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The "What is Money?" Show
An Inquiry into Decentralization with Erik Voorhees (WiM083)
02:07:41
Erik Voorhees joins me to explore the nature of decentralization.
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- [00:00]
Eric Voorhees
Foreign.
- [00:08]
Robert Breedlove
Hey, everyone. Welcome to the what Is Money? Show. I am honored and thrilled today to be sitting down with Mr. Eric Voorhees, who is the certainly the founder of Shapeshift. But given that Shapeshift is decentralizing, I'm not so sure if he's a CEO anymore. But, Eric, welcome to the show. Maybe you could enlighten me as to what's going on over there.
- [00:34]
Eric Voorhees
Yeah, thanks for having me on, Robert. I've been a great fan of the show. I'm not going to be able to go in depth about ancient Greek technologies like Saylor was. His whole arc has been fantastic to listen to. I love that historical context, but, yeah, just really, really glad to be here. Thanks.
- [00:57]
Robert Breedlove
Yeah, man, it's great to have you on. Really, really glad to hear you're enjoying the Sailor series. Guys. Something else for sure. But today I'm hoping, as we were just saying offline, trying to understand in my mind how we have conversations about decentralization. I don't think there's much of an argument out there at this point, at least in the crypto community. Maybe I'm wrong about this, that bitcoin is decentralized or is at least the most decentralized crypto asset in the universe. It didn't start out that way. It was just an idea in one guy's mind. It was as centralized as it could be, and it went through this release into the wild and this organic adoption path. And I don't think that decentralization, like everything else in life, it's probabilistic, really. It's never like you're fully there or you're fully not there. But I would say bitcoin's the furthest down that road. So what I've been mulling over is how do we describe that road? How do we quantify it? How do we know when an asset or network has achieved sufficient decentralization for whatever it's stated goal is? And I'm hoping you can shine a little light on that with your experience. Decentralizing Shapeshift.
- [02:26]
Eric Voorhees
Yeah. So the question of whether things are decentralized or not, I think is one of the most important that people in this ecosystem can think about. And what we had before bitcoin was a world in which nothing that was financial was decentralized. Maybe gold, but still there. The custodians were not. And so you go from this world in which everything that is financial is centralized to some degree, and then suddenly this new thing comes along that doesn't have any analog. People don't know what to make of it. For years, people are trying to understand what it is, what is it supposed to be doing. We're all still trying to figure that out to some degree. And this concept is birthed for the first time of a decentralized system, specifically in the realm of finance. And I think a lot of observers too quickly moved to things are either decentralized or they're not. Instead of the much more nuanced discussion of what makes something decentralized, what are the elements that can be decentralized? And understanding that all of these elements are a spectrum. And so the interesting conversation isn't whether something is decentralized or not, but is to what degree is it decentralized and on what vector. This is something that all of us should be experts in is that conversation. And Bitcoin's decentralization clearly is the most decentralized. But still there you have to talk about on which metrics. And it's important to understand how bitcoin emerged. Right? It was not like decentralized on day one. And we need to not be. We need to not like, wrap Bitcoin in a religion of falsehoods, because if we lose the understanding of how it actually works, then we've actually harmed Bitcoin's ability to advance in the world. So, yeah, talking about decentralization is fantastic. The crypto ecosystem is full of projects ranging from very centralized to very decentralized and on different metrics. So, yeah, let's discuss that. It's a good place to start. Nice.
- [04:40]
Robert Breedlove
Yeah. So I guess I'll begin with my just general understanding is that the purpose of decentralization is predominantly, if not only censorship, resistance. We want to know that basically no one else's opinion or any individual aggregate of willpower can disproportionately influence whatever this asset or network is intended to do. So to your point, the historical analog would be gold. Gold was selected as money for a number of reasons. It exhibited a number of properties, but there are a lot of monetary metals out there. But gold proved to be the most resistant to political machinations, I guess you could say, by virtue of its difficulty to produce. So it's cost to produce, I guess you could say. So in that case, it served as kind of a neutral or apolitical monetary layer for an analog world. And it seems like, again, bitcoin has sort of taken that place in the digital realm where decentralization is very important. Because bitcoin is essentially the ultimate enemy of the state. It's disrupting the most important monopoly in the world. So maybe we could start there. Are there other purposes to decentralization besides censorship? Resistance? And if so, it would seem to me that the amount of decentralization would be very tightly correlated to what the thing was trying to do. I think of a prediction market where they talk about the potential of assassination markets and all this. That would need to be rather decentralized. But if it's a cryptokitties jackpot game or something, maybe that doesn't need to be so decentralized.
- [06:43]
Eric Voorhees
Yeah, that's exactly right. Yeah, I'd say it's a little more generalized in that. Well first there's a lot of reasons to not decentralize. Right? There's a lot of really good valid reasons for something to be central. And certainly when Ethereum was in its early days and there were a bunch of new people that got into Ethereum and they were talking about all these decentralized dapps and they were going to decentralize everything. There's a tendency to not realize why it's important to have certain things be centralized. If someone wants a visceral example of this, the human body is a centralized organism. If it was decentralized, you just explode into all directions and suddenly there's no being there. So centralization and decentralization can both be valuable and it depends on what the purpose is. I think generally you have to think about what the application is you're going for. And you said it really well in Bitcoin being the ultimate anti state weapon. I love phrasing it like that because people don't talk about bitcoin very much like that anymore. That was kind of like an early on Bitcoin. People would acknowledge that this is a tool of resting power away from the monopoly of state and giving that power to all mankind. And that's a very controversial thing to do. I mean that is, that is making enemies with not just one government, but all governments around the world. It is making enemies with the institution of government. So something that is trying to do that, that is trying to wrest away power from the most powerful organizations in the world all at the same time needs to be so resilient. It needs to not be able to be corrupted by any central party. So bitcoin has to be extremely decentralized and it sacrifices a lot of things to do that, sacrifices certain efficiencies so that it can become more decentralized. And that's exactly what it should do. There are other assets in the financial world, in crypto that don't need to do that. They don't need to necessarily rest the power over money away from the state. And so those projects wouldn't need anywhere near the decentralization of Bitcoin. And it doesn't mean that they're worse or bad. It just means that they have a different purpose and it's okay to understand things that have different purposes and then to compare them in that degree.
