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- [00:00]
A
Welcome to the Crypto 101 podcast presented by Gemini, your bridge to the future of money.
- [00:15]
B
All right, everybody, welcome back to another episode of the Crypto 101 podcast. I'm your co host, Bryce, as always, joined by my good buddy across the Great plains, all the way over in Florida, Brendan. How are you doing?
- [00:29]
C
I'm doing good, man. You know, I took the weekend and I was thinking, I have a lot of questions about layer ones and altcoins and you came and you said, hey, I think I have the right guy for this. I think I have the solution.
- [00:40]
B
Yeah, no, no joke. We're really excited to be speaking with Arthur Brightman today, who's the co founder of Tezos. Arthur was, you know, a big wig over at Goldman Sachs, Morgan Stanley, and then over at Google and Waymo and then decided, hey, I'm going to take my conquering skills and go to the blockchain world and built a layer one protocol. So there's nothing he hasn't done in finance, in engineering. Arthur is joining us. Welcome to the show and how are you doing, Arthur?
- [01:08]
D
Thanks. Thank you for having me. I'm doing all right. I will correct. I was not a bigwig, I was a midwig.
- [01:15]
B
A midwig maybe. But you were building a lot of the algorithms, doing a lot of the hard mathematics and quantitative stuff.
- [01:23]
D
Yeah, I love that. I was doing a lot of math.
- [01:26]
B
Lot of math and still are doing a lot of math, I presume.
- [01:29]
D
Not enough. You know, I wish there were more math on my day to day, but it is what it is.
- [01:37]
B
Yeah, absolutely. Maybe, maybe you'll take a sabbatical and do some deep study on some imaginary numbers or theoretical physics. What's your favorite? Just before we get in, like what's your favorite kind of math? Like non euclidean geometry or what's your quirk?
- [01:57]
D
I like copyrights a lot.
- [02:00]
B
What was that?
- [02:01]
D
Probability and statistics? Well, I would say applied math. I'm not a theoretical math guy, I'm just, I like, I would say numerical engineering. It's when you have to deploy computer solution that actually implements mathematical algorithms that I, I love that part.
- [02:22]
B
Brennan, what's the highest level of math you had to take?
- [02:27]
C
Yeah, I mean it was, it was way more than that. I mean I took like the highest levels of everything, obviously. Maybe, I don't know, probably stats. But.
- [02:41]
B
Arthur, we're, we're super pumped. Look, Tezos came out several year 2017.
- [02:47]
D
Or 2018, so the chain launched in 2018, the paper for it, 2014.
- [02:55]
B
Oh, wow. So it was way in it was in the works before the, the first altcoin bubble.
- [02:59]
A
Really.
- [03:00]
B
Tell us a little bit about the founding story and get everybody up to speed who might have just heard about the coin or seen it on CoinMarketCap but doesn't really know how it's different from anything else.
- [03:10]
D
So back in 2014, the industry was small, but there was a lot of forums discussing ideas around how to build those systems and people were discussing concepts around proof of stake, smart contracts, privacy, all these ideas were floating around and there was a consensus initially that Bitcoin was going to implement all that. Essentially, like all these ideas, they would find their way into Bitcoin because Bitcoin was not an algorithm. Bitcoin was a ledger. And you can always change the algorithm so long as you kept the ledger. And I thought that was a very powerful idea. But then I observed a couple things. One is I observed very early ossification of the Bitcoin protocol and essentially a bit of a disdain for ideas outside of Bitcoin. We went from Bitcoin can implement the best ideas from the best altcoins to oh, those ideas are not good anyway. But there was a valid objection, I would say, for many people in the Bitcoin community saying, look, you don't want to change your algorithm willy nilly because then what's to stop someone from coming and say let's have a bunch of inflation or let's break the protocol in some way. And other people were saying, oh well, that doesn't matter. The developers will tell us when to fork and then we can always choose to fork or not to fork. That's not a real choice. If everyone's forking, you have to or you're left on a fork that no one uses. And the idea of Tezos was to say, look, evolution is going to be important. There's a lot of new technology coming. You can't launch a blockchain today and hope that it will remain technologically relevant 10 years from now without evolution. And the idea was to have a governance process built in the chain that would allow the chain to evolve while remaining decentralized. So without hard force, which I argue in the past are fundamentally centralizing, that's the main idea. And Tezos came out not just with governance, on chain governance, but also with proof of stake, I would say I don't consider it proof of stake if there's no slashing, right? If you have nothing at stake, if there's no risk, that's not proof of stake. So from that perspective, it was the first, proof of stake protocol because you could actually lose your coin. And also fairly advanced smart contracts language. So that's the story of Tezos in a nutshell. And since then it's been a lot of evolution with nearly 20 upgrades by now.
- [05:49]
A
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- [07:04]
D
All right.
- [07:05]
A
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- [07:49]
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- [09:01]
B
Yeah, it's been a long journey and it sounds like kind of one of the, the main separators of this is the governance and it's something that people don't really think much about. They go, they buy Ethereum or they buy Bitcoin. They, they don't really think that there's a whole governing, governing body beneath this, whether it's the stakers or in Tezos's case, the bakers.
