just launched Lockbox and Swap, which is a little bit, it's actually nothing like Netflix and chill. But it, it sounds like it. It's a lot less fun than Netflix and chill.

• 36:07Speaker 01

  But it does mean that you can actually hold your own crypto in a hardware wallet. And when you want to move between cryptos, you can swap between cryptos. We do offer liquidity services, but at the end of the day, people don't come to blockchain so that they can speculate. They come to blockchain so that they can use crypto. And that's, and that's, that's part of what our airdrops program is all about.

• 36:30Speaker 00

  Yeah, absolutely. Well, the other piece too, is I think, at least when we talk with folks who are a little bit older, you know, from an age perspective, they're shocked when I start to describe, you know, there's a demographic of people, you know, younger people who they've got double digit, maybe mid double digit or higher percentages of their net worth in digital assets, right? And to them, it's not risky, right? It is, of course, there's going to be digital money, digital stores of value. Of course, I'm going to have a digital wallet and, you know, kind of have this hybrid between a bank account or a brokerage account and, you know, all this kind of stuff that I think is new and different and possibly scary to people who, one, don't understand

• 37:12Speaker 00

  it, or two, grew up just having it beaten to their head that the fiat system and the traditional legacy banking system is just the way it is. And so I think the work that you guys are doing is you're really empowering that generation of people who believe something different to actually interact with the technology in a way that Keeps them in power, but but also reduces some of the risk of doing it, right? In terms of the security and things like that.

• 37:37Speaker 01

  Yeah, it's absolutely right. And that's that's that's that's the way that we see it, too. I mean, we we we could have taken the company, I think. I say we, but I joined in February, but I've been the company's lawyer for the last four years. And, you know, the the company could have gone in any number of different directions, but they stayed the course in 2015, when nobody was talking about public blockchains and Bitcoins. And everybody was talking about DLT. Do you remember DLT? Distributed Ledger Technology is the term that the banks had come up with to sanitize crypto as much as they could to try to get to try to get their boards on board. But even back when people were thinking about, were talking about DLT, blockchain never started doing proofs of concept with banks. We never, that wasn't us.

• 38:21Speaker 01

  That's just not the vision that we had, and it's not the vision that we have today.

• 38:25Speaker 00

  Well, look, it is, the user base speaks for itself, right? Let me ask you this question. What do you think, and I've never asked anybody this, but I think you've kind of, your perspective is very different, and you were kind of an outsider that was friendly to the company for a while and now are an insider. What would you say is the most legitimate criticism people have of that approach? Right? So while everyone else is out working with the banks and the legacy system, and they're all trying to jockey for different kind of advantages or ways to get ahead. You guys stayed the course. And so there's obviously people who are going to disagree with that approach. What's the most legitimate criticism of that?

• 39:05Speaker 01

  I think that the legitimate criticisms come from time scale. They say, so when I say, hey, when people ask me, when is blockchain going to have?

• 39:16Speaker 01

  When is the man on the street going to have a blockchain wallet just as just as surely as they have a cellphone? Right? I give them a long time scale. And that's because it's actually difficult in this country to explain to people that, you know, the benefits of having control, having self, having user-controlled wallets. Some people think it's risky. Some people think that it's just not a job that they want to do. You know what? At the end of the day, I have a bank account, you know? I have a credit card. I respect that. I don't, I don't, I don't want to do that work myself. But

• 39:57Speaker 01

  You know, that's just here. That's just the US. Blockchain isn't even a US company. That's what most people don't realize. Blockchain was founded in not New York, but York, right? We, this, this, this, this is a very, very old and very international company. We were not US first. And you'll be surprised to learn how much, even after the events of 2008, you still trust your bank. You still walk up there, you still give them your money every day. And you ask them pretty please, can I take it out? And I ask the same thing, you know, I, I do the same thing, but in many parts of the world, that is, that is not the case. And it shows in our numbers. We, we have plenty of users in the United States.

• 40:38Speaker 01

  But a couple of months ago, I was, I was, I was, the management team shared metrics with me and it, and we had signed on more users from Kenya that month than we had from Texas. And you see that happen occasionally because people in the rest of the world, well, their banks have not been good stewards of their money. And you could argue that's happened here in the United States too, where our money is worth less and less every day. But by and large, we've done, our, our government has actually done a very good job compared to most of the world. So it's why the company decided that it was not going to be, uh, why the company decided it had to have an international first approach.

• 41:23Speaker 00

  Yeah. What you're describing is this, uh, you know, good gets in the way of great, right? And the US banking system is good enough for a majority of people to do a majority of the things that they want to do.

• 41:35Speaker 01

  Yeah.

• 41:35Speaker 00

  Right? And so, you know, how many people have their, uh, their wealth devalued away in the United States financial system? Very little, right? How many people have their capital seized or their wealth seized? Very little, right? How many people want to move money and can't do it or the bank, you know, restricts them from doing it? Not very many, right? And so. Because the financial system is good enough and there's just enough infrastructure that people can get by with it, I think they become complacent, right? And they don't want to aspire for the great thing that could be possible that the base of the other technology brings.