- [09:19]
Robert Breedlove
Yeah, well said. So maybe we could start talking about Ethereum actually, because that seems like a natural case study for decentralization to some extent. So I think the position of Bitcoin maximalist community would be Ethereum is not decentralized and can never be decentralized because of its pre mine, what was it, 60 or 70% of the tokens were pre mined before the ICO, such that there's a significant concentration of token ownership on among very few hands. Is that criteria enough to prohibit something from being decentralized in your opinion? And then if so, or if not, how would we determine if Ethereum was becoming more centralized over time? Are there qualitative or quantitative aspects that we can focus on?
- [10:27]
Eric Voorhees
Yeah, yeah. So decentralization exists on lots of metrics. You could think of decentralization of nodes, you could think of decentralization of developer talent. You could think of decentralization of where the actual users are. Right. Are they all in one geographic area? Are they all over the world? You can think of decentralization in the holding of the asset itself, which is what you mentioned. Right. And the specific numbers here aren't super important, but yeah, majority of ETH when ETH launched was pre mined and given to the people that participated in that ICO in that token sale. Does that mean that Ethereum isn't decentralized and can never be? Well, that's a different point. Right. So obviously this is a question of degree. If one person owns all the coins, I think everyone would agree that that is not a decentralized system. If a million people own all the coins, that probably is a decentralized system. And obviously this is a spectrum. So where on that spectrum does something magically become centralized or decentralized? The answer is it doesn't. It's a question of degree. So I think it would be fair to say that on the genesis of Ethereum it was not very decentralized. It was centralized among the people who participated in that token sale. And I don't know what the number of people was in that regard, but I'm guessing several thousand. Meaningful. Now let's compare that to something like bitcoin. Right. In the first month of bitcoin's existence, all the bitcoin in existence was held by Satoshi and then at some point he sent some to Hal and then that's two people. Is bitcoin decentralized at that point? No, it's not. It's not decentralized enough. But over time it becomes more and more and more decentralized and certainly by today I think it is sufficiently decentralized quite easily. So Ethereum people should expect it to have a similar phenomenon where something that is small and niche known to a few people and who a few people get super passionate and excited about are going to have the controlling majority stake in that thing. And as it grows and gains adoption, more and more people around the world are going to own it. And this was true for Bitcoin and this is true for Ethereum. So yeah, I think if you're going to say that Ethereum can't ever be decentralized because of its pre mine, that would require that only the people that had the tokens at that point of genesis are the only ones that can have it. And obviously that's preposterous. The number of people that own Ethereum today is got to be three or four orders of magnitude higher than that. Start.
- [13:09]
Robert Breedlove
Interesting. Okay, so another point that I think anti eth people would strike at is they would say that the post DAO hack fork of Ethereum proves its centralization effectively. So maybe you could give us a little brief background on that. Just the Dao hack itself, I'm sure most people have heard about it. And then what happened afterwards? And then what's your opinion on that? Does that mean Ethereum was at least decentralized at that point? Or does the ability to, I believe it was a hard fork. Does the ability to hard fork something like that not impact our assessment of decentralization?
- [13:53]
Eric Voorhees
Yeah, so for those who aren't super familiar with this, this is certainly like a seminal moment in crypto history. This was about a year after Ethereum launched and there was this thing called the Dao. It was just used that generic name. And basically you could put your Ethereum, your ether into this smart contract and then the smart contract through governance would ultimately make investments in various things. It was kind of like that simple. And this project got totally out of control to the degree that something like 15 or 20% of all ETH in existence ended up in this smart contract. Yeah, it was nuts. The people who built it obviously did not expect anything like that. This Was like, as some things happen in crypto, a little side project that got out of hand and it ultimately got hacked. There was a code exploit and the hacker was able to either claim or lock up or siphon off all of the funds that were in the dao. So this was an existential crisis, cataclysmic PR nightmare. People lost so much money in it and the whole Ethereum community was trying to figure out what to do. So there are obviously a large contingent of people that said Ethereum as a system shouldn't do anything. Code is law. That's what we've been saying, that's been our motto. And it sucks that this happened, it sucks that all these people lost money. But write better contracts and if you're going to invest in things, do more diligence. That was certainly a camp. The other camp was mostly saying we should roll this back or technically it wasn't a rollback, but they did something where they would hard fork Ethereum such that the hacker account that had control wouldn't have control anymore of those funds and they could all be distributed back to their rightful owners. So this was a massive debate and I remember sort of sitting on the sidelines because I didn't understand it very well, but just watching all this unfold and it was bitter and emotions were high, lots of opinions, and ultimately the community decided to hard fork. And what that means is that enough of the miners and users decided to go with the hard forked version of, of Eth. And after several days, several weeks, it was very clear that the preponderance of people had gone with the hard fork and not the original. And that just ended up being known as Ethereum and the original chain ended up being known as Ethereum. Classic. That controversy remains with that community to this day. And I don't think that the whole situation was, was proof that it wasn't decentralized. I mean, if anything, it was proof that it was decentralized. Everyone was yelling at each other about what to do. And certainly Vitalik had his opinion, the Ethereum foundation had their opinion. Ultimately the community decided to go along with the same opinion that those two groups had, but they didn't have control. What I do think it means for Ethereum is, and something that makes the DNA of Ethereum different than Bitcoin is that the Ethereum community was willing to change the code for that exploit. And if that kind of thing had happened in Bitcoin at the same time, I bet it would not have gone that same way. So the community of Ethereum is different and it doesn't mean that they will hard fork whenever someone loses the money, because there have been plenty of hacks that have never caused that to happen again. But they did have more tolerance back then. A year into the project, they had more tolerance for a redo. And is that right or wrong? I can argue it both ways. I think it just makes Ethereum different and I think it's a fair point to debate.