- [09:25]
A
Right.
- [09:25]
B
And the delegators.
- [09:26]
D
Yeah.
- [09:27]
B
So tell us what crypto governance is and let's kind of unpack it from a first principles standpoint.
- [09:33]
D
Yeah. And sometimes the governance is explicit like in Tezos, and sometimes it's implicit. And I think the idea that people had in the bitcoin space was that, oh, it's great because we don't have governance. Governance is bad. But the problem is that you always have governance. You can choose to make it explicit or you can have it imposed upon you externally. And I remember attending a conference around 2013 I think, or 2014, the RSA conference in. Was it real world crypto? I think it was real world crypto conference, sorry. In New York around 2013, 2014, which is when Zcash was introduced and proposed and someone else came on stage and he was saying, oh, you need to mine because if you're not mining, you don't have a voice in the bitcoin ecosystem. So they had this idea that mining power was governance. And I said, I'm not too sure about that because, well, if you have 50% sure, you can fork the network. But if you fork the network and no one listens to you, if all the nodes don't listen to you, if the definition of what is Bitcoin doesn't change, your mining means nothing. And we saw this with the threat that came years later of the user activated sub fork around Segwit. Was it not SegWit2x? SegWit2x? Forgot the name. What was it called? So really what defines the protocol is whatever people want the protocol to be. At the end of the day, the value of these networks is intersubjective. What makes a bitcoin a bitcoin is that everyone considers that it's a bitcoin and there's no disagreements and who controls that. And it's very complicated to untangle it. But at the end of the day, there is some locus of control here, even if it's implicit. And in Bitcoin they tried to make this locus of control, as I would say, spread as possible. And I think it's done somewhat successfully in a way that actually makes it very hard to upgrade Bitcoin. So if you consider every upgrade to be a bad thing and a dangerous thing, if you think that you always have more to lose from an upgrade than you have to gain, then that's a strategy that works, but it's still a form of governance. Now you look at something like Ethereum, for example, and they say our governance is forking, we'll propose a fork. But you're free, you don't have to accept it. Now, fork based governance predates blockchains. It comes from the open source world. In the open source world, when there was an open source project and there's a disagreement over what the direction to take, you would fork the project. So some people use one version, some people use another version. Very old example, X386 versus Xorg, a display manager. So we've seen those forks happen all the time. Firefox was a fork of Mozilla as well. That works when it's software, because you can have two versions of the software coexist and there's no problem when your whole point is that you're a network of value, you're splitting the value in some sense, and the branch that people are going to follow is a branch that people see as canonical. It's a real one. And which one is that? You don't have Any freedom in the choice just because you can run the other fork, it means nothing if everyone else is running the first one. There's a very old paper that I see came from feminist circle because the tyranny of structurelessness. And essentially if you refuse to have this formal power structures, you're going to have informal one where some people hold the power. And it's not really explicitly, but because you don't have this structure, it actually becomes very easy for a small minority to control things. And I think you have that when you have forked based governance, you have a few people who are going to be very visible and whenever they decide implicitly, people are saying, well, I don't necessarily want to follow it, but I know that's how people are going to coordinate. They become these Schelling points concept invented by economist Thomas Schelling. And yeah, you end up with very centralized governance, even if it looks like a free choice.
- [13:51]
C
Yeah, I mean there's so much that goes into this. And as you were going through it, I was thinking of a question of what was harder being a quant, which is largely assumed to be one of, if not the hardest jobs that anyone can ever have, or building Tezos, which is a million dollar blockchain protocol with big bodies of humans and governance and all these things intertwined. But there's a lot that goes into both of them.
- [14:17]
D
I don't know what you're talking about. It's more than a million.
- [14:23]
B
Did you say billion or million?
- [14:24]
C
I meant to say billion, if that's not what I said.
- [14:27]
B
I heard you say yes, 739 million.
- [14:34]
D
I mean, it depends what you mean by hard. I think it's like there's few people who can do math at the level that is required for being a quantum. But in some sense I never found it hard. There's some people, you put them on a piano and at the age of four they just start playing. And sure, after that they're going to work a lot, but they kind of have a knack for it. And some people, they do it for track. And I had it for maths from an early age. Math came very easily for me. So I didn't find it hard because I found it extremely fun and I enjoyed it. So for me, a hard job is more like a job where you might have a lot of responsibilities. It's a job where you know, which might be very stressful, which might have very demanding hours. No, like you're a quantum. On Wall street, even at a demanding bank, you might do long Hours, but it's nothing like what they might do in investment banking where there's these ridiculous hours where you're expected to work 16 hours. That's really hard. So which is harder? Well, from a math perspective, I think the math in Tezos is definitely simpler than a lot of the math in a quant finance. That stops being true if you start looking at zero knowledge proofs, looking really deep inside of that. You get some interesting number theory here and algebra, but by and large all of that is encapsulated very quickly. My role in Tezos came more about figuring around high level architecture and trying to reason from first principle about what technology was good for rather than making very complicated technical choices.