• 42:10Speaker 01

  Yeah, it's not a uniquely American thing, but it is amplified here in the United States and Western Europe, places where people have sound money relative to the rest of the world, right? You use that phrase "sound money" and the Bitcoin maximalists start to say, "Well, US doesn't have sound money." And, well, I mean, on a relative scale, maybe gold is the only thing that's truly pure, right? But I certainly don't feel that way. I don't count myself among them. But then you look at places like Japan, which, yeah, the money has not been spectacular there, but they have so many different kinds of payment systems.

• 42:50Speaker 01

  And adoption has been so much quicker there for things like contactless, cardless payments. The rest of the world is a big place.

• 42:58Speaker 00

  Absolutely. Yeah, and, you know, look, we saw this in African countries, right? I talk a lot about this idea that citizens of African countries had no banking infrastructure maybe 20 years ago, and they leapfrogged the US when it came to mobile banking, right? It was just because they had nothing, and so all of a sudden, I can text you money, right? It just became very popular.

• 43:21Speaker 01

  Yeah, it's like landlines, landline phones, right? It was just a stage they skipped.

• 43:25Speaker 00

  Yep, and so I think that we're seeing some of that with this decentralized kind of open finance or, you know, user-first type financial products in other parts of the world, right? Some, you know, the classic examples are the Venezuelas, Argentinas, the world, et cetera. But I think this is happening in Africa, I think it's happening across Asia. It's just places where they don't have good enough infrastructure, and so they go from, you know, very bad to great infrastructure. It's still going to take some time, but in some ways, they're lucky that they're not distracted by the good enough infrastructure.

• 43:57Speaker 01

  Yep.

• 43:58Speaker 00

  Right? All right, so let's get back to blockchain real quick. Let's talk about airdrops, right? So, obviously blockchain and the securities world, finance, et cetera, the traditional markets are pretty well understood. There's been plenty of time, plenty of smart people who have looked at all this stuff, but the blockchain ecosystem and crypto specifically bring quite a number of nuances, right? To these airdrops, hard forks. What is the company blockchain, right? How do you guys look at that? And then talk about this airdrop program that you guys created? Because I think it's a pretty new and nuanced thing that's pretty powerful.

• 44:34Speaker 01

  Well, blockchain serves as the on-ramp for millions and millions of people all around the world. One of the difficult things about getting into crypto is getting crypto. You have to sign on to an exchange that might lose your money. You have to buy it in some shady ICO. You have to mine it, which is difficult. Or you can be like me and I actually earned my first crypto, actually. Like I accepted it for legal fees. But let me tell you, that's hard. Actually doing work for stuff is sometimes really hard. So we thought, look, there can be a better way.

• 45:15Speaker 01

  And as you can tell from the theme of this, I've actually dedicated a lot of my time to try to figure out better ways to crypto adoption. We did that with the SAFT project white paper. We tried to set ICOs aside and say, there could be a better way. And this is another, this is another way to do it. If you want to invent the next Bitcoin, or the next Ethereum, or the next, the bigger and better thing, the bigger and better crypto network, you're a creator. Well, at first, you've got a bunch of crypto and you want people to use it. One necessary, but not sufficient qualification requirement for getting people to use it is them actually having it.

• 45:56Speaker 01

  So what an airdrop can do is put crypto in the hands of many people. It can take crypto out of the hands of just a few, usually a few creators, and put it in the hands of many people. The way that happens is that, well, remember I said with blockchain, you have our users, anybody with a blockchain wallet actually has the private keys to their crypto. They are the ones who are in control of it, not some bank or intermediary financial institution. So when an airdrop, that creator takes the crypto. And gives it away for free. And if they do it through blockchain, they certainly don't pay us any of it. We don't keep any of it. We don't charge listing fees or anything. Every, every, every piece of crypto we get, we give to our users. We work for our users.

• 46:41Speaker 01

  And we did our, we published a set of guiding principles on airdrops. You can read that on our website at blockchain.com. It's easy to remember. You can read the guiding principles there. And today, we actually announced our first, our very first airdrop, our very first implementation of those guiding principles. We're airdropping something called Stellar, Stellar XLM. We're, we're giving it away for free to our users. And it's all, it's all starting now.

• 47:11Speaker 00

  All right. So let's back up for a second. So the airdrops are merely the creators, you know, in an over generalized world, the creators are giving away these crypto assets, right, to everyone else. Sometimes it's to incentivize them to participate in a network. Sometimes it's money. It could be a whole bunch of different use cases, but it's a giveaway to some degree for free. Why would they do that, right?

• 47:34Speaker 01

  It's a great question.

• 47:35Speaker 00

  What is the creator's benefit in giving something away for what appears to be free?

