This is the full transcription of podcast 'Hidden Forces'.
The Future of Freedom, Governance, and the Networked State #Podcast #Transcription #ReadAlong #KnowledgeUnlocked
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This is the full transcription of podcast 'Hidden Forces'.
The Future of Freedom, Governance, and the Networked State #Podcast #Transcription #ReadAlong #KnowledgeUnlocked
The Hidden Forces podcast features long-form conversations broken into two parts, the second hour of which is made available to our premium subscribers, along with transcripts and notes to each conversation. For more information about how to access the episode over times, transcripts, and rundowns, head over to patreon.com. You can also sign up to our mailing list at hiddenforces.io, follow us on twitter, at hiddenforcespod, and leave us a review on Apple Podcasts. And with that, please enjoy this week's episode. What's up everybody? Before introducing today's episode, I'd like to take a moment to reflect on what has been an extraordinary year. I don't know if anyone else has this experience, but I struggle to remember what it was like to actually live a normal life. I haven't forgotten it, but I've lost that feeling of what it was like to go to the movies, to go to a bar, or to even strike up a conversation with a stranger. It's that quality of social dynamism and liveliness that (1/97)
started to fade. And boy, do I miss it. I think that if I were in a different place in my life, if I were alone, or if I didn't have such a fulfilling job, that I could have easily fallen into depression during this time. And I know that many of you are struggling with feelings of depression and anxiety right now. It is absolutely normal. I want you to know that this show and this community is about more than just sharing interesting philosophical ideas or heady intellectual topics. And while I do love reading some of your geekier emails, don't get me wrong, I love it. I also want you to know that I appreciate and read every single one of the more personal emails and messages that I get from those of you who find companionship in these podcasts and who are otherwise struggling or having a very difficult time with these uniquely isolating circumstances that we all find ourselves in today. I hope you continue to share your feelings and thoughts with me. I read them all, even if I can't (2/97)
respond to every single one of you. We all have ideas in our heads of what the holidays are supposed to be like. And this year, they're probably going to be the furthest thing from that. And that's okay. Life is full of surprises, ups and downs, some good, some bad. But the only thing that we can do is to keep moving forward. And that's what I intend to do with this show in the new year. So I want to wish all of you a happy end to your holiday season and a happy and hopefully much healthier 2021 for all of us. Now, turning to this week's episode, where you're about to hear is a conversation between me and the hosts of the Bankless Podcast, David Hoffman and Ryan Adams, who invited me on a couple of weeks ago to share my thoughts on where we find ourselves economically, politically, socioculturally, and of course, to talk about Bitcoin, Ethereum, and the larger explosion of interest that we've been witnessing in cryptocurrencies and decentralized finance. Since my episode with Roland (3/97)
Gray aired, we've seen further announcements about new regulatory proposals, including the new FinCEN Know Your Customer regs on self-hosted wallets and the huge securities fraud lawsuit filed by the SEC against Ripple. How that company was able to operate in the fashion that it has for all of these years without approaching the SEC is remarkable. But again, I do think that we are in a new pro-regulatory regime. And I think many of the players in FinTech are going to have to rethink their relationships to the government and to regulators in the years to come. As part of my effort to anticipate this transition, I've put together a couple of episodes in the new year that I haven't recorded yet, but which will deal directly with these issues. The first one should air next week, and that's going to be a more conceptual foundation-building episode dealing with some of what was discussed on the podcast that you're about to hear, namely this notion of a networked state or a digital state. (4/97)
David and Ryan seem to feel that code can supplant legal structures as an operating framework for society. And while I certainly agree that smart contracts can automate agreements, I don't believe that self-executing software can or should supplant our legal systems. I also think that it is naive and dangerous, quite frankly, to synonymize open-source software with liberal democracy. And you will notice that many of the folks pushing this idea in the public domain are very wealthy, powerful members of this new baronial elite with their network of thought leaders who all seem to share this perspective that governments are bankrupt, both politically and morally, and it's up to the entrepreneurs and technologists to build a better model for governance in the 21st century. This reminds me so much of the internationalist movement of the early 1900s. And I think this is going to become one of the main philosophical dividing lines separating these elites from the larger public, who is going (5/97)
to demand stricter and more pervasive regulations of these industries and their owners and operators. It's going to be very interesting to watch. And I am very much looking forward to thinking and speaking publicly about it, because I think many people are struggling to articulate what's happening, and I'm going to do my very best to try and make sense of all of it. So, with all of that out of the way, I want to encourage all of you to check out the Bankless Podcast at podcast.banklesshq.com. And in particular, an episode David and Ryan recently did with investor and thought leader Bellagy, who is very well known in the space and who I think expresses some of these views about the network state pretty articulately. So, that's a great episode to listen to if you want to get that perspective. They also recently had Rowan Gray on after he appeared on Hidden Forces, so make sure to check that episode out as well. All right, so without any further ado, please enjoy my conversation on the (6/97)