- [17:56]
Robert Breedlove
Yeah, it's interesting. So you bring up a great point. So code is law. That was kind of the ethos. So technically there wasn't really a hack. Right. There was just poorly written code that someone, I mean, exploited, I guess you could use the word. But technically they were operating within the bounds of the code.
- [18:18]
Eric Voorhees
Correct? Correct.
- [18:21]
Robert Breedlove
There's a muddy line there too. It wasn't to be coded that way, but someone figured it out.
- [18:27]
Eric Voorhees
Exactly. The higher level view of this is that, yeah, code is law, both the code that was the exploitation and the code that allows miners and users to fork, that is part of these protocols both in Bitcoin and Ethereum and all these things that is also part of the code. And when there is a disagreement among factions within any of these systems, the ultimate arbiter of that dispute is a fork that is also part of the code. And anyone that was in Ethereum before the DAO hack and who was vehemently opposed to the, I want to call it a rollback, even though that's not technically correct. Anyone who is reasonably opposed to that rollback, they never had to change their software. They could stick with the original chain. It ended up becoming called Ethereum Classic. They still have all the tokens that they did before, and that chain ended up not winning out in the market. But ultimately they still follow the same code that they did the day before the DAO hack. So it's a really interesting attribute and property of these cryptosystems that two truths can exist and people then fork on to different directions and both of them can live comfortably in the universe that they want to, neither side being able to force anything on the other.
- [19:43]
Robert Breedlove
Yeah, I agree. That definitely sets Ethereum apart from Bitcoin in that respect. To your point, had there been something similar with Bitcoin, it's very likely there would have been no modification, no rollback.
- [19:58]
Eric Voorhees
Well, yeah, I mean, let me challenge that point for a sec. Because early in Bitcoin there was at least one hard fork due to a bug. Many people are aware of this. It was an overflow bug in which the supply cap of Bitcoin wasn't working and the supply of bitcoin went crazy. This was early days, probably within the first year and a half of bitcoin's existence, I think. And there was a hard fork does that. And that hard forked version is what we all call bitcoin today. People didn't stick with the one that obviously had the bug of the supply. So it's not correct to say that bitcoin has never hard forked, it's had multiple hard forks, mostly in its early days, which is appropriate for this kind of crazy software. But yeah, the communities, I think it is fair to say that the communities, at least at the point where Ethereum had that fork, were at different cultures. And bitcoin has developed a culture that is far more conservative, more slow moving and less tolerant of mistakes. And there is a lot of virtue in that position. Ethereum has taken on a culture that is more fast moving and experimental and more tolerant of mistakes. And I think there's value in that position and that's what creates two different communities and two different systems.
- [21:12]
Robert Breedlove
Yeah, that makes sense that bitcoin has taken this conservation bias and this probably is where people criticize bitcoin for being boring or slow or old technology. But in fact that's really what you want in money. It's the boring money that's super secure and very rigid, very hard to change, very resistant to politics that's going to win. There's two different. And that's why I would say, and I would love to hear your opinion on this, that's why bitcoin is money and will succeed as money, whereas Ethereum is something else. I can't classify that as money because I see the political attack vector on it. You call it maybe a currency of some kind. What are your thoughts on that?
- [22:05]
Eric Voorhees
I don't think the definition of it as money or not as money is the right way to view it. It's a question of these are both assets. They can obviously both be used as money. I can send eth to people, I can send bitcoin to people. They are both largely censorship resistant. They have more in common than they have separate. I don't think a bitcoin maximalist will like to hear that, but it's true. As systems in nature, these things are very, very, very similar, but they're different money. And if I was going to place a bet on value over long term, Bitcoin's conservative culture is probably the right bet in that regard. At the same time, Ethereum's ability to Move fast and break things has led to all this financial tooling getting built in the whole defi world, which is incredibly valuable and useful also. And so you end up with a system that one system that is more conservative and better for a longer term money and another system which is better for innovative financial tooling. And this is kind of like an interesting juxtaposition. I mean, this is why I say that these are complementary systems. Why a world in which both Bitcoin and ETH exist is one that's better than if only one of them was around.
- [23:24]
Robert Breedlove
Yeah, that makes sense. Maybe this dichotomy works, is I've described. Bitcoin is more akin to the Internet itself, like an open source protocol for moving economic value. Whereas alternative crypto assets, Ethereum included, are more like liquid venture capital in a way. So to your point, Ethereum has this ethos of move fast and break things, which is good. You can generate a lot of innovation that way. But Ethereum could also break itself, it seems, if the Dow was any indicator. That was like you said, pretty cataclysmic.
- [24:03]
Eric Voorhees
Yeah, it almost killed itself in that event. And as it transitions to proof of stake, that's a massive risk.
- [24:10]
Robert Breedlove
Right.