• 47:40Speaker 01

  This is a uniquely, a uniquely crypto element. Virtual currencies benefit from network effects. The more people that actually have and use a particular coin, the more valuable each particular coin is, not in terms of sticker price, but into, or sticker, sorry, stock ticker value, but in terms of actual functionality. If you have a dollar, and I don't accept dollars, all I accept is yen, and no one around you, no one around you accepts dollars, that dollar is, well, it's not very functional, is it? It has no utility. If I accept dollars and you accept dollars, that dollar becomes marginally more useful

• 48:25Speaker 01

  because you might be able to pay me with it. But I mean, why do we even accept dollars if some third person over here across the room isn't going to accept it from me, right? So the more people that, the more, the more people that actually use these things, the more people that want to use them in commerce and know how to use them in commerce and have experience using them in commerce, the more valuable they are. So if you're a crypto creator, you can benefit from these network effects that drive the adoption, that drive the actual functional use of your token. I have no idea what happens to the price of an airdrop. Nobody at blockchain really, I would assume nobody blockchain really does, and it's not really the point anyway. This isn't for speculators. This is for people who want to get their first bit of crypto so they can settle up

• 49:10Speaker 01

  a tab at the bar, pay for lunch, or settle a bet, or put in for a poker game, or do all the things that you do with money. And one of the, one of the nice things is that, you know, decentralization has become a very powerful thing. And when just a few people have a particular crypto, it's not very decentralized. Airdrops, blockchain airdrops can be a tool to drive decentralization because each of our users has a private key.

• 49:39Speaker 00

  Yeah, it's, I wrote about this today. It's this debate between decentralization and centralization, right? And I think that the crypto community, especially on Twitter and stuff, whenever something happens, everyone's like, you know, decentralize it, decentralize it, and they start screaming about it. And the point I was trying to make when I was writing this was, look, centralization is not inherently bad, right? And I would actually argue that many of the most popular internet companies of today would not be as successful as they are if they hadn't been decentralized when they started, right? So there was no ICOs, there was no cryptocurrency, there was no airdrop. All of these elements did not exist. And so you needed a centralized team with a centralized focus, a centralized office,

• 50:23Speaker 00

  all these things to build the initial network effect that then grew, right? So you get a Facebook, a Twitter, you know, Google, et cetera. Today...

• 50:33Speaker 00

  Actually, a lot of these projects are starting out with some sort of centralized organization, right? And not organization as an illegal entity, but there's a group of people that come together and they're organizing themselves and their resources to create something. And then what decentralization is really kind of proliferating as is their ability to go from highly centralized to quickly dissipate out or distribute out their resources and their workload to as many people as possible, right? And so it's almost like there's a spectrum and they start out in somewhat of a centralized manner because you've got to organize those resources, you've got to organize ideas, you've got to build something. And then as quickly as you can, if you can decentralize yourself and your organization, that's where value is accruing, right?

• 51:18Speaker 01

  Yeah.

• 51:19Speaker 00

  What do you think about that?

• 51:20Speaker 01

  Well, I think that so decentralization has acquired this sort of talismanic power in the industry, somewhat for good reason, somewhat for good reason. It's a term of art in the law now. In fact, decentralized convertible virtual currencies, as the Department of the Treasury categorizes Bitcoin, have different regulatory overhead, in fact, much lower regulatory overhead than centralized convertible virtual currency systems like PayPal.

• 51:52Speaker 00

  Interesting.

• 51:52Speaker 01

  Right? Centralized convertible virtual currency system. Bitcoin is a decentralized convertible virtual currency system. There is a money transmitter, there must be a money transmitter who requires licenses, who requires registration, a chief compliance officer, an AML policy, KYC, et cetera. This was the kind of law that I practiced, right? At PayPal, there has to be one of those. But at Bitcoin, well, there's no Bitcoin Inc., right? There's nobody to do that because it is sufficiently decentralized. So in the money services law, decentralization, there's a very good reason why it's become talismanic, because it is now a term of art.

• 52:31Speaker 00

  Interesting.

• 52:32Speaker 01

  And it's the same way. We just, we just saw the, the director of the Division of Corporation Finance at SEC, Hill Hinman, he said, look,

• 52:41Speaker 01

  There's actually kind of a set of traps you can run on your offering to tell whether it's a security. And what is the bar called? What is the line called? Decentralization. Is your network decentralized enough? Is it sufficiently decentralized to not be a security? And so, not only the money services law, but in the context of the securities law. If the network is decentralized, then it is less likely, or maybe just not, a security. So, the power of an airdrop, of at least the way of a blockchain airdrop, the way that we do it, is that it can really drive those effects.

• 53:25Speaker 01

  It can drive those decentralization effects, those network effects, so that if you're a crypto creator, this is something that you should be really attractive, a bunch of people who really don't have a whole lot of incentive to speculate on your currency, or your coin, or whatever it is, but have a lot of tools available to use it. That's the power that we see in it.

• 53:48Speaker 00

  Let's say that airdrops become the de facto way to bootstrap network effects, right? And so, creators are building products, services, companies, networks, etc., that they're going to use these airdrops to distribute some sort of asset and really get people to use it, right? Does it become saturated at some point? Every day I'm receiving a new airdrop, and I don't know Monday from Tuesday, and now all of a sudden I've just got all this, what looks like free money, or kind of spam email.

• 54:17Speaker 01

  Yeah.

• 54:18Speaker 00

  Are you worried that we get into a world where there's not enough kind of skin in the game, maybe, for the users, right? And it's too frictionless? Or do you think that kind of the best projects rise to the top, and users will be attracted to just understand that and kind of buy into those network effects?