Bankless Podcast with hosts David Hoffman and Ryan Adams. Bankless Nation, we are so excited to introduce our next guest. Dimitri Kofinas is the host of the Hidden Forces Podcast. This is one of my favorite podcasts because it's a podcast that gives you an edge by teaching you not just what's going on, but how to think critically about the systems of power that structure our world. It's something we touch on in Bankless as well. Of course, Dimitri would describe himself as crypto curious, maybe crypto adjacent, but he really understands the nature of the industry while he's staying on the periphery. And we wanted to get his take as someone who is crypto curious, crypto adjacent, and who is synthesized and absorbed so much of the Hidden Forces that are going on in the world today. Dimitri, it's fantastic to have you. How are you doing? I'm great, guys. Thank you very much for having me on the podcast. Well, we are so excited. And this has been, I think, a really interesting year to be (7/97)
the host of a podcast like Hidden Forces, the type that you do. I'm going to start with this question. What's it been like to be a podcaster trying to find truth in the chaos of the year 2020? It has been very satisfying and exciting and fun, I must say. I think one of the great benefits of having a podcast like this is that when something strikes my curiosity, I get to, as a function of my job, investigate it and then bring on people who I would normally not have access to if I didn't have a podcast like this to speak to me to try to help me make sense of whatever it is that's creating confusion in me and in society. Yeah, absolutely. But has it been a hard of year to find truth? Have you found? Or have you been able to figure out the, find the signal and the noise here? So that's a very complicated, interesting question on many levels. I think we are struggling today to come to a social consensus view of what we even mean when we talk about truth. When I think about truth, I think on (8/97)
an ontological level, I don't think that any of us can ascertain what the truth is or what reality is at bottom, but we attempt to approximate it. We try to get close to it through things like empirical science or epistemology. And I think that these are part of the tools that I use to think critically about the systems of power that structure our world. And I do that starting with questioning assumptions. And those assumptions are what most people consider to be the truth, consensus thinking. So for me, it's actually been quite satisfying because when people's assumptions are suddenly being confronted as perhaps being wrong in such a jarring way, like we've been seeing in recent years, as we're going through this radical period of change, it really, I think, opens the door of a podcast like mine to step in and really help people think critically about those issues and those problems. Dmitri, the name of your podcast is Hidden Forces. And so I want to talk about what that means. The (9/97)
through line of your podcast seems to be surrounding so many different domains of knowledge, domains of information. What are the things that really grab your attention and that you fit into the through line of Hidden Forces? And why did you call it Hidden Forces in the first place? You know, I think I understood subconsciously why I did. And I began to articulate it early on, but I've gone through a long period with the podcast where I didn't have much time to think about all that. And I've gotten more clear on it recently. I think the idea of Hidden Forces, again, to go back to this idea that there are systems of power that create structure in our world. And that structure is oftentimes in the form of a narrative. There are things that we generally come to believe. And the reason why I think it's so important to challenge those narratives, and this is something I learned from investing, which is that in order to make money, it's not enough to just be right about the future. You also (10/97)
need to have a view that is different from the consensus view. Dmitry, I think the way Andreessen Horowitz describes this is you have to be contrarian, but right. Yeah, exactly. Well, Howard Marks says, who's also been on my podcast before, and I strongly recommend for your listeners to hear that episode. He has like, you know, all these little funny quips, and I think one of his quips is it's not enough to be a contrarian. You also have to be right. And it's true, but in order to be right, you have to be able to think critically. And that means knowing how to ask the right questions. It means knowing how to assess evidence. It means knowing how to evaluate arguments with the ultimate goal of coming to a conclusion and forming a judgment that you feel confident enough about that you can then rely on that judgment and that conclusion to make decisions and decisions that are materially important. Because oftentimes, your conclusions will be contradicted, or you will, if you purchase (11/97)
Apple at, you know, I don't know what it's trading at today, but you know, you purchase it at X and it falls 20%, that could shake you out of your position. Likewise, if you're on a panel or you're being interviewed and your views are challenged and you don't understand why you hold, why you believe what you believe, and you don't have conviction. And that's something else that Howard Marx talks about. It isn't just to be right. It isn't just to have a different view. You have to have conviction, because you'll get stopped out of your position. Literally and metaphorically, if you don't have conviction, and that's the epistemic component of hidden forces. It's, you know, not only what do I know, but how do I know what I know? How can I justify what I know to myself? Because what you'll often find is that people who hold beliefs and then have those beliefs challenged, yes, if you're investing in a market, you may very well and oftentimes will sell out of your position. But in the rest (12/97)