- [16:18]
B
Yeah, that makes a lot of sense. And that was actually kind of dovetailing in my next question about what these blockchains are really good for. And that's a big question that's still out for debate right now. People are trying to do everything on a blockchain. People are trying to build gaming architecture, people are trying to build casinos on chain. People are trying to build decentralized render farms. People are trying to build decentralized financial applications and tokenizing real world stocks. And like there's so many things you could do. But again, it's kind of like the Internet. I mean everybody, you know, started slowly on the Internet and then everything was done on the Internet. So. So what are blockchains really going to be used for? Maybe you could specify with Tezos or you could generalize.
- [17:02]
D
Yeah, in general I've been more of a contrary voice in the industry. I tend to think it's useful for fewer things than people imagine. Although I will say in recent years we've seen a bit more people have started having a bit more sense in the use cases that they foresee.
- [17:23]
B
More restraint.
- [17:25]
D
Yeah, more restraint or a little less bullshit perhaps in the past year. But you know, bullshit can always come back. It was quite, you know, a lot of the silliness was around 2014, 2015 and let's see, so basically these things are ownership networks. Right. So I think anything that has to do with ownership is potentially abuse the blockchain solves the double spend problem. If you're not spending, if you're not transferring a title of some sense, I question whether or not you really need a blockchain. So the obvious ones, the very first one that people saw payments, payments are a huge use case and the legality of Stablecoin has made it first a de facto and then the jury legality of Stablecoin has made it a huge industry for payments. So payments are an obvious one. Having access to a global network for payments, very convenient. I think the store value angle and protection against government confiscation, or at least being confident it's not confiscation proof, but it's confiscation resistant, is one of the most important use case and is driving a lot of the value of Bitcoin. It's a use case that got me interested in the space. Permissionless payments and confiscation proof money, that's I think the real core of the technology. Now you can go a bit further and I would say imagine you have a spectrum between the completely cypherpunk aspect, which is to say the government is trying to prevent you from having economic activity and you need to have this tool so that you can have economic activity even though the government doesn't want you to. That's the purest form of the technology, the one that got me interested in space, the one that makes me think this is all worthwhile. And at the extreme end you have Walmart putting traceability for lettuce, which is completely uncontroversial. And also the blockchain is completely useless for it. If someone wants to build a traceability use case, the Tezos blockchain is open. I'm open for business. Come and build it on Tezos. It'll be better on Tezos than it will be on other blockchains. That being said, I will have an honest conversation with you and tell you maybe you don't need a blockchain for this. And there's stuff in the middle. So I think a lot of the trends we've seen recently around RWA tokenization, for example, makes some sense. Having a global network where you have different parties that can interact seamlessly, where you don't have silos so you can launch financial products and have them have a global reach, have compatibility with custodians around the world. Having essentially this financial fabric that is easy plug into and interoperate with that I think is a bit like in the middle of the spectrum type of thing. Not so seditious in some sense that you couldn't do it on a private chain or on some database. But the lack of coordination around the world and the frictionless environment you can get on a public blockchain means that it's still a fit. So you have product market fits and it sits somewhere in the middle of the spectrum. So those are some of these use cases I've also been pushing on Tezos like Recently, the tokenization of uranium, for instance.
- [20:53]
B
Yeah, I saw that one. That was a pretty cool one. And I don't own any uranium yet, but if I do, I know I should.
- [21:02]
D
I can't advise you on what the amounts of uranium you should have in your portfolio is. I don't know your specifics.
- [21:08]
A
Right.
- [21:08]
D
But it should be more than $0.01 and less than 100% of your assets.
- [21:14]
B
Yeah, and less than 100.
- [21:15]
D
There's some point in between.
- [21:17]
B
And just, just out of curiosity, is uranium, is it because nuclear power is going to be a big idea, like small to medium sized nuclear reactors and like all that kind of stuff?
- [21:27]
D
Yeah, of course. I think it's like we're seeing a nuclear renewal. There's not a day where you don't see news about new nuclear power plants being built, countries changing their regulation to rebuild nuclear and the demand for energy is predicted to skyrocket. Like you see all the numbers, all the announcements. Like yesterday I think it was Nvidia, was it Nvidia investing $100 billion into OpenAI for the computer? So that takes a lot of Swiss giant clusters take a lot of power. The power is not there. So this massive capex span, you see it in gpu, it's going to have to be a capex span as well in power. And nuclear power I would say is the best complement today to solar power. But you need to build a lot of capacity and then you need to have a lot of uranium as fuel for those power plants.
- [22:22]
C
You know, I'm curious because I think you're spot on when you look at the need for, for, for how we're going to do all these different things. When you look at the need for data centers and AI and all these different industries that we want to build up inside of tech that all requires astronomical amounts of power that we just don't have the infrastructure for yet. And so immediately my brain's going towards, you know, we talked about how blockchain can be really useful for some areas and then we had the lettuce and Walmart situation running electricity where it's like, okay, maybe it's not as useful there, is there? Or could there be a use case for blockchain tech as it relates to some of the power buildup or the power issues that we're having here. Is there any kind of slot that you think blockchain could enable that space to do better?