• 54:36Speaker 01

  I think that's a really good point, and it's something that we've struggled with at blockchain, sort of it. What is the macro consequence if this really catches on? It's something that we struggled with for the SAFT project framework, too, right? One of the consequences is that, well, maybe people can't do ICOs anymore if this thing really picks up. And with regard to airdrops, like, we're not trying to kill anything with airdrops, or even become a market standard, for that matter, but... What we have done is, well, a little bit of curation. I don't think we foresee this as a tool, as I don't think we foresee this as every day,

• 55:18Speaker 01

  some weird worthless new piece of spam hits your wallet, because we have to do integration work, right? First of all, there's a limiting factor. But also, we have users that really, most of them have never heard of an ERC20 token, right? Most of them don't know about ICOs. They just think this is, this might be a better way to use their money. And so it's, it's, it should come as no surprise that we started off with something that we believe to be a high-quality asset, something that we think can be good money, something that is built to scale, that works even when there's millions of people using the network at the same time, something that you can actually create cool things with,

• 56:02Speaker 01

  you can build assets on top of Stellar. I don't see us doing this for every project that comes along the way, right? This is, this is not like a tool for like revenue generation for us. We'd, like I said, we don't, we don't take any listing fees, so we're not just trying to like jam a bunch of crypto down our, you know, down our users' throats. At the same time, we do want this to be a platform for discovery, so that if you don't know a whole lot about crypto, but you know that everybody that you trust and respect has said this stuff is amazing, you can open a blockchain wallet and occasionally you'll find something new and exciting in it that you can use. Really, you can really functionally use it and give it a try.

• 56:43Speaker 00

  Yeah. I mean, to some degree, right? People will associate the quality of blockchain, the company, with the quality of the things that get through, right? And get airdropped to them, et cetera. And so there's a little bit of you guys need to pay attention to that.

• 56:59Speaker 01

  Yeah.

• 57:00Speaker 00

  Okay, so let's switch gears a little bit and talk-

• 57:03Speaker 01

  I will make one final point on that.

• 57:04Speaker 00

  Go ahead.

• 57:05Speaker 01

  And that's that- If every single coin we airdrop ends up being like a high-quality asset that everybody uses every day, we'll know we've failed.

• 57:15Speaker 00

  Okay, why?

• 57:16Speaker 01

  It means we haven't pushed the envelope. We're not, we're like, this company doesn't exist so that we, so that people don't experience anything new and have to think out, and never have to think outside of the box, and never get confronted with something that changes the way they think about money. This company exists to push that envelope. And so if we never deliver even one token, then even one coin that doesn't really take off, we'll know we played it too safe.

• 57:45Speaker 00

  Yeah, I think it's super interesting and very similar to the way venture capitalists think, right? If none of the companies go to zero, you actually failed.

• 57:51Speaker 01

  There you go.

• 57:52Speaker 00

  Right? All right, let's switch gears and talk about asset tokenization, right? So I think that you, you've really helped and been kind of integral part of these crypto entrepreneurs funding network growth and these decentralized organizations and a whole bunch of stuff there. I think what's become a popular narrative, right? You know, we are a big proponent of it ourselves, is taking assets, stocks, bonds, currencies, and commodities and digitizing them or tokenizing them onto blockchains. What's your personal view on, you know, that market, how it will, if at all, kind of grow and where we're going there?

• 58:39Speaker 01

  This is a great other side of the coin from what we were talking about.

• 58:44Speaker 00

  No pun intended.

• 58:45Speaker 01

  Well, it's actually a bad expression. It's a great foil, it's a great, whatever, it's, it's, it's the opposite. I'm not, I'm just a lawyer, I'm not, I'm not good with words.

• 58:56Speaker 01

  So what you're talking about, as opposed to cryptocurrencies and utility tokens, is tokenized securities, right? They are investment products that are intended to be investment products. It's not a question of, oh, golly, does this going to pass the Howey test? No, we know the thing as a security was always intended to be one, except instead of writing it into Carta or writing it into a MySQL database or onto a stock certificate, we wrote it into a smart contract on a blockchain. Those things are tokenized securities. They don't benefit from network effects in as much as they are tokenized securities. We see some weird hybrid things out there. But so much as they're just meant to represent a share in a company, it doesn't matter how

• 59:41Speaker 01

  many people use the network that represents the share in the company. The value doesn't come from the network. It comes from the performance of the issuer and the efforts of the issuer, right? To use the Howie language. I think those are powerful for a different reason. And what we're going to see is that, in my opinion, what we'll probably see is that the tokens that really capitalize on the tokenized securities, I should say, that really capitalize on the blockchain infrastructure are the ones that investors will see value in. And we're, you know, we don't airdrop those, right? We don't airdrop tokenized securities. It's not part of our mission.

• 1:00:23Speaker 01

  But I did a lot of work on this when I was in private practice. In fact, I was the, what is it? The blockchain ambassador to the state of Delaware in connection with the Delaware Blockchain Initiative, where we actually amended the Delaware General Corporation law to permit, or to at least clarify, that corporations could use a blockchain as their books and records. So they could rely on the contents of a blockchain as their books and records, which is kind of bonkers when you think about it, but that's what it means.