of the world, a bigger picture, what you find is that people will tend to become more wedded to their beliefs. They will clutch the cross. And the reason that people do that is because they can't bear the uncertainty. And that's because people need certainty. They need models and frameworks to structure reality, because reality is in its bare naked essence, chaotic. Or at least it appears chaotic to human beings. And we spent our entire lives doing that. And then, again, that brings us back to this point about power and structure, which is that we all need structure. We all have biases. We all have stereotypes. We all have frameworks and theories that we use to make sense of the world. But when you don't think critically, you're relying on other people's structures and other people's theories and frameworks and narratives to explain the world. And so you empower others at the expense of yourself. And that's where critical thinking is so important, because being able to think (13/97)
critically, and I think that's something that I try to do on Hidden Forces, and I think by extension, I try to help other people do, when you can think critically, you can come to your own determination. And that's empowering. And I think that is, for me, ultimately why these subjects and this approach is something that I've developed over the years, because at a young age, I found it, I'm a very competitive guy. I've competitive physically. I was a wrestler in high school. I did mixed martial arts in college and afterwards. And I loved competition. I love to know that I could hold my own. And early on in my life, I found that I had beliefs, but those beliefs were beliefs I couldn't justify. And I didn't like the experience of having my hat handed to me in an argument, because I didn't understand or didn't know why I believed what I believed. It's bad in an argument. It's even worse having your hat handed to you in a market when you've had on something and you're completely wrong. (14/97)
Yeah, for sure. It's an awful experience. And I think it really helps, even if you're wrong, and I've been wrong plenty, and I'll continue to be wrong plenty of times, understanding or having some idea why I was wrong and being able to make changes so that I can be a little better next time makes all the difference for me. And I think at a network level, that is what moves society forward. That's empiricism. That's progress. We have a lot of beliefs in the Bankless podcast and the Bankless program. And there's so much in there about thinking critically that I think a lot of our listeners can start to figure out why we wanted to get you onto the Bankless podcast in the first place. Because a lot of what crypto is in its current stage and form is belief about the future version of finance and the future version of economics. And I'm reminded of a podcast we did with Ben Hunt a long time ago where he talked about in his entire newsletter, Epsilon Theory, is based off of his theory of (15/97)
Epsilon where you have the alpha and the beta of markets. And that's just the raw facts, right? The raw fundamentals, the numbers on the spreadsheets, et cetera. But the Epsilon is the perception of the masses, right? The viewpoint of the people. And that can change. And that's one of the reasons, that's one of the things that we are seeing nowadays. At least that's from the perspective of Bankless and from to the outside world. We're seeing so much shift right now. And some of this has to do with crypto and some of it definitely does not. We're seeing shifts in perception as to central banks and their relationship with money. We're seeing shifts in perception in our trust or distrust in institutions. And there's just a seemingly large number of undercurrents that seem to be shifting the perceptions of everyone, right? And some of those shifts have to do with people like Paul Tudor Jones, reviewing and reorienting their perceptions about what Bitcoin is. Micro strategy is a big topic (16/97)
of conversation. And so, Dmitri, before we get into the topic of crypto and how things are shifting towards crypto, I kind of want to talk about what you see as shifting in the world. To me, Hidden Forces as a podcast has this stream of consciousness about it, right? Like it's a thought process. And your decisions to bring on a new guest or a new piece of content, to me, represents your belief that this is an important piece of subject matter because it represents a shift in people's mentality. What would you ascribe to be the big paradigm shifts of people's thoughts in 2020? Sure. So, by the way, you guys and your audience will be happy to know that I'm going to be bringing on two people who I think your audience will be very interested to hear from to speak directly about the Stable Act. And that's going to be, I think, a very exciting episode. I'm going to be recording that next week. But... Oh, Dmitri, do you have any teases on who the guests are? Oh, man. Well, I want to. Let's (17/97)
just say that the one person is, there's no one better that could speak about the Stable Act than one of the people that's going to be on the show. And the other person is someone whose business is very well known and is going to be deeply impacted by any kind of regulation of the space and has spoken very thoughtfully about it. So, it's kind of two countervailing opinions. And I'm very excited to do that. What was your question again, Ryan or David? Yeah, so there's just a fundamental... There seems to be many different shifts in how people believe the world to be in 2020. I feel like the legacy of 2020 is like the year that it all changed. But what changed? What are the big undercurrents of the world in 2020 from your perspective? Yeah, I mean, well, I'll just point out one that was recently on my radar and was on all of our radars, which is the 2020 election. And I actually brought on David Shore, who has been called Obama's Nate Silver. He was the guy that built his forecasting (18/97)