- [24:12]
Eric Voorhees
I think ETH will be successful in that transition, but it's not guaranteed and it could fail and blow the whole thing up. Is that a risk you want to take with long term money? Maybe it is, maybe it's not.
- [24:22]
Robert Breedlove
Yeah, yeah. So they're, they're two different species. I mean, you're saying they're very similar, but they are very, they're more different, I guess at the social layer. Is that where the most of the differences live?
- [24:34]
Eric Voorhees
Yeah, and I think their communities amplify their differences more than is warranted. Or maybe that's important, right? I mean, maybe it's important that these communities amplify the differences between these systems. But if you zoom out and take a, any kind of historical context or technology look at these things, I mean, these are blockchain based cryptocurrency systems and they have a ton in common. And both of them are helping to wrest financial power out of the status quo financial system and into this new world. They have a lot of similar aims, they have a lot of similar principles. Certainly ETH is inspired by and built off of a lot of the technological innovations that Bitcoin started and now Bitcoin. There are people trying to build Bitcoin apps using the Ethereum virtual machine. So there is knowledge sharing going on between these communities. I think that's incredibly Good. I just wish there was less vitriol and hatred and antagonism between people who are so dedicated to their community, to their asset, to the degree of ignorance of the other. You know that that's, that tribalism that I talk about all the time.
- [25:44]
Robert Breedlove
Yeah, yeah, I hear you on that. I'm. I'm trying to direct most of my toxicity toward the state. You know, I think that's the thank you elephant in the room here, is that, you know, whatever, you can have all the infighting, I just don't care to engage in it. It's not as interesting to me to sit here and try to bash Ethereum or bash something else. I just, I look at Bitcoin as a different animal and I do think it's for the biggest game in the world, which is base money, to have base money, which is an inherently centripetal network, you're going to tend towards one. So for the same reasons we had one gold, we're likely only to have one digital gold. That to me is enough to absorb my attention. However, I can't, just because of that position, throw out the notion of decentralization or distributed consensus. I don't know enough, frankly. So there's this great quote that says a free mind never concludes. So I guess that's where I'm at with all this. I'm just inconclusive. It's like, is something else going to be market proven? If so, what. How do you. Is something market proven in your mind? Is Ethereum market proven?
- [27:02]
Eric Voorhees
Yeah, Ethereum is absolutely market proven.
- [27:06]
Robert Breedlove
How do you pin that opinion for yourself?
- [27:10]
Eric Voorhees
Yeah, there's one metric which I think is a good. If you're going to oversimplify this stuff and you want one metric, Ethereum users are paying more in fees in aggregate than Bitcoin users today. Does that mean Ethereum is better than Bitcoin? No, it doesn't. Does it mean that eth is better money than Bitcoin? No, it doesn't.
- [27:31]
Robert Breedlove
That excludes the subsidy, right?
- [27:35]
Eric Voorhees
The subsidy.
- [27:36]
Robert Breedlove
That excludes the block subsidy.
- [27:40]
Eric Voorhees
Correct? Yeah, that's just the fees that people are paying to make transactions. And it's not barely more, it's substantially more. And there are actually entire apps on Ethereum that currently have greater fees paid by users than the entire Bitcoin network. And again, I want to be very clear that this doesn't mean any of that stuff is better than Bitcoin. But if the question is, have these things proven themselves as useful in the marketplace, yes, I think that's a good Criteria over multiple years, a huge tens, hundreds of thousands of people are using this thing at massive cost. And you have to assume that people are using it because they find more value than the cost is burdening them with.
- [28:26]
Robert Breedlove
What are the big use cases right now? Is it decentralized exchange?
- [28:31]
Eric Voorhees
Yeah. So decentralized exchange is so big and important, and it breaks my heart to see the bitcoin maximalists having ignored this technology because it's generally been built on Ethereum. If Bitcoin is valuable in part because it removes money out of the hands of the state and makes it uncensorable, the function of exchange of assets should also be uncensorable. And yet, 99.99% of all Bitcoin trading happens at custodial centralized exchanges. Not okay. It's an okay stepping stone. It's okay that it starts like that, but that can't be where this ends up. We can't end up in a world in which, sure, we have this immutable Bitcoin as money, but whenever you're trying to trade it for other assets, you go through a gatekeeper. I mean, that is the Achilles heel of Bitcoin, right? So, yeah, you can argue all you want about Bitcoin being decentralized, but if to trade it with other things in the world, you have to go through a gatekeeper, that's a big problem. So one of the ramifications of Ethereum and the Ethereum smart contracting language, people have built decentralized exchanges. And these things work at scale. These things work in the billions of dollars per day scale, open source, immutable, and no one can fucking stop them. You can't turn them off. If someone tried to fork the code, someone could take the code and make another one with the switches turned back on again. These are machines that people have no conception of how powerful they are. These are financial tools that are immutable. And people will say, yeah, these are all various degrees of centralized, because maybe there's a small team working on it sometimes. That's true. But these things like Bitcoin and like ETH are starting out somewhat centralized and over time becoming increasingly decentralized. The code itself is open, immutable, and cannot be turned off. So the decentralized exchange spaces is massively useful. I mean, inspiring to me as a bitcoiner. It has been inspiring to me to see it. And I'm grateful that entrepreneurs and technologists have figured out how to move the principles of decentralization up to some of these further application layers. And the Dexs is one of the easy examples of this.
- [31:02]
Robert Breedlove
So if a state actor wanted to shut down decentralized exchanges, or is that possible? And then secondarily, if the Ethereum core development team, for just some arbitrary reason wanted to stop all decentralized exchanges, could either of those succeed?