• 1:00:58Speaker 00

  So first of all, I didn't know that we had a Delaware state law celebrity in here. We'll have to get an autograph later. But you said it's bonkers, right? And I would push back on that in the sense of today, the books and records are usually kept by the company. They're periodically audited by some third party. And External parties, so investors, analysts, researchers, the general public, make decisions based on a couple of things. One, the information that is provided by the company, which is usually dictated by some sort of law or regulatory guidance.

• 1:01:40Speaker 00

  Two, that the auditors are correctly and accurately auditing that information and representing it as fact. And then three is that nothing changes or nothing material has changed since the last either guidance given by the company, report given by the company, or audit. So there's no real time information, there's no kind of third party immutable record of truth, all the things that we know the blockchain promises. Wouldn't it make sense, though, that if you're an external third party and you say, "I trust no one," you would want that immutable record? You would want those books and records held somewhere that you could self-audit it?

• 1:02:24Speaker 00

  You didn't have to rely on other people or take on that counterparty risk?

• 1:02:28Speaker 01

  Yeah, and there's a great example of that in the Dole Foods case, which is a piece of law. It's a decision in the Delaware Chancery Court, back to Delaware, in the Delaware Chancery Court where the company had requests for redemptions of like thousands and thousands of more shares than they actually had record owners on their books.

• 1:02:52Speaker 00

  Okay, so explain it. So Dole had given out shares or sold shares in the company, whatever the number was, and they wrote that down in their books and records saying, you know, "10,000." They had given out 10,000 shares that they had articulated in their books and records. And at some point in the future, more than 10,000 share requests basically came back. So there was a mismatch between what the books and records internally were representing versus what people were showing up to almost a run on the bank to some degree, saying, "Hey, give us this back." How does that happen?

• 1:03:26Speaker 01

  That's right. You have to ask why. What possible scenario could lead to that? I mean, I can pay a chicken farmer using a Lightning Network payment with my Bitcoin to dispense corn feed to the chickens in Australia from New York, but Dole Foods can't keep track of how many owners it has? That's crazy. And in reality, in the world we live in... That's not crazy. That's how the net settlement system in the public markets of securities works. That's how the system of securities entitlement works. So, for example, how many people in this room own a share of publicly traded stock? Raise your hand. Now, there's

• 1:04:09Speaker 01

  four people in the room. It's not that much. But they all raised their hands. You don't. You actually don't. You are not the owner of that stock. There's a company called CD and Co. that owns that stock. They are the nominee. And you have a securities entitlement. You have the subordinated right to that stock. And in between you and the issuer, there are a dozen intermediaries that can lose track of things.

• 1:04:34Speaker 00

  And just so people really understand what you're describing here, would it be fair to kind of simplify the complexity between the issuer and the individual investor who believes they own that stock as really what they have is a lien on somebody else's ownership of the stock?

• 1:04:52Speaker 01

  I mean, it's called an entitlement, right? It's, you know, a lien is, you're asking a lawyer to be technical. Technically, it's not a lien. But the idea is that-

• 1:05:00Speaker 00

  I'm getting, yeah, I'm getting the Delaware state law celebrity to give me lessons now.

• 1:05:05Speaker 01

  Definitely. I'm absolutely not the expert. I was lucky enough to be involved in this single project. But, no, the idea is that you have a right to what your broker has. Your broker has a right to what maybe some other broker has, who all the way up the chain has a right to this share that is actually owned on the books and records of the corporation by the Depository Trust and Clearing Corporation, technically by CD and Co., its nominee. And that happened back in the paper blizzard of the 1960s, 1970s, when stock, when the markets had to shut down in the middle of the day because people just had to keep up.

• 1:05:46Speaker 01

  They had to keep up with recording the transfer of these securities. Finally, the street said, look, enough is enough. Let's set up, let's set up, let's set up a new process. And there were two alternatives. One was-

• 1:06:00Speaker 01

  A distributed ledger.

• 1:06:02Speaker 00

  I was just gonna say, that's basically what

• 1:06:04Speaker 01

  In the 70s, it's crazy.

• 1:06:04Speaker 00

  Solving the double spend problem.

• 1:06:06Speaker 01

  It could have, it could have, but the technology just wasn't there yet, right? Just like with Uber, right? In the, in the 90s, we, we were talking about this before we got on the, on, on the, on the mic. But, you know, back in the 90s, we'd tell our kids not to take rights from strangers. And don't get into cars with strangers. And now you literally

• 1:06:23Speaker 00

  You pay a stranger to come pick you up.

• 1:06:25Speaker 01

  Don't talk to strangers on the internet. Don't get into the right, right? Because the technology changed.

• 1:06:29Speaker 00

  Yep.

• 1:06:30Speaker 01

  And, and now we have technology that actually allows, that, that actually allows people to

• 1:06:39Speaker 01

  all join this distributed ledger. So you don't have to have a small group of people that are permitted to write to a ledger that are, that are permitted to trade entitlements back and forth or net settle between their clients.