engine for the 2012 election, a brilliant kid. And we spent the balance of the two hours talking about this. And really, what did the 2016 and 2020 elections tell us about the electorate? Because there have been very... Again, to bring it back to the point about narratives and Ben Hunt's Epsilon, there is a conventional narrative that has been pushed primarily by leftist media outlets and the Democratic Party about why Donald Trump got elected. But I think for a lot of us that never really felt like it told the whole picture. And I think the election in 2020 kind of bore some of that evidence out. When you look at the fact that young African American men and Hispanics actually voted in greater numbers for Donald Trump in 2020 than they did in 2016, which really doesn't make sense on the face of it. Also, why were the polls so off? And a lot of these speak to what I think is an underlying demarcation, a bifurcation in the electorate separated by class. I think this is really the big (19/97)
story that has been missed because conventional explanations either rely on identity politics based on race, religion, sexuality, different markers of identity, or something that I've actually talked about quite a bit, which has been the wealth gap. But I think what's actually more interesting is something that David talks about and also one of my guests, Michael Lind, had talked about, and we talked about together, which is class. And I think that America is becoming a country that's increasingly breaking apart by class. There are the non-working class, lower educated, more highly mistrustful people living in the Midwest and other parts of the country. And then there are people like, let's say you and me or us who have the skills to be able to perform in a modern open economy. We tend to be perhaps more liberal and we live in coastal cities and we take in this sort of progressive, largely progressive popular culture. Crypto's are really interesting case because you've got these strong (20/97)
strains of libertarianism in Austrian economic thought. But I mean, I think that's really one interesting subject, which is how is our country dividing really? We keep saying in America's never been this divided, but what's dividing us really and what are the dividing lines and how can we wrap our arms around that and can come to an understanding of what that means in order to make more informed decisions for ourselves? And I think one area where that's relevant is, I mentioned it, the Stable Act. The Stable Act is, I think one of the reasons why it's being introduced today is because we're coming into an environment, into a decade where we can expect to see higher levels of progressive legislation and a greater desire to regulate the economy, to regulate society. And that, I think, stems from the failures of the last 30 to 40 years, some of which are market failures, many of which are the failures of government and the failure both to regulate and to regulate properly and over- (21/97)
regulate. So, Dmitri, what you're saying is one thing you've noticed. And by the way, we will get to the Stable Act for the Bangless audience. That is, by the way, some interesting, an interesting bill that was just put before Congress to regulate stablecoins. We want to get Dmitri's opinion on that. But while we're talking about these kind of larger trends, so I think what you're saying, Dmitri, is that we've got now two Americas and those two Americas are divided by class. But possibly that's a symptom of something else. So, you mentioned the wealth gap, so this massive wealth inequality that we haven't seen since when, the 1920s, 1930s. Is that a symptom of something else? I want to bring the topic of central banks in here. So, a lot of the crypto more consensus thought would be that part of the reason for this inequality gap has actually been the mundane printing that has gone on since before 2008, but certainly accelerated after 2008. And those closest to the money spicket, those (22/97)
with stocks and assets, those things inflated and just accelerated the wealth gap that was already in place, just kind of accelerated that trend into the future. What's your take on that thought? The idea of central banks, the idea of modern monetary policy that is continuing to print more money, does that have a role in the 2020 narrative in your mind? Yes, a great question. I think it absolutely does. The central banking story is a really interesting one because for the most part, when we look back at history, it's hard to point to one particular time or period or moment where everything changed. But I think that in the case of central banks, 2008 really was a watershed. It really was unprecedented in an age where everything seems to be unprecedented and that word is so often misused. In this case, it is in fact true. Ballot sheet expansion was more or less a very gradual process for the entire lifetime of the Fed for 100 years almost. But 2008, we saw a dramatic expansion of the (23/97)
balance sheet. I think we also understand why that happened. It wasn't just to arrest a deleveraging, a cataclysmic deflation that was going on in the economy that was driven by reckless decisions in the world's investment banks and large commercial banks and financial system. But it was also because our elite, our elite institutions and our elite individuals, politicians and policymakers, who revolve, use a revolving door between government and the private sector, made a very conscious decision to prioritize themselves and their own assets and their own families at our expense. I think you can think of the 2008 financial crisis as what began as a financial crisis, quickly became an economic crisis and has since become a political crisis. It's become a political crisis because of the choices made by policymakers to print their way out of the problem, to cover up the problem with more and more paper. In that sense, they have deferred it. Because what is a fiat-denominated currency other (24/97)