- [23:12]
D
Maybe, but I think we've had like a decade of people trying to show horn blockchain into some use cases and Sometimes I think it's. Have you ever heard of the story of the stone soup?
- [23:22]
C
No.
- [23:23]
D
No. Someone comes to a village and they have a stone and they ask for water to make a soup. And the villagers say, well, I'm only giving you water. Don't ask for more. And I no, no, don't worry. I'm just making a delicious stone soup. And the villager goes, what's that? It's like, well, you spoil the stone. That's good. It's like, oh, yeah, especially with carrots. Oh, well, I guess I'll give you a carrot. And I want to try that. And then all the villagers, they end up bringing vegetables, and the soup is delicious. The guy goes, and you can reuse a stone. And so I've seen examples where people say, well, we'll do a supply chain solution with a blockchain. First, we're going to put RFIDs on all your items, and then you're going to have a system where everyone is going to have a handheld device to scan it. And you build all of this technological solution, which is great for your supply chain. And at the end, we put a hash on the blockchain. And you're like, well, if you sold the whole project using the keyword blockchain for the innovation lab, you've unlocked some value because you've modernized the whole thing. But really, the blockchain didn't do anything. It got the people interested. So there's a bit of that. In terms of the power grid, I think you could do energy trading on the blockchain. Like, anything you can trade, you can probably trade on a blockchain. There's latency questions at play, but Biologic can do that. Do I see power centers talking to each other and trying to allocate energy on a chain? You don't really need any of that.
- [24:55]
B
What's this whole. I'm not sure if you're up to snuff on this, because we didn't really talk about this in an outline or anything, but just on this topic, people are talking about bitcoin miners in Texas, like, helping balance the grid, being a load balancer. And then they're building up these, these bitcoin mines right next to these, like, areas where they typically flare natural gas. And so they're recapturing this. Is this all fugazi or is there something real here?
- [25:25]
D
Great companies, great companies. Okay, There is, there's. There was one piece of, in. In this whole story. So first of all, bitcoin miners who help stabilize the grid. True. But it only works in a certain regime. So you're a bitcoin miner, you spend a bunch of money on your ASX and then you have to spend on energy. So you have two expenses. One is your capital amortization and two is your energy. Now if your energy cost is a dominant one, then sometimes you're going to shut off your plant, you're going to say, look, it's not worth it for me to buy this very expensive energy to do bitcoin. So it might happen when there's peaks, right, you're going to stop. But when you don't have a peak or when the energy is very cheap, you're going to start mining again. Now it's rare though that you might be mobile, you might go to different places, but you still have a lot of amortization. So the more the amortization is a big part of your expense, the less it's going to be there. Now the bullshit part is when people say, oh, bitcoin acts like a battery. I think my favorite tweet at the time was when Texas was running out of power a few years ago and everything was freezing. And I say, oh great, they can put those bitcoin back into the grid, then no, it's not a battery. It has one aspect which is that yes, it will help stabilize your business, but you don't get the energy back. So where does the magic come from? The magic comes from the fact that bitcoin holders are willing to throw a ton of money out of the window to use proof of work. Bitcoin holders are spending money they do not need to spend to secure their network. That is the reason. And because of that, that expense can help stabilize the grid, but not as well as a battery. A battery is a much better place to do this. And if you're saying like, oh well, bitcoin helps renewables, I would say, well not necessarily because are crowding out renewables. So like if I'm entrepreneur and I have a battery solution for the grid and I'm going great, I'm going to push my battery on the grid and I'll make money because I'll arbitrage the thing and some people mining bitcoin are already arbitraging it, then there's less profit from people who might bring batteries to. So there's a crowding out effect. That was a slight bullshit part, but there are real companies that did this, that did it very well. You know, I actually used to trade natural gas for, well build trading algorithm for natural gas for Goldman Sachs. So I know that market a bit and indeed sometimes you have negative prices for natural gas because it's really expensive to store it. And it turns out you can't just let it out in the atmosphere. So what do you do with it when it's so cheap and when you have lots of it and yeah, so some people build companies to do this and then all of a sudden they realize, wait, those AI data centers, they're being built very quickly. They are on venture capital timelines where it's like we need to get the cluster running right away. We need to have results right away. You saw this with the Colossus clusters, for example, from Xai. They had to bring, I think, gas turbines because it just didn't have enough power on the grid. And so those companies indeed have been involved in providing energy for data centers. Wow. I think like companies like Core Scientific, for example, which was in the bitcoin mining market and is now in the AI data center power market, but there's a few others.
- [28:46]
B
Yeah, I remember we had Adam from, from Core Scientific on the show and yeah, was really, really impressed with, with what they were doing. But to kind of recenter on. On Tezos, you know, it's. I want to make sure that we really understand, you know, where your guys's unique market footing and positioning is. I think when people look at Ethereum, they say, okay, Ethereum's been around for, for a long time and they've got a lot of stable coins and defi. And then when you look at Solana, you know, people think, okay, it's been around for a long time and it's got a lot of meme coins and it's really fast. Right. You could really, you know, have a lot of transactions. How do we kind of position Tezos?