• 1:06:51Speaker 00

  Yeah. The, the hyperbole statement that we usually use is, you know, everyone talks about crypto and blockchain as it's risky, right? It's new, it's unproven. And we make the argument a lot of times to especially older CIOs, look, this is actually less risky. Right? And let us, and they kind of shrink back a little. What do you mean? How could you say that? And you start walking them through it. And, and because they're so deep in the nuances of underwriting risk and things like that, they actually very quickly come up to speed and they say, oh, you know what? This is very interesting, right? A piece of technology can reduce my counterparty risk. It can really give me true ownership of the asset, right? And kind of what are the ramifications of that? I think becomes attractive. And so it's this whole idea that they just kind of get educated.

• 1:07:34Speaker 01

  Yeah.

• 1:07:35Speaker 00

  Right?

• 1:07:35Speaker 01

  It is an educational process.

• 1:07:37Speaker 00

  Once they get educated, then they, they start to believe, right? And you get back to the whole, the virus is spreading and all that stuff. Cool. So let me ask this. One of the things we've talked about on, on previous episodes with folks is, you know, as we get deeper and deeper down the rabbit hole and, and talk to people across the industry, one theme that continues to emerge is what if we're actually underestimating the potential of blockchain, Bitcoin, cryptocurrency, right? And I think most of us who are excited about this have, you know, dedicated parts of our careers to working on it. We have high ambitions or, or believe in the, in the prospects of the technology.

• 1:08:18Speaker 00

  What's like the farthest out or most extreme view of this industry that you could see or believe in?

• 1:08:25Speaker 01

  Well, you know, this is, this has sort of become, this has sort of become hackneyed at this point, but when we think, when, when, when the first internet pioneers were, were doing their work, they were, they thought, oh my gosh, we are going to be able to send a single packet of data and it's going to make its way all the way around the world one day. And I don't, I don't, I don't know who among them really envisioned, you know, billions of those packets of data being sent around the world in, I don't know the numbers in a second. I mean, we, we, we don't, we didn't think of that. We never understand

• 1:09:06Speaker 01

  the, the holistic impact of new technologies like this. I think that we like saying how impactful they're going to be, but when asked for an application, this is where the venture capitalists in particular are, you know, are, are successful because they can predict the future. But most of us can't. And when I look at crypto today, I see people amazed when they, when they use their first bit of crypto. This is why we're giving away 25 bucks to somebody. So they can just try it. So they can, so they can move crypto around the world in the blink of an eye. When I, when I see the, the magic in people's eyes when they do that and they're shocked that it worked, I think, how shocked are

• 1:09:48Speaker 01

  they going to be when that little bit of value is no more special or unique than a packet of data that runs across the internet and people are sending, not just individuals, but machines are sending, are sending money, sending value around the world in as frictionless and liquid a way as people send generic data today. I, I don't fully understand the consequences of that. You know, you can think of the sort of, the, the examples that are now somewhat overused of the, the car pulling up to the gas station and the car independently of

• 1:10:29Speaker 01

  you settling up with the gas station owner in some form of cryptocurrency. Maybe it's Stellar XLM, maybe it's Bitcoin. And

• 1:10:40Speaker 01

  You know, that that seems like a very basic example of one day, maybe we'll be able to send a packet of data all the way around the world. Who knows what life is going to be like when, well, money is is being sent around those packets.

• 1:10:56Speaker 00

  We talk a lot about blockchain and crypto has to happen for automation to actually work, right? So if you think of this idea of in an automated world, you're going to get machines that have to trust other machines. And so what better way to do that than in a fully transparent, machine-driven or algorithmically-driven world? And so going back to asset tokenization, if you get every stock, bond, currency, commodity that ends up being tokenized or digitized, you now unlock the potential for things that you and I probably can't even comprehend or imagine.

• 1:11:30Speaker 01

  Yeah, it's like email is just a faster letter, right?

• 1:11:32Speaker 00

  Yep, kind of.

• 1:11:34Speaker 01

  But nobody really realized that we would be, you know, how how it would just fundamentally change the way that we do business.

• 1:11:43Speaker 00

  Absolutely. All right, so let's go into a kind of a quick round of of questions and then we'll we'll end up with you asking me one question. But what do you think is the most important company in crypto outside of blockchain?

• 1:11:58Speaker 01

  The most important company?

• 1:12:00Speaker 00

  Yeah, if you had to pick one other than where you work, what's the most important company?

• 1:12:04Speaker 01

  Right now, oh, gosh, that's a good question. Cloudflare.

• 1:12:10Speaker 00

  Cloudflare. Okay, why?

• 1:12:12Speaker 01

  Well, they control what websites you get to see. It's that simple. It's it's it's true, it's truly, it's truly that simple. They are the gatekeepers to the web in the same way that Google is the gatekeeper to email. Like, there are no websites, there's just what Cloudflare stops DDoSs against. There is no email, there is just what Google allows to get through its spam filters.