than a liability? A liability of who of the central bank. The central bank credits that fiat money to the banking system in order to deal with in the short term a problem of too much debt and too much leverage. As a result, when the chickens come home to roost, where are they going to roost? They're going to roost back at the issuing institution, which is who the central bank, because it is a liability to the central bank. That brings us back into a larger narrative that I think is foundational to crypto, which is that cryptocurrency solves the problem of trust in money. We've lost faith in our institutions of money. Do you buy, a banker might say, yeah, but Dimitri, we had no other choice here. Come on. This is really the only way out. Do you buy that argument? That's like saying, I had no other choice. I had to push her onto the train. I had to push her in front of the line because the line would have eaten me. I mean, I get why they would answer that way. I think also, this is where (25/97)
you get into really interesting research around behavioral psychology. They believe it. When Lloyd Blankfein says we're doing God's work, he believes it. He's not just saying that. There is probably some level of, but people go to great lengths to convince themselves of things. Someone who talks about this, and I think talked about it on my show as well, is the great short seller, Jim Chenos, who famously helped really bring down Enron. When you look at people that perpetuate giant frauds, they will oftentimes come to very complex rationales to explain why they're actually not bad people. Central banks as a religious institution is an interesting concept to think about. Money as a religion is an interesting concept to think about as well. We often in the crypto space think of money as a mean that's socially propagated contract between all of us where we agree certain things are money and other things are not, which is an interesting subject, I think. I've been reading a lot of Ray (26/97)
Dalio lately as well. You talked about central banks and bankers and the wealthy class choosing themselves over other members of society as part of this. Ray Dalio would probably argue, yeah, this is all part of the rise and decline cycle of a nation state, of an empire. Recently, he put out an article this week that said the US is at stage five. It was like, you know, how cancer progresses in stages like one through five, but we're at stage five. Reading Dalio these days, I don't know if you've done this much, Dmitri, but it's very sobering because he's looking through history and he's presenting evidence or reasons why the US is possibly in decline. This is just monetary reserve currency is the last thing to go. In the next stage is stage six, where he talks about revolution and civil war. I'm not sure that I'm ready to fully commit on Dalio's worldview or thesis. No, I'm to be fair. It's all probabilistic for him too. But what's your thought on this? Does all of this wealth gap (27/97)
inequality and kind of the divide that you're talking about certainly makes for a more volatile 2020s, but how does it shake out? I know you've been talking a lot about the future of the US and how other geopolitical powers play into that. Is this kind of an empire in decline in your mind? Is the nation state experiment not working out so well these days? Interesting question. Does Dalio say that the nation state is in decline? Is that his thesis? Not so much. That would be a bit more of a bankless philosophy. I just wanted to fact check you guys. He doesn't say that, but he would say. Yeah, right. Well, we connect the dots there to be fair. What Dalio would say is possibly the America is in decline. The Western empire, if you will, is kind of on the end cycle of its 300-year go of things. Yeah, I have probably a complicated series of answers there, not fully thought through. One is, I don't think that the nation state is in decline. If anything, this is going to sound controversial. I (28/97)
think that there's never been a more bullish time for the nation state. When is it really advantageous to have a government? I don't know if you guys are familiar with Thomas Hobbes. Most famously wrote Leviathan. You've spoken about it quite frequently on the podcast. Perfect. Thomas Hobbes was supposedly a very thin, frail guy. I think he wore glasses. He was scared. He was a guy that was very concerned about a world of violent anarchy, of war of all against all. For Thomas Hobbes, a strong national state, and this I think gets to another point, which is what has been the appeal of authoritarianism, a strong nation state is vital. It is more important than individual liberties, because individual liberties, you can only have them if you have a state. If you live in an anarchy, this is the, I'm really summarizing, kind of butchering up his thesis. I think that we're moving into a more chaotic world. In that type of a universe, a strong, competent national government, or the hope even, (29/97)
or the need for a strong national government supersedes any sort of lack of trust in its competence and its record. So despite the fact that elites and institutions have lost a lot of trust in recent decades, that doesn't negate the fact that we're heading into a period of time where we need them more than ever. So I think that, yeah, I would actually make the opposite point about nation states. There was one other point you made about- The US specifically, I'm curious. About the US, right. Is it declining relative to, well, the US has been declining, right? I think that part and parcel of this is the decline or the disaggregation of the American-led international order, American hegemony, American power and primacy, which was really the defining ethos of the rise of neoliberalism and American empire in the 1990s. That's when I grew up. I graduated high school in 2000. So I literally went through my entire childhood and early adolescence, living a completely different world. Granted, I (30/97)