- [29:27]
D
There's a couple of things from a technological perspective. It has, I think, a lot of stability. Right. It's been around for a longer time. Long time, longer time. Almost as long as Ethereum. Not as long as, not as long as, sorry, longer than Solana. Not as long as Ethereum. But it's been there for a while. It's been very stable. It has progressed step by step and it has a history of being always technologically close to the frontier, not always at the frontier, but it's always progressed and gotten better and better. And if you want to build your project and you don't want to be chain hopping, I think this is a great feature to have. In some sense. Ethereum got stuck. They ended up outsourcing their technological scaling to L2s, which were not aligned with the Ethereum ecosystem, which were mostly VC funded. And so the base chain for Ethereum hasn't really kept up with the technology. So Tezos is an old coin. It's an old coin, but it's. Well, it's an old blockchain. Sorry, it's an old blockchain, but that is still technologically at the forefront and that is very rare. There's very, very few like this. And so if you want this kind of maturity and at the same time this ability to stay present, that I think is a strong suit. You know, you talk about the speed of Solana, but if you're using Etherlink, for example, on top of Tezos, which is an EVM compatibility zone, right now you have latency under a second. So you can have this very high latency. We demonstrated on Tezos a million transactions per second with parallel rollups a few years ago. We're building with Tezos X, a million transactions per second sequentially. So there's a lot, you know, there's a lot of progress on Tezos from a technological perspective that, you know, the chain today bears little resemblance in terms of what it can do in its capacity to the chain when it launched. In terms of use cases, Tezos has mostly been known for. Well, it was known initially for RWAs when they were called security tokens. In 2019, there was a wave of those on Tezos. We've also had a big wave of NFTs, especially in the art space. And there's a striving art community on Tezos. So many people in crypto when they are art collectors, even if Tezos today doesn't have the market share that it used to have, they will know Tezos because they know that the best artists are on Tezos and are minting on Tezos. So there's a fantastic community on this side and then there's a bunch of other projects which are built on Tezos. There's uranium that I mentioned earlier. There's a burgeoning DEFI activity on Etherlink. So it's a combination of different things.
- [32:20]
G
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- [33:35]
B
I love it and kind of when we think about some of these recent upgrades, I know SOL was the very recent upgrade that y' all undertook. Tell us a little bit about what happened here. I think the, the biggest thing that I saw in the media was simplified staking. Just super, super easy staking and some better security guarantees. But, but walk us through this big upgrade.
- [34:02]
D
Yeah, but actually I would say SOL is not a big upgrade. It's a small upgrade. They don't all have to be that big. The main thing in SOL is that we introduce BLS signatures for the bakers, which means that it takes less space. So we're going from like a gigabyte a day for people storing the chain to store all the signature to like 60 times less or a much smaller amount once people adopt the BLS 6. So that's a huge gain, but essentially it comes upstream of reducing the latency and getting more economic security by getting every baker to participate. So it prepares for more things. But the main benefits that we'll get out of it is reducing the latency of the base chain. So the model we have right now with Tezosx is one big rollup. And rollup people associate usually with horizontal scaling where you have many roll ups or like the type of weird thing you see in CRM ecosystem. This is quite different. This is closer to what the flow blockchain did. I don't know if you remember the flow blockchain. So you just have a single roll up. It's essentially decoupling the staking and consensus from the execution. So you have one big roll up Tezo 6 and then underneath that you have the core blockchain. So Tezosx by itself should have latencies in the tens to hundreds of milliseconds, whereas the chain itself will have probably a block time around three or four seconds, which lets you have a more decentralized ecosystem. You can still do staking on Tezos with a Starlink connection and a Raspberry PI. You don't need to have a massively expensive computer in a data center like you would need for Solana, for example, but it still gives you finality in like six, eight seconds. So I think the combination of like your transaction is confirmed in a fraction of a second and then you have like the finality in just a few seconds is a pretty good sweet spot.
- [36:04]
C
You know, I'm curious what goes into these upgrades? Because as you mentioned earlier, one of the big drawbacks or complaints that people tend to have with Ethereum is, is that the updates and these upgrades take longer than expected. They don't come out as often as people expect. They don't catch it up to some of the newer blockchain products, which means that it kind of remains more so, lagging behind in terms of like speed and efficiency and stuff like that. What goes into these? Because you all have been able to keep up more, you all have been able to put these out to stay a little bit more on top of it when it comes to it, at least in comparison to Ethereum. So it got me thinking, what goes into this? Why does it maybe take longer.
- [36:46]
D
For.
- [36:46]
C
Something like Ethereum to kind of do this and catch up the speed when you all at Tezos have been able to do that more effectively?
- [36:56]
D
I think that, well, the companies in the Tezos ecosystem that builds those upgrades, like Nomadic Labs, TrulyTech, for example, they've been doing it for years. And so I think there's a lot of institutional knowledge that's been built around upgrades. And there's the fact that because it's so core to the Tezos DNA, those upgrades, I think we've just gotten really, really good at doing them, which is not, I don't think it's as core to the Ethereum identity as it is.