• 1:12:37Speaker 00

  Interesting. We've never had anyone who who has thought that way, so that's a really good one. Okay, what is, if you had a magic wand and you could wave it and change anyone's regulation or improve anyone's regulation, what would it be? And you, I ask everybody this question, but I'm really interested in what your your opinion is.

• 1:12:57Speaker 01

  These are hard. You didn't tell me about any of these before.

• 1:13:00Speaker 00

  That's part of the game.

• 1:13:03Speaker 01

  I would.

• 1:13:08Speaker 01

  I would harmonize investor protection regulations around the world.

• 1:13:13Speaker 00

  Interesting.

• 1:13:13Speaker 01

  I wouldn't know how to do it.

• 1:13:15Speaker 00

  Yep.

• 1:13:15Speaker 01

  I wouldn't do it if I could snap my fingers and do it. Believe me, I would have. But it's something that lawyers struggle against constantly. It's something that I know regulators struggle against constantly and entrepreneurs in this space. That is, that is the one question on all of their minds is how do I actually execute this thing? I just want to do a Kickstarter like issuance, but is it a security? Is it not?

• 1:13:40Speaker 00

  And you're talking about each jurisdiction has different laws, protections, regulations, et cetera. And some of them are consistent, some of them are, and it just becomes very fragmented.

• 1:13:50Speaker 01

  They're out of step. And, you know, I've been, I've been working with policymakers and regulators in cryptos since 2013. And if there's one thing I've found is that it is an uneven landscape. It is, it is incredibly uneven landscape. Regulators in, and legislators in the United Kingdom, for example, don't always even know what the law is in the United States. And part of that is because we in the United States don't even really know what the law is. And it's this, it's this, it's this stutter start. It's a sort of punctuated hurry up and stop approach to creating new regulations where one jurisdiction juts out ahead, but not too far, and they're a little bit wishy washy on it.

• 1:14:34Speaker 01

  But that kind of sets a little bit of a precedent. Another jurisdiction goes out and they'll say a little bit of, you know, they'll, they'll, they'll put their own take on it, but they won't commit. And then depending on what the third and fourth and fifth people do, there's some equilibrium reached. But then someone steps a little bit further, like what happened in the Bitlicense in New York. So it's punctuated.

• 1:14:57Speaker 00

  Two more questions. What's the one thought you have or belief in crypto that you think majority of other people would disagree with you?

• 1:15:06Speaker 01

  The one thought I have in, oh, so an unpopular crypto.

• 1:15:09Speaker 00

  Exactly.

• 1:15:10Speaker 01

  An unpopular crypto opinion. Oh, wow.

• 1:15:13Speaker 00

  Everyone in crypto is not short on the unpopular opinions, but what's the one that you like really believe in that you think most other people would just think, no way?

• 1:15:24Speaker 01

  That is a difficult one. How much hemming and hawing can I do that you'll edit out at the end of this?

• 1:15:32Speaker 01

  So I could take a little bit. I can take a little bit longer.

• 1:15:35Speaker 00

  You could think.

• 1:15:36Speaker 01

  Yeah, look, the bottom line is I feel like all I've had are unpopular opinions. You know, people didn't like what we said in the SAF project framework, at least some people didn't like it, right? Because it called out a lot of people for doing things they probably shouldn't have been doing.

• 1:15:51Speaker 00

  Is that the one thing that you think you've been involved in where it felt like there was the most pushback?

• 1:15:59Speaker 01

  I think that's probably fair to say. I think that's probably fair to say. Who knows if airdrops will be something like that? We hope not. I mean, we're giving people free stuff to try to actually, you know, get into crypto for the first time and use it.

• 1:16:12Speaker 01

  The risks are pretty low there, but you know, when we published the SAF project white paper, there were a lot of people who had just done ICOs and some people whose whole business model was built on doing ICOs and they didn't take it well. So, yeah, there were consequences.

• 1:16:26Speaker 00

  Doesn't mean you're right, doesn't mean you're wrong, though, right? All right. And so, last question, not crypto related, but I'm excited to talk about this one because we've had big developments in the alien space. So I usually ask everybody.

• 1:16:39Speaker 01

  Although, what is it that the asteroid?

• 1:16:41Speaker 00

  I always say, yeah, if aliens are real, right, do you think there's alien pets? Right? We always think of aliens as like a human-like creature. No one ever talks about, are they showing up off the spaceship with dogs and cats and, you know, other forms of life that are pets?

• 1:16:56Speaker 01

  Absolutely. There's a whole episode of Star Trek about this. I feel like I, how am I the nerdiest? How am I the nerdiest person in the room? Of course, everybody, all the aliens in Star Trek, right? They mostly look like each other. Two arms, two legs, two eyes. One nose. Because, well, life always kind of evolves in the same way. So, yeah, of course, they're gonna have pets, just like we do. Now, maybe they got a little farther along the spectrum and the pets aren't allowed on the spaceships yet. Because, hell, we don't even have spaceships. But there you go. You got my sci fi thought for the year.

• 1:17:32Speaker 00

  Well, so here's the thing, right? I'm shocked at how few people are talking about the spaceship. And for those that don't know, the head of the astrology department at Harvard.