did live through the Cold War as in the last, the first decade of my life, but I didn't fully remember it very well. I really started to become politically of age in the, maybe the George H. W. Bush administration. I had this vision, this memory of seeing a girl crying on Time Magazine, hugging her husband or boyfriend who was going off to fight in the Persian Gulf. But I was rudely awakened to what has now become the second half of my life in the 2001 terrorist attacks. The Bush administration attempted to resolve that problem to address it by what? By doubling down on American empire. That went terribly wrong. And we've been living, I think the two biggest events of the 20th century have been not so much the terrorist attacks, but rather our response to them. And that primarily means our misadventure in Iraq and all the blood and treasure that it's cost us. And the 2008 crisis and our response to it. And the 2008 crisis was in some ways a response to the 9-11 attacks and the Bush (31/97)
administration's war in Iraq, right? Because the Greenspan administration dropped rates in the face of the collapsing Nasdaq bubble and the subsequent terrorist attacks. I also wonder if our response to COVID in 2020 will be another one of those defining events. I guess that remains to be seen. No, that's a really interesting, so when you say our response to COVID, do you mean our monetary response? I mean all of it. Yeah. And I mean, it sort of gets into you another question about, that you made about strong national government and authoritarianism. I don't know, David, if you have a thought on that. Yeah. Dmitry, you talked about Thomas Hobbes' Leviathan. And we've used the Leviathan metaphor to ascribe meaning to what's going on in the world of crypto and specifically Ethereum, where Thomas Hobbes, the belief of Leviathan is that you need a strong centralized government in order to keep the body of a nation composed. And we extend that metaphor to Ethereum, where Ethereum is a (32/97)
protocol, but it operates as a strong, as in you can't do anything against the rules of Ethereum by nature. And it is the thing that keeps the community, economy, ecosystem of Ethereum composed. And in a world where we are losing trust in institutions, Ethereum offers, and all the protocols on Ethereum offers a place for that trust to migrate to, which is something fundamentally different about the 2020 financial crisis versus the 2008 financial crisis. Because in 2008, we didn't really have an opportunity to opt out. And you also talked about how you are particularly bullish on the power of the nation state. And specifically right now, as a time where the zeitgeist seems to be a pro-regulation, because it's we haven't had regulation in the last 30 years, not anything meaningful. And so now maybe you alluded to how now might be the time to introduce stronger regulation because we haven't been doing that. To me, and I'm pretty sure Ryan too, when we hear that, we hear more (33/97)
authoritarianism, because if we want to have more regulation, more control, it's not the right time to have more control when there is an option to exit out of a system. And that exiting means cryptocurrencies, right? Using different infrastructure, different institutions, institutions run and operated by code to opt out of perhaps an authoritarian government, a government that is very happy on the trigger of regulation. And the perception shifts, the fundamental shifts in people's outlook upon the world seems to resonate with this. At least maybe that's our bias here on the bankless program. But that's kind of like our underlying theses that we wanted to get your take on. Well, when you say opt out, what do you mean? So there's parallels to Ethereum and a nation state, right? They're not completely right, because roads are not going to be built by Ethereum and taxes aren't going to be collected by Ethereum. However, there's increasingly more and more places for you to primarily (34/97)
deposit your capital and wealth. And what a nation state is in its most essence form is a system of organizing and then also taxing wealth. A nation state is a property rights management system, in addition to many other things. And that's primarily the role of Bitcoin and Ethereum. These are property rights management systems. And so it's reducing the power or responsibility of the nation state. If people perceive that Ethereum is a better property rights management system than the nation state, people might opt into Ethereum because Ethereum doesn't over-regulate them. Ethereum doesn't peer into, like doesn't ask them to download a COVID contact tracing application on their phone. It doesn't ask them to do all of these things that they might not want to do. And to get even more concrete on that, things you can opt out of right now are obviously a nation state monetary policy. So you can buy Bitcoin and Ethereum rather than a very issuance happy system. You can buy Ethereum and stake (35/97)
it as a bond rather than T-Builds. You can use Ethereum as banking infrastructure rather than Wells Fargo and JP Morgan. You can register a capital pool on Ethereum and it's globally accessible and available and permissionless to anyone rather than registering a Delaware LLC. So it's not taking everything that the nation state does, but it is becoming an institution and unbundling possibly some of the services that the nation state provides. And by the way, maybe the nation state isn't the most efficient way to do these things. Nation states are notoriously expensive from a security and from a tax perspective. So the idea is that some of these things could be unbundled. But the alternative view, which the world seems to be moving in, is I think exactly, as you said, more authoritarian state-controlled governments. It's this crypto world view that offers kind of the alternative at least in our minds. What are your thoughts on that? Just in general, I'm super curious. Sure. I guess a few (36/97)
points. Number one, I think one of the most core characteristics of a nation state is its claim to the legal use of force. And that came to me when you, I think it was, I don't remember if it was Ryan or David, we're talking about property rights management because I think that what Ethereum does is not property rights management. I think it's property rights accounting and accounting in general. I think what's really unique and special about these open public ledgers is that they are sort of scribes of the historical record. And you can do a lot with that. That's extremely important. And that speaks to the point about trust. But ultimately, it's physical force, the ability to enforce physically, that is the basis of power. And even if the Ethereum ledger says that you own something, that doesn't prevent me from going and physically taking it from you in the world because we all live in the physical world. So I think that drawing too strong of an analogy between these communities like (37/97)