- [37:28]
C
Yeah, I mean, we had some of the lead Ethereum developers on here. In fact, we actually just had one, I think around April ish. April or March ish. And he was talking to us and he basically was saying on the pod is like, you know, number one, it's harder to upgrade in an existing layer one than it is to just create a newer one that's more advanced, which makes complete sense. But I think the other side of that is I've some. I think you have to worry about L2s and you made a point to this earlier, just saying that they're more reliant on L2s. And that was the second half of what he said. Is that like, we don't really need or necessarily maybe even want the main chain to be as fast and complex as modern L1s, because that's what we have L2s for. Do you think that that's a good thing or a bad thing?
- [38:14]
D
It strongly depends on what your L2s are. And the devil is in the detail. And unfortunately, I would say, like Ethereum, L2s give L2s a bad name. I think of L2s as a technology, as a scaling solution, technological solution. But L2s are venture funded business. They're not algorithms, they're venture funded business. And that makes a big difference for the chain. So, first of all, L2s on Ethereum are custodial. If you have coins on base, there's a small committee with Coinbase and Optimistic Lab or some delegates of those who can push security upgrades. They can change the contract on Ethereum, but by changing this contract, they could.
- [39:01]
B
Get hacked and then you could have some issues.
- [39:03]
D
They could hack. And that has happened. It has happened. For example, to what? They recall the accident. Yeah, Ronin. So like the multisig by North Korea, I believe that Coinbase is probably very, very skilled at keeping those keys secure. The difference as well with Ronin is that it was a bridge, so you kind of have to have, I think those were live keys, which are easier to steal, whereas here you can have these cold keys for security upgrades. But nonetheless, also from a legal perspective, they have control over the thing. Coinbase has pretty much as much control over the content, what trades in defi on base than they do on their order book. The second thing is that, so, yeah, they're custodial. That's a big difference. And then they have their own opinions. If tomorrow Coinbase decides it's better for them to be an L1, they'll become an L1. They can push their own wallet. They don't have to work with the Ethereum ecosystem. And Telos is different. It's just a part of the protocol. The part of. That's how the protocol works. And I think that makes a world of difference. The other thing as well is that Ethereum wants to use rollups for horizontal scaling to a large extent. So the idea is like, you have these many rollups and then they can talk to each other and that spreads the compositional load. But people do not want to use all these different rollups. You fragment the liquidity you give a bad user experience. People don't often think of monolithic solutions as good for rollups. They say, oh yeah, of course, you can be monolithic like Solana, or you can have rollups like Ethereum, but you can have a monolithic rollup. Now, to be fair, some people are building that Megaease, for example, is like one big monolithic rollup. But I think it's an overlooked scaling solution and that's the one that's being pursued with the Tezos X roadmap. And you have a benefit. You're better off scaling a huge rollup than you are scaling your L1 node. And that's something that Solana completely misses.
- [41:26]
B
Interesting. There's a lot of different angles to take this, but is there something in the Tezos X roadmap or, or kind of something up immediately next that will kind of unveil, you know, your guys's next. Next point? I'm trying to say basically like, you know, I guess what is next to take you guys to that next level? Because Seoul, you know, here I'm, I'm reading the media and it seems like Seoul was a big upgrade, but you're saying we still got so much more for a bigger upgrade kind of coming. So, like, what paint us that picture?
- [41:58]
D
Well, you know, the pr. The PR people did their job well. Yeah, exactly. Yeah. So the big thing to expect, look, there's going to be a lot of scaling, but everyone's scaling, everyone's saying we get millions of transactions per second, tens of thousand transactions per second, whatever. There was a period of time around 20, 21 where you could see scaling anxiety. People were deploying protocol and they were saying, is your chain going to scale? What happens if it's too popular? Am I going to pay all these fees? I think a lot of this killing anxiety is gone for people. They might be anxious about the cost on Ethereum, but they don't deploy that much on Ethereum. So I think a lot of that is gone and cost still matters. But it's been widely accepted now that it's possible if you're actually a live player, in terms of pushing overgrades, you can actually get the throughput. So I think what we'll get more attention on Tezos is some of the work that's going on for developer experience, in particular the support for mainstream programming languages. So there's a project called justice or JSTZ, which is about supporting JavaScript natively on Tezos. That means. And now there's been some projects around this which take TypeScript and compile it or assembly script or compile it and there's always a bit of a catch. Whereas here it's really, nope, take JavaScript, take existing JavaScript libraries with no restriction and just run them directly on a blockchain. And you can do that with Java, you can do that with. NET as well. And that I would say opens up the market to developers who may have overlooked this in the past.
- [43:40]
C
Well said, man. I got one more question for you and it's just in regards to kind of where we're at in the market because there's been just a lot of confusion, right? It's been a little bit of a stranger cycle so far. I think in previous cycles people have been nervous about like how long they last, you know, the ways that altcoins behave and run the verticals that perform well, the ones that don't. And there's just a lot of I guess confusion and questions that people have. Where do you think we're at in the market cycle and will we see some sort of classic top around that 15 to 18 month mark after the halving and then get a big bear market?