- [31:26]
Eric Voorhees
So in the first question, it depends on the exchanging question. So Dexs have lots of different attributes and they range from very centralized to very decentralized, and a lot of stuff in the middle. Some things that are actually centralized and pretending to be centralized and things that used to be centralized and now really aren't. So you have to assess the specific project itself. But let's take the most decentralized of them. Can the government shut them off? No. I mean, let's look at Uniswap, for example. Uniswap is the biggest DEX in the world. They're very interesting in that Uniswap as a protocol exists in Ethereum. It's a set of smart contracts. And then there's a Uniswap company, Uniswap Labs I think they're called, with an office in Brooklyn, right in the heart of Mordor. So what would happen in an adversarial situation, which we all know is coming, the government against Uniswap. They can absolutely shut down. Imprison. Fine. Make life horrible for people at the Uniswap company. Close their office, raid all their assets. Sure, they could shut down Uniswap Labs 100%. What then happens to the protocol? Well, at first, nothing. I mean, the protocol is a set of smart contracts. If people want to change those, they need to do it at the code layer of Ethereum and anyone can fork it. So Sushiswap is just a fork of Uniswap. Where they forked it, they changed some parameters, and now there's sushi swap. So even if some government entities figured out how to stop the swap contracts, and I don't know that that's even technically doable, they can be forked into 10 or 100 others by copying and pasting almost. So the function of decentralized exchange cannot be turned off. And even if any particular set of smart contracts is interfered with, I mean, these are super, super anti fragile systems.
- [33:28]
Robert Breedlove
Got it. Okay, and then what about the second? Let's just say, and I don't even know where to circumscribe the group here, but Ethereum core development team, I'll let you determine who that is. I don't even know. They all just decide unanimously that, hey, decentralized exchanges got to go, what could they do? Could they stop decentralized exchanges on the Ethereum network?
- [33:58]
Eric Voorhees
Yeah. So there's probably a lot of Ethereum engineers that would be better to answer this question than me. But my only moderately informed opinion is that if the entire Ethereum core development team wanted to do something in the network, it would ultimately have to propose a hard fork. Right. Like a hard fork with Rule XYZ that prohibits that activity somehow. And then the community would decide what they want to do. Right. Something that controversial is obviously going to end in a contentious hard fork. And you're going to get a split in Ethereum on one side. You're going to get the Ethereum core developers who all wanted to get rid of Dexes and X number of users and miners that agree with them. And then you're going to get a bunch of people that are like, well, that the whole reason we're doing this is for immutable systems. We're going to continue on with the Ethereum system as it is. And that set of developers would change. So that's what would happen. Again, you have this binary or this parallel system where no one can influence the code that other people are running and you would end up with two different communities with their own, their own principles and their own preferences. That's what makes crypto so cool, is like, you can't stop it. Even in that extreme case where unanimously all the Ethereum core developers wanted to do something, even in that extreme case, which would never happen, you still can't stamp out the function.
- [35:27]
Robert Breedlove
Yeah, it is a very powerful feature that these aggregates of preferences can just sort of. It's very democratizing in a way where you just move over here. We disagree. So we separate.
- [35:44]
Eric Voorhees
If it happened in Bitcoin, let's say some horribly stupid idea, let's remove the 21 million coin limit and just make it inflating forever. And all the Bitcoin core developers, however you want to define that, unanimously agreed with that viewpoint. What would happen? Exactly the same thing. They would pitch it. Obviously that's a core base code that was going to hard fork the network. Some group of stupid users and nodes is going to agree with that decision and they're all going to go off on that version of the fork and then everyone else that actually wanted hard money with the 21 million limit will continue on with the chain that they were all used to.
- [36:20]
Robert Breedlove
Yeah. And the way I understand that in Bitcoin at least, is that each node is selecting the rules they want to play by effectively. So the rational decision and should someone propose an increase on supply cap is no, I'm going to keep playing by the 21 million game because that's in my self interest as a holder and node operator. So that the social contract, even if it did split like we just described with Ethereum, it would still collapse back into Bitcoin over time because it's, I guess you could fool people, maybe campaign and fool people into thinking that 42 million is better than 21 million or something to that effect. But the long run obvious outcome is that the 21 million chain would absorb all the economic value. The social layer on Ethereum seems to be a bit more divisible than on Bitcoin and I think that's an important point.
- [37:19]
Eric Voorhees
Yeah, I think that's right, I think that's right. I think the Ethereum culture is more diverse, which is both good and bad. And yeah, I think it's fair to say that these are different systems with different communities. That doesn't mean that they are antagonistic systems but it's okay to understand that they're just different.
- [37:38]
Robert Breedlove
Well it is kind of silly actually because they shouldn't be antagonistic whatsoever.
- [37:44]
Eric Voorhees
I mean, I guess they are empirically they both hit their all time highs together and as they've both ascended they've been growing together. Right? They have not grown at the expense of one another.
- [37:57]
Robert Breedlove
And aren't they competing for just completely separate markets? I mean I look at Bitcoin again competing as a store of value, so competing with gold, the monetary premium in equities, commodities. Clearly Fiat Ethereum is playing in this, I don't know, AWS sandbox. What is the addressable market Ethereum is gunning for?