• 1:17:43Speaker 01

  Did you say astrology?

• 1:17:45Speaker 00

  Oh, I'm sorry.

• 1:17:50Speaker 00

  Man, it has been a long day. Some people probably think he is the head of the astrology department.

• 1:17:56Speaker 01

  If he's talking about aliens, maybe Jupiter is in his third house.

• 1:18:00Speaker 00

  But what he came out and he said, right, was that, look, there is this, I don't even know what they call it. Interstellar object, I think is what they're calling it. That was picked up by a bunch of telescopes. And the way that it moved, it accelerated in kind of a weird way. It was shaped in a weird way. And he's basically saying, listen, this may have been some sort of transportation vehicle where an alien species was actually sending it to look at Earth, come near Earth, etc.

• 1:18:34Speaker 00

  Harvard professor, right? How far in the left field spectrum are we getting there with?

• 1:18:41Speaker 01

  He's a professor of astrology, so I don't, I don't, I don't trust him one bit.

• 1:18:45Speaker 00

  All right, so I end each episode with letting the guest ask me one question. What one question do you have for me?

• 1:18:53Speaker 01

  When did you open your blockchain wallet?

• 1:18:56Speaker 00

  When did I open my blockchain wallet?

• 1:19:00Speaker 00

  So I've got two answers to this. One is, the first thing I actually did, which in hindsight was really dumb, was I actually turned on a cryptocurrency mining rig first. Nothing attached to it. And so we plugged it in and we didn't know, right? We were just like, what are we doing here? And so plugged it in, then, okay, now we get a wallet, right? Then, once you get the tokens into the wallet, what do you do with it? How do I go back to fiat? And so the way that I actually got into crypto was my, my business partner and I had both invested and he was running a power company.

• 1:19:40Speaker 00

  And so it takes car tires, it puts it into a reactor, burns the car tires and turns it into oil, steel, carbon and syn gas. There's a company called PRTI. And so it sells the oil and the steel as a commodity and takes the carbon and syn gas, turns it into power and was supposed to sell the power into the grid. We started to learn about cryptocurrency mining. We said, hey, we've got really advantageous economics of the power. We should actually just build crypto mines. And so I bought a rig, plugged it in, had no clue what I was doing, right? And, and kind of worked our way through the whole ecosystem. And it wasn't until like the machines, oh, we actually probably should capture what we're mining, right? Do that, then, once you get into the wallet, how do I get in onto an exchange? On the exchange, how do I get into fiat, right? You know, I mean, literally every mistake along the way, which in hindsight makes you

• 1:20:25Speaker 00

  feel good that if you could figure it out and you're that dumb to start, like anyone can do this. But that was in, in 2016 and, and I think that I'm so thankful that that's how we came across this stuff was because it was at the kind of true essence of how the blockchains work, what's the value? And, and to your point, I think with these airdrops, right? It's once people experience it, right? Whether it's you airdropped me something and I can use it, or it's back in 2013, when you guys are sitting there doing a presentation for federal regulators, saying, here's a wallet address, we're going to take some cryptocurrency, we're going to send it to a new wallet address. It's a peer to the new one, right?

• 1:21:05Speaker 00

  Just the visual unlocking or the experience of actually doing it, I think just gets people hooked, right? And definitely did it for me. And, and so him and I always get a good laugh at it. We still got a picture that's pretty outrageous in terms of the first mines we built and things like that. But yes, 2016.

• 1:21:25Speaker 00

  Right on. Awesome, man. Thank you so much for coming. This is, uh, this is super, super helpful, and I think you've got a unique perspective. So, uh, we're cheering for you guys, and hopefully we'll do this again. Thanks for having me. Hey, guys. Thanks for listening. We're back with the CEO of Soluna, John Belzier. John, what are you most excited about right now?

• 1:21:43Speaker 02

  What excites me the most is that we're really in the midst of a revolution. Satoshi Nakamoto's paper that came out eight years ago really launched a revolution globally. And the blockchain is definitely here to stay. Today's blockchains are predominantly seen as the core technology for cryptocurrencies, among other things. But in the future, blockchains will do more. They'll be the foundation for entire new ecosystems. They will revolutionize a host of different industries around the world. And taken as a whole, these new distributed applications will form a new kind of internet, one where protocols replace companies and algorithms choose the best computing backend and solutions that they can find. This new ecosystem, this new internet, if you will, will need dedicated infrastructure to power

• 1:22:27Speaker 02

  it. And what excites me is that Soluna aims to be the key part of this infrastructure. We have the opportunity to build the next great infrastructure company to power this revolution. Thank you for taking the time. If you'd like to learn more about Soluna, please visit soluna.io.

• 1:22:43Speaker 00

  Pop here. If you liked this episode of Off the Chain and want to help us take crypto to the top of the apple, Spotify, and other podcast charts, please do us a favor and rate, review, and subscribe. To review, simply go to the Off the Chain homepage, scroll down until you see the five blank stars. Taking 15 seconds to fill those stars in and leave a quick review goes a long way in helping us take the entire crypto ecosystem to the top of the charts. I appreciate you listening, and see you next time on Off the Chain.