- [44:24]
D
Yeah, so I don't think this is, you know, I, I do agree that we've had this like three, four year cycle type of thing. I don't think they're driven by the halving. I don't think the halving has any much of an impact. You know, interest rate policy I think has been a better predictor of that. I don't know. I really wish I knew. You know, seemed frothy last year, now it's still going. I think I would watch the DAT space carefully. I think there may be some systemic risk being built in here. I like to play the game. It's like it's a year from now, there's been a crash and someone told you and someone tells you like, well your sign should have been this. And you say like oh geez, of course. So what can you fill in here that would be a sign you remember? I think one of the sign of the top in, was it like 2021 or was the slurp juice thing? It's like you all don't get it already. You can use multiple slurp juice on one monkey.
- [45:34]
B
I remember the top in 2017. It was the day that bitcoin futures launched and everybody was like the institutions are here, the bitcoin futures are here. And then everybody just shorted the market to the ground.
- [45:47]
D
That was done on purpose. They launched the futures on purpose to Deflate the bubble.
- [45:51]
B
Yeah, to deflate the bubble, totally.
- [45:55]
D
Well, I didn't call that it would cut that day. But I always thought that futures in general were bearish for Bitcoin because essentially.
- [46:06]
B
It was bearish in the short term. But in the long term we wouldn't have the ETFs without the Bitcoin futures. It was like that necessary pain in the short term.
- [46:14]
D
I think we would, I think we would. I mean, you know, it was a, it was a weird SEC thing of the way the SEC thinks about ETFs is bonkers. Like regardless of the underlying class. Regardless of the underlying class. So here what they say. So an ETF is not a derivative product. That's really interesting. It is not a derivative product. It's not based on the price of something. It's based on an in kind conversion. Right. So if you have an ETF of the S&P 500, you take an authorized participant like Jane street and it will go to the ETF issuer and they will say, here's the stocks of the S&P 500, give me the ETF. Or here's the ETF, give me back stocks on the S&P 500. That's how ETFs work. And that's great. It makes it worth way more robust, way, way more robust than derivative products where you depend on the price. Now what does the SEC do? They go and say, oh, wait a second, there need to be a developed market for the price of the underlyer, otherwise how will we price the etf? Because people will look at the price of the underlier. And no, you actually don't need that because it's not financially settled. It's settled in kind. You don't need that. You don't need a spot market. And so the argument that the SEC has used, and it wasn't just for cryptos, they would use it for other commodities and all the things that you need the wealth of spot markets for the underliers of the etf makes zero sense. Yeah.
- [47:37]
B
Or a futures market.
- [47:39]
A
Right?
- [47:40]
D
Well they used the futures market because they figured like, oh, in their mind the exchange on which the underlier trades is very important. And so they were like, well, it's a cme, we know the cme. And so that's fine. We don't want to give any credence to those other exchanges, you know, who are like, who call themselves exchanges, but they're not even exchanges because we get to decide what an exchange is.
- [48:05]
B
Do you think that these, these ETFs like, obviously Bitcoin and Ethereum, like BlackRock's kind of taken these and, and pushed them. And you know, wealth managers and advisors are starting to slowly come on board. So this is all positive. But do you think that every crypto is gonna like kind of need an ETF or get an etf? Because I saw the SEC just released generalized guidelines for cryptos to kind of have a fast track to get ETFs.
- [48:31]
D
Yeah, I mean, need is a strong word, right? You know, I think we need oxygen after that. We need food, oxygen and water and you know, maybe housing. I don't know that we need a triple inverse levered ETF on dogecoin, but nonetheless those will exist.
- [48:50]
B
I need it, Arthur. I need this.
- [48:53]
D
I know, I know, I know. I think we'll see a lot of them. The main reason for it, I would say, is like compatibility with the existing world. People can keep it on their brokerage accounts, people can put it into tax advantage saving plans. You know, whether they be IRAs and 401ks in the US or other plans in different countries, they can eat more, you know, they can borrow against it to all sorts of things. So it solves the. It serves a purpose.
- [49:20]
B
Definitely.
- [49:21]
C
Well, I want to go back to one thing that you mentioned before we let you go, and it was about the idea of the cycles. And you said you think that the cycles have less to do with the having and more to do with interest rate policy. And that's not something that I don't think anyone's actually talked about on the show before. Can you just explain a little bit about your perspective and opinion as to why that's the case and how it works?