- [38:21]
Eric Voorhees
The addressable market of both are massive. They together with all of these other different crypto assets are going after the financial system, the current bank Fiat financial system, which is just this massive leviathan. And it's everything in the stack from the base money of Fiat all the way up through all the companies and banks and service providers and derivatives and equities that whole world, huge, huge, huge. Then you have these tiny little new ecosystem of new creatures, new species as you put it, that are starting to grow up and they are going to completely out compete the status quo. And you get these people that can't zoom out and see that that's the battle, it's crypto, open source money and financial tooling versus Fiat and banks, that is the battle. And these things, they help each other. And so yeah, in their Venn diagrams there is some Overlap. Some people are going to use eth as money and they otherwise might use Bitcoin, but in total they are additive to each other. A good example is maybe as the Internet is getting going, you have some behemoth like Google and the Google search, this massively core part of the entire Internet experience for everyone. And then there's something like Amazon which becomes this also massive thing. Would the Internet be better off without one or the other? Would Amazon be better off if Google didn't exist or vice versa? No. I mean, they do both compete for mindshare and attention, but they are different species and they are, they form an ecosystem together. And when you have all these Internet companies doing all these different services, you get this huge thing we call the Internet, which is just incredible and has changed all of our lives. It's because there are multiple species operating within it.
- [40:19]
Robert Breedlove
Yeah, it's confusing. So I mean, in my mind this is the old saying that most disagreements are a disagreement in terms. Maybe the disagreement in terms here is money. When I'm thinking about money, I'm thinking money is something that tends towards one. It's valued based on its liquidity. So the more liquid the network or the more liquid the asset, the more valuable it is. And again, that's a gold historical analogy. There's only one gold and one once we abstracted into currencies, even silver became demonetized to a large extent. The problem I think I have with Ethereum is one of the problems would be this ultrasound money narrative that doesn't make any sense. Bitcoin's perfected the inflation rate. Again, defining inflation rate as unexpected supply. Inflation is 0% in Bitcoin. We have a perfect hard cap, we know the supply schedule. It's effectively probabilistically unchanging at this point. The idea that you could introduce a competitor to Bitcoin that has a diminishing supply and it's somehow better, I don't think makes any sense at all given the. What you want in money, again, is the resistance to political attack vectors. The conversation we've had so far is when Ethereum splits, the social layer is more divisible than Bitcoins, therefore it's a more political asset by nature. Therefore, in my mind, by my definition of money, it can't be money as the trust or politically minimized asset, which I think Bitcoin just holds that position. So that's one maybe area of tribalism that. And I don't know who started that tit for tat, but if someone pitched me on Ethereum as ultrasound money. I would just have to call that bullshit.
- [42:28]
Eric Voorhees
Yeah, the ultrasound money idea is cool that they put in this implementation that reduces supply from the perspective of the asset. All other things equal will probably appreciate more because of that. But again, all of those things equal, that doesn't. It doesn't follow that that makes it better money, because as you mentioned, one of the most important attributes of money is predictability.
- [42:51]
Robert Breedlove
Right?
- [42:52]
Eric Voorhees
And when, when Ethereum can change something that is fairly fundamental, like a supply schedule, sure, it might become more scarce and that might, you know, that there might be great effects of that. But sound money requires predictability. And the more you're changing rules, the further you get away from that. I think Bitcoin still holds the title of ultrasound money as much as the ETH people like to use that term. But I also don't think that this idea that there can only be one money is as true as some people might like to think. So it's understandable why people think it. There's this incredible network effect around money. And we have historical example of gold, which the world seemed to coalesce around that. And it just makes sense that, like, no one wants to have like 30 different monies that would be inefficient, inconvenient. So that's all valid, but I think it's a weaker tendency. It's not an absolute. Like, I think all things equal money will tend to coalesce around one form, but there could be attributes of money that make them better in certain circumstances and worse than others. And then you can have a logical fragmenting of money in certain places. So right now, today, in crypto, empirically, we have not seen crypto coalesce around just bitcoin. We've seen exactly the opposite. We've seen this explosion in digital assets, thousands now. And some of these do different things than Bitcoin. A good example of this is the privacy coins. Bitcoin is not private. It's more private in some ways than fiat, which is great. And if you know how to use it, it can be pretty private. But I don't think a lot of people realize how heavily surveilled it is. I have seen how heavily surveilled Bitcoin is, and it's not pretty. So if you care about privacy and money, which some people don't, some people do, there are more private cryptocurrencies than Bitcoin. And that doesn't mean they're better than Bitcoin. It just means that on that one attribute, in those specific Use cases, they might be a better choice for people. So I see a world in which there are multiple monies for different things. I do think that if you have two assets which are very, very similar in their attributes over time, you will coalesce around one money. I think that's clear. But if the attributes are different enough, they may each find niche use cases and they can be coexisting and what I think is mutually reinforcing and mutually beneficial.
- [45:30]
Robert Breedlove
Yeah, that makes sense. I guess it gets me back to that definition of money, where if we just focus on the store of value function of money, and I think you already said this earlier, that that tends to be pretty much winner take all. If you just zoomed out a thousand years where you want to park your wealth, you would want to park your wealth in the thing that has the Highest chance of 0% inflation or rule changes. These other features of money, though, these other functions of money, medium of exchange, clearly that's more dispersed among multiple assets. You can send Ethereum here and there, and these privacy coins give you different advantages in terms of medium of exchange. But the store of value at least, which is the market I view Bitcoin as competing for, I still view that as virtually winner take all. I don't want to say it is absolutely winner take all, but seems to be mostly the case.
- [46:33]
Eric Voorhees
Let's explore that a little. I think people store value in all sorts of things. Money is one and back before fiat currency. I think people would feel comfortable storing their value in money more than they do today. But people store value in all sorts of things. They store value in real estate, they store value in commodities or inequities. Some of them store value in bonds. Now, all of those things are more risky than gold over the long term, but they still provide that utility of holding value. When you buy a house, it's not going to go to zero the next day. It's going to hold some degree of value. Uh, and unlike base money, the house has a decent chance of appreciation, whereas the base money probably does not. So they're just, they're, they have different attributes. And, you know, I think it's, it's fair to say that the world needs and deserves a base store of value that is unmolestable.