Ethereum and Bitcoin and nation states is fundamentally wrong. I want to get to your second point in a second, but just a quick thought on that. I think you're absolutely right that violence at its core is the thing that we gave up to governments. That's the Thomas Hobbes argument, essentially. It's like we give the Leviathan the power of violence, and therefore we are able to socially collaborate better and coordinate better as human individuals. But that doesn't have to be the case. So when we graduate above violence, there are things that societies put together like protocols, like laws, like the Constitution. So we're not cavemen running around, hitting each other and stealing our things, and we're not just war tribes, essentially. We have protocols and structures that define how we do commerce, that define what our unit of money is. And crypto's answer to that might be a little bit, well, in the crypto world, code is law. So we do have a law system and a set of protocols. That (38/97)
means we don't have to resort to violence. And there's this defensive aspect of cryptography that we've talked about before, which gives asymmetric power to the defender. So if I have private keys, and you don't know I have a set of private keys, so assume that privacy is in the mix here, Dmitri, then there's no way for you to crack my cryptography and steal that from me. So what I would say is that those laws are backed up by the use of force. Not on Ethereum. Right, but Ethereum exists within a legal framework. So whatever money you have on the Ethereum ledger is in a practical sense, a claim on assets in the real world. So the claim, the ownership of property on Ethereum doesn't always have claims in real world assets. And some of the most valuable assets on Ethereum are specifically not found in the real world, notably Ether itself, the native currency of Ethereum. Right, but what I'm saying is that the only reason that those assets have value is because you live in a physical (39/97)
world with physical things and physical needs and physical governments that can physically take those things or physically protect them. So one of those things, the ledger, exists within a physical world and governments which have physical force have primacy over those assets. And the reason that we, the argument, and I understand that there are anarchic philosophies, anarchism is a philosophy of organization, I think anarchism, I think works at small scale. I don't know, I don't see how it could work at a large scale. It hasn't worked historically. But the reason that we empower governments and we give them the legitimacy to use force is in order to protect, among other things, life and property and liberty. So I don't believe that you can have a world, and this actually gets to a fundamental philosophical question, which is can you have a world that exists solely off of math, off of a cryptographic ledger and smart contract enforcement? And I don't think that you can, because that (40/97)
doesn't stop anyone from coming to your house and killing you or taking your house from you and squatting in it. No smart contract is going to prevent that. Right, yes. And so there is inevitably, and this is one of the main reasons why we wanted to get you on the podcast, because Ryan and Arya are inherently bullish on the concept of a math driven world. But just to your point, a math driven world doesn't employ a police force. It doesn't employ an army that protects from other nation states. However, there does seem to be a balance that could be stricken where, you know, in theory, a nation state could do whatever they want, right, because they have a monopoly on violence. However, we've seen nation states, you know, overreach against the will of the people. And that is inherently destabilizing to a nation state. And I would say especially a nation state like America, where we are founded on principles of freedom and self sovereignty. The freedom and self sovereignty of being able to (41/97)
transact on a permissionless ledger is seemingly completely aligned with the values of what makes an American, right? And one of the, and it seems to be that America slowly over time, not to the whole world, but to select parts seems to be kind of exporting that values, the values of freedom and self sovereignty. And so what Ryan and I think really protect property rights management on Ethereum is the desire and will of the people, which seem to be shifting away from offering legitimacy to our legacy institutions, because we don't trust these things anymore, especially after, you know, the nation states failed us during COVID, especially, and then began to perhaps also fail us by, you know, printing a bunch of money to benefit a few people rather than the many. And so people, what the thesis is, is people are removing their, removing legitimacy from the nation state and offering it to trustless institutions on Ethereum. And a nation state can only go so far against the will of the (42/97)
people that it has domain over before they start to resist and fight back. And I think that the resistance of the people, because the people inherently are- I don't know how much the people in North Korea are resisting. You know what I mean? Like I think that that's also, there are a lot of assumptions there baked in there that I would question, you know? And also, I think we have a lot further to fall than a lot of those other countries. And you can stay in an authoritarian, you know, totalitarian regime for quite a long time before you eventually rebel. If you ever rebel at all, you know, that's one of the interesting things about looking at history. It's an incomplete data set, you know? So there are a lot of assumptions baked in there that I'm not fully on board with, you know? I think these systems, these platforms, these ledgers, these networks can be important and have been important contributors. I think Bitcoin is a classic example. Bitcoin, more than any other protocol, (43/97)