- [49:45]
D
Yeah, so I mean, we saw a lot of the 2021 boom, for example, which was not just in crypto, but like in a lot of risk on asset classes, when the interest rate went down to zero with COVID and also when the government handed out free checks to everyone. So there's one aspect. There's also the case that low interest rate policy have a tendency to be inflationary. And so in an inflationary environment, people pay more attention to crypto in general. Now we've had fairly high interest rates since 2022, and despite that, we've seen a bull market in crypto. So maybe that betrays what I'm. That betrays the thesis. But in general, I would say we've had decade of low interest rate because there was not much innovation happening. There was not a lot of technological innovation. People were rebuilding SaaS company after SaaS company. And so yeah, you have a bit of growth, but essentially people had no idea where to spend money. And I believe the reason the interest rates are up is, well one is to wipe up a lot of the inflation that happened, but they stayed up. And part of it is because now we have innovation with AI and there's massive capex. So there's a lot of money that's being absorbed to build a lot of data centers, to build a lot of GPUs, to build a lot of energy and that's going to keep rates up. And you know, if people are looking for different investments and they say, well, you know, nothing's yielding anything, everything's speculative, I might as well buy, you know, some random meme coin, that's one thing. But on the other hand if, if you start having other opportunities and if you start seeing a lot of growth, it, it's a bit different. Now why hasn't that been the case? Because fundamentally maybe crypto doesn't compete with investments, maybe it competes with gambling. I would say a lot of the activity on meme coins has been gambling driven rather than anything else. And so in that case you could survive high interest rates environment. But I'm not sure. But the fact that directionally we're probably going to see lower rates in the future I think gives more breathing room to the current market. Yeah, if you have something that could shock it, I would say a recession shocks it. The main factor maybe more than interest rate is risk on or risk off, like depression or not. Because when things go wrong, the first thing people do is they're going to sell the funny thing that they bought, whether it was a funny monkey or some weird coin. Tomorrow you tell them you might lose your job and you might have to, you're going to need to pay the rent. Well, their rent is not denominated in bitcoin, their rent is not denominated in dogecoin or anything else, it's denominated in dollars they're going to sell to hold the safer assets.
- [52:39]
B
Yeah, no, it's a good point. And I've definitely lost my belief in having dictating these cycles as well because it just seems like it coincidentally lines up with the four year presidential cycle and liquidity cycle and interest rate cycle as well. And everybody's like, you know, look, it's the four year having cycle, but it's just a coincidence I think. And so it's this spurious sort of correlation that we all make in our mind. And so yeah, I'm I'm, I've gone on record, I'm, I'm of the belief that this having cycle kind of ends and we kind of get this extended, extended bull market where we've got lower interest rates, we've got these institutional super cycle theory. Yeah, no, not the super cycle but just something a little, a little less pre programmed as every 18 months after the having it's a, you know, a 10x and then a 80% drop. It's like I feel like that really, you know that captured the imagination of traders in the early parts of the cycle but now it's like the people who are actually trading this with, with real money, they're the blackrocks and the real hedge funds and I don't think they really are looking at the halving cycle as much as they're looking at other, other things right in real time.
- [53:54]
D
I think what could pop it as well is so you know, ultimately AI is fundamentally transformative initially for the best, perhaps in longer term for the worst but nonetheless extremely transformative. That being said, if for example you have progress stalls, let's say progress stalls, people are not making the revenues that they expect to make currently and somehow investors lose confidence. I could imagine a scenario like this. Investors lose confidence and the cap, you know, like they overspend in capex, they spend too fast, they don't really need the capacity and you start having an unwinding of all the investments in AI. It's taken such a huge part now of CSNB and of other assets that you could see a market crash from it and if there's a market crash and people have their savings in the markets then they're going to say shit, I don't have as much investors as I thought I would. They also say that they also sell their funny Internet coin. So market crash would take down crypto with it.
- [54:58]
B
Yeah, no that would.
- [54:59]
D
AI space.
- [55:00]
B
Yeah, that would definitely be, you know, cause for concern. It just seems like, and I know we're going on and on but there's just so many. I want to have you for another hour but I know we're coming up at the top but like you have like this government financing it with just enormous loads of deficits and debt and all that kind of stuff that just doesn't seem like it's going to be slowing down anytime soon especially as you have the labor force participation rate completely falling. So they need to stimulate the economy because people aren't working. So they're going to continue to debase, they're going to continue to, you know, lower interest rates. And I know Trump over here really likes the idea of negative interest rates and so he really wants to get rates down re real rates to negative and that could be further, further sort of, you know, upside for the market. But man, we could, we could go on and on. But, but Arthur, I just want to make sure that everybody who's watching could, could follow along with your journey and could know the right resources to, to follow along with Tezos. Are you big on X? Do you blog? Where can people follow along with your journey? And we'll put it in the show notes below.
- [56:04]
D
I tweets so so you can find me on Twitter X arthurb I don't blog. I should blog more often. I blog maybe once a year. I like the short form, I guess.
- [56:16]
B
Perfect, perfect. I'm with you as well. I like the short form stuff. Arthur, thank you so much for joining us. I know everybody at home listening thoroughly enjoyed that. Brendan, thanks for joining as well. And everybody at home watching. Come back same time time, same place next week. We're going to have some more great guests for you here on the Crypto 101 podcast. Take care.
- [56:49]
F
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- [57:46]
I
What do you think makes the perfect snack?
- [57:48]
J
Hmm, it's gotta be when I'm really craving it and it's convenient.
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I
Could you be more specific when it's cravenient?
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J
Okay, like a freshly baked cookie made with real butter, available right down the street at am, pm or a savory breakfast sandwich I can grab in just a second at am, pm.
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I
I'm seeing a pattern here.
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J
Well, yeah, we're talking about what I.
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I
Crave, which is anything from am, pm.
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J
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