- [47:32]
Robert Breedlove
Yeah.
- [47:33]
Eric Voorhees
And it has not had that, you know, it, it sort of had that with gold, but gold had some problems. Bitcoin has finally delivered that to the world, an unmolestable store of value. So when the Ethereum community molests its own code and protocol to make it better and improved and all that. I get why they're doing it and I'm a fan of that whole world and all that innovation. But they are degrading their ability to claim that the asset is sound money over the long term.
- [48:04]
Robert Breedlove
Yes. Okay, so. So I agree with you to an extent. I would take it a step further on value. I think there's the marketability aspect of value which we'd call monetary premium, and then there's the utility aspect of value which is industrial use or what does the thing do functionally? My argument on this would be that the reason people, the reason marketability or monetary premium is accreting to things like real estate, commodities, equities is because we've compromised it in fiat currency. Fiat currency is being printed ad infinitum. People are stuffing their cash and anything that is more reliably scarce than the unknown and exploding production schedule of fiat. So it's like the monetary premium leaks out into these other assets. It seems to me if bitcoin succeeds, a lot of that would flow back the other direction. All that monetary premium that's leaked out into equities and real estate and commodities would now flow back into bitcoin because of all the reasons we've touched on today.
- [49:20]
Eric Voorhees
Yeah, well, and you're sort of speaking of it from the perspective of long run where it's stable. Interestingly, of course, bitcoin hasn't been stable. It has been the greatest investment of all time and has been that for 10 years. It's incredible how few people in the traditional financial world even acknowledge that objectively. The greatest investment in human history. Not just over a month. It's not like a gamestop pump over a month over more than a decade now. And I don't see any reason why that will stop anytime soon. It will stabilize with time. But to be able to store value in something which is so sound and which is the greatest investment of all time because it has this limited supply and is still so niche. How can people learn about this stuff and not own some bitcoin? It confounds me and it's confounded me for a decade.
- [50:19]
Robert Breedlove
Yeah, it's a very unique opportunity to be able to put your financial wealth in an asset that's potentially disruptive to gold. Gold's been around for whatever 5,000 plus years, so definitely a very unique opportunity for us to even be because we may never see anything like this again. There's never been anything like it historically really. You could say that the multi century monetization of gold is Kind of the only comparable. But this whole thing is we're barely outside of a decade right now and bitcoin's grown to a trillion dollar asset class.
- [51:03]
Eric Voorhees
Yeah, I think it's rare that the world gets new asset classes and bitcoin crypto assets as a whole are a new asset class. And so we can compare them to something like money, we can compare them to commodities or to equities. Like there are reasonable overlaps there. But it is best understood as a new asset class. It has new attributes, new properties. And yeah, I mean it's exciting as hell. This doesn't happen that often.
- [51:29]
Robert Breedlove
Let me ask you about Lightning Network. Does this change your view on some of the privacy coins value prop or some of the other alternative crypto assets? As in if Lightning Network succeeds, does that obviate the need for some of these other crypto assets?
- [51:46]
Eric Voorhees
I think if Lightning Network succeeds and provides zero knowledge level privacy, then yeah, I mean arguably privacy coins won't be needed. And I think that would be great if that could be built on Bitcoin. I would love that. I'm open minded to that as a possibility and I would love to see that happen. At the same time, when I look into Lightning and I keep wanting to get really bullish on it, but whenever I look into it, the primary useful apps on Lightning are all either custodial or they're KYC'd or they're centralized in a way that most people don't realize. You can absolutely use lightning in a decentralized way, but none of the, to my knowledge, and I might be wrong, none of the super useful retail facing apps are decentralized or non custodial. And when you leave those properties I can cheer you on. I can see value in that sometimes. But that's not sufficient. Once you go back to custodianship of assets, you're back into gatekeepers and those companies are going to get clawed into the, into the maws of regulation. So again, I'm not prognosticating about how this will develop, but that's the status quo, at least as far as I understand it today.
- [53:15]
Robert Breedlove
Interesting. All right, you mentioned you think Ethereum is decentralized. I know we're speaking in generalities here. It's so hard to be like talking about centralized decentralized.
- [53:32]
Eric Voorhees
These are gradients. So you have to say versus what I think in some way Ethereum is more decentralized than fiat. Absolutely. Ethereum is more decentralized than it was on its first day. Absolutely. It's probably not more decentralized than Bitcoin. I would say Bitcoin's more decentralized than Ethereum, but Ethereum today is more decentralized than Bitcoin was in its second year of existence.
- [53:56]
Robert Breedlove
Right, right.
- [53:57]
Eric Voorhees
So you have to talk about versus what? Same with Bitcoin. Bitcoin is more decentralized today than it was five, ten years ago.
- [54:04]
Robert Breedlove
Right. So my question would be this. You mentioned that you think Lightning Network is still too centralized. I think is the sort of.
- [54:12]
Eric Voorhees
The network is not like the foundational. Lightning network is not centralized. So that's why it has the potential to get to where it needs to. But all of the user facing apps either require someone to be running like a node at home, which does not work for retail users. They just won't. They end up using these custodial apps. Those custodial apps will end up being KYC'd. They will end up being censored. Censorable. And so a great deal of the lightning network activity is currently happening in those censored, mutable KYC centralized custodial services. So I hope it can get beyond that.
- [54:55]
Robert Breedlove
Gotcha. Okay. Sounds like there needs to be kind of a merging of these worlds a little bit. Some of these dapps, they still call them dapps on Ethereum. I haven't looked at them yet.
- [55:08]
Eric Voorhees
That term isn't used as often. But I mean, they are dapps, but most people in Ethereum just call them apps at this point.