decentralized protocol, has had a meaningful impact on society insofar as it is, it has presented a huge challenge to fiat currencies, not so much materially, but ideologically, in the same way that gold plays a role. And it's really caused a lot of people to begin to question the viability of fiat money. At the same time, there are strong forces that compel societies to organize around fiat money because it empowers the government. And there are periods in time where people want and demand stronger government. And I think we are heading into one of those periods of time. And it's not the first time that we've been in this in the United States, that we've gone through a period like this. These are cyclical processes. And so I don't think that my hope for cryptocurrency and for platforms like Ethereum and Bitcoin is that they can survive, that they can survive the regulation, that they can work constructively with regulators who will regulate them to formulate regulations that don't (44/97)
cripple the industry, that allow the industry to innovate and create value and solve problems without getting overburdened. That's my hope. But I don't see it as a kind of thing where we're going to escape into Ethereum and that we're going to live on the cloud or on the decentralized cloud. I don't think that's realistic. And I think interestingly enough, when I listen to a lot of people in the community talk about this, I think that view is partly informed by what feels like a paradigm shifting moment. I think a lot of people see how digitized the society has become. They look at the advancements made in virtual reality, in gaming, and now with the pandemic and this sort of remote work situation. And I think they overextrapolate and think that that somehow then means that we really don't need to live in a physical world. The contours of the state are not just less relevant but irrelevant. And I think that's fundamentally incorrect, is my view. So, Dimitri, is that what you think (45/97)
accounts for the major rise of Bitcoin and other cryptocurrencies in terms of market cap? It's kind of this store of value, gold alternative type of thesis. Is that what you're attributed to? Yeah, I think that Bitcoin has found a really good niche as a, quote, digital gold. And that's partly, I think, as a result of the failure to live up to its original vision, which was as a senseless peer-to-peer money. Because that really was an amazing story and was very compelling to people like me. And that is one of the things that first got me attracted to crypto courage in the first place. It was the hope that really this was a way to opt out, that we would be able to opt out of fiat money. It's obviously proven much more complicated than that. And I know that there are a layer or two solutions that are being implemented or being developed. But to my knowledge, those are still a ways away and it's not clear that they'll ever be really viable in so far as sustaining the kind of security (46/97)
promises that Bitcoin initially promised while at the same time enabling the kind of speed and processing capability that you would need in order to operate at scale. But I think the digital gold narrative is a powerful one. But the thing with digital gold is like gold, for example, is a Ponzi scheme. It's a pyramid scheme. Largely, not entirely, because there are fundamental uses for gold. It can be used in electronics. It's used as jewelry, which is not really a Ponzi scheme. There's, I think, underlying attraction to that. But fundamentally, for the most part, most of gold's value is Ponzi value. It's based on a conviction that what I buy it at, the price I buy it at, will be lower than what I can sell it to you for. That it's going to keep going up over time and that's why I buy it. Otherwise, people wouldn't buy gold. And Bitcoin, people buy Bitcoin for the same reason, primarily. Most people buy Bitcoin because they have an expectation or hope that its value will continue to (47/97)
rise. And what's interesting about the Bitcoin community, and I'm not talking about traders and sharks that come in and out that trade on volume and buy and sell, and I think it's got a strong to a point that either you or Ryan or David made earlier about religion, it's got a strong religious fervor. And one of the important sort of doctrinal forces in Bitcoin is the notion that you should hodl and you hold on, hold on until the rapture, until the apocalypse, until you're brought to heaven, you're given your 40 virgins. And I think that is, again, also, for me, that's not a particularly compelling vision. And I don't know how sustainable it is. So, I guess, I don't know if I'm really answering the question. I might be meandering now, but it's kind of a way of me saying that I think for Bitcoin to graduate, it's got to become more than just this, for lack of a better word, pyramid scheme. And I don't know how you guys feel about that. I have a couple of comments there. So, one is, I (48/97)
think that's a super interesting way of characterizing it. Your comment about this peer-to-peer cash thing being the original vision for Bitcoin, like I completely agree, right? But we also think on Banklist that that vision in the wider crypto is not dead. In fact, it can live in places like Ethereum where you have Layer 2 and you have the ability to create stable coins and this sort of thing, and you have scalability of kind of the base layer infrastructure. But maybe we can get back to that. I'd love to go into more detail on your description of Bitcoin as a Ponzi scheme and as gold as a Ponzi scheme. I'm going to get so in trouble for saying. No, actually, so would you be surprised to know? So would you be surprised to know that I and I don't want to speak for David, but I probably agree with you. I might change the word Ponzi scheme to Ponzi game, which is kind of what it is, maybe a pyramid game type of mechanism. But I guess my counter question to you, Dimitri, is like, isn't (49/97)