- [55:15]
Robert Breedlove
So we need dapps on lightning basically to get lightning to really succeed.
- [55:20]
Eric Voorhees
Yeah. Here's the litmus test I keep looking at. I've been trying to find a mobile app, Lightning Wallet, that is not custodial and does not require me to run a Bitcoin node and plug that node address into my wallet. Not that I can't do that, but that the average person that uses these networks will not do that. So that's, that's the criteria. Um, I check every several months, you know, and so maybe one exists and if anyone is listening and knows of one, please let me know. But so far I've. I have not.
- [55:54]
Robert Breedlove
You know, I just, I use Strike, but I set it up so long ago I can't recall if it's custodial or not.
- [56:00]
Eric Voorhees
Um, so Strike is custodial to my knowledge. And again, please correct me if anyone, if you're listening and I'm wrong. Yeah. In Strike, you have to kyc. Right. So first of all, anything that KYCS is already centralized. You can't have a decentralized app that KYCS because mechanically you can't satisfy FinCEN regulatory conditions without a central entity to file like the actual surveillance forms. Yeah, so. So, yeah. And you know, maybe STRIKE has a roadmap in which they can become decentralized or non custodial. I certainly hope so. But to my knowledge, it's a custodial system that will hold the Bitcoin. And when you do a transaction, one of the steps in that transaction is non custodial. But the app and the money is so not there yet.
- [56:53]
Robert Breedlove
Hey everybody. As you've no doubt learned by watching this show, Bitcoin is the single most important asset you can own in the 21st century. And one of the most important companies in Bitcoin today is NYDIG. NYDIG's mission is to get Bitcoin into the hands of as many people as possible. One of the ways they are accomplishing this mission is by empowering banks and financial technology companies to offer their own Bitcoin products and services. As a true game changer in the industry, NYDIG is safely unlocking the power of Bitcoin for forward thinking individuals and institutions alike. Led by Robbie Gutman, Yin Zhao and Ross Stevens, NYDIG has absolutely exploded onto the Bitcoin scene recently and has quickly become a leader in this space. So whether you are a professional investor looking for asset management services or a company looking to white label your own Bitcoin product or service, consider nydig, your single source solution for everything. Bitcoin got a little absorbed into the Ethereum discussion there. Maybe we can pivot back to you and Shapeshift. So what is Shapeshift?
- [58:16]
Eric Voorhees
Yeah, Shapeshift has been a few things. It has certainly shifted its shape over several years. So we started in 2014, right after the Mt. Gox calamity, and I wanted to make a way for people to trade digital assets without custody. So without hundreds of millions of dollars getting lost in a centralized exchange, that was the impetus for it. So when Shapeshift launched, you could trade one digital asset for another. So Bitcoin to Litecoin was the first transaction that ever went through our system. And it was a simple mechanism where you'd send the Bitcoin into an address we give you, and then we send the Litecoin to an address that you provide us. And so while you do need to trust us for a moment during the trade, we're not holding any significant amount of crypto of users. Obviously that doesn't work with Fiat, but I don't care about Fiat. I wanted to make it A non custodial exchange for digital assets. So we were that. And there was no user account and no KYC of any kind. So you arrive at the website and just do the trade. It was like a vending machine. So that was quite popular. And it grew over time up into the 2017 bubble. Sheep just started getting pretty big. We had over 120 employees at one point. And then we really started digging into the regulatory question of can we, can we really do this without kyc? We had some opinions that we could, but we wanted to look into that further. So into 2018, into the bear market, we came to the conclusion that actually we would probably be treated as a financial institution, which meant that we were going to have to act like a bank and do KYC and compliance and basically spy on our users for the government. This is something that I was, you know, vehemently opposed to, morally, ethically opposed to. Obviously our customers didn't want to do it, didn't like it, our employees didn't want to do it, didn't like it. And I was faced with the question of like, okay, do we just shut this whole thing down or do we impose KYC and still then deliver the non custodial service, which I thought was, was important. And we decided to continue through and we implemented KYC and you know, especially into the bear market. Like it killed almost the entire business. We lost like 99% of our customers. Wow. Yeah. I mean, absolutely devastating. Like no business ever loses 99% of their customers. It just doesn't, doesn't happen. And you know, understandably our customers just went to other providers that had replicated that model and weren't as worried as we were about the US regulatory system. So we were kind of stuck in that rut for a couple years and, and then I started seeing these DEFI projects and then Ethereum or Uniswap really clicked with me where Uniswap essentially had replicated the user experience that we did years earlier. But in 2019, 2020, you could go to the website, connect your wallet, trade one asset for another, and there was no kyc, no accounts, like nothing. All the magic was back. And I was like, well, how the hell are they doing this? And so I went real deep into compliance and regulation and I thought I had already explored it a lot, but I was like, what is going on here? I really need to understand this. And ultimately realized that all financial regulation, maybe not all the majority of financial regulation, is based on a foundation of intermediaries. This goes back to the bank Secrecy act in 1971. No, 1972 or 3. It was right around when the fiat happened. The Bank Secrecy act has this concept of an intermediary because all financial companies back then and until recently were intermediaries, and it imposes obligations on those intermediaries. Those obligations are essentially that you must spy on everyone and report all that information to the government. So that has been unchallenged since then. And when Shapeshift was operating in where we would receive an asset and send an asset to the user, we were arguably an intermediary and thus got trapped in all the regulation. So we started just integrating decentralized exchanges into the Shapeshift platform, which was more of a holistic wallet experience at that point. And the main issue was that all these Dexes were only Ethereum, like Ethereum and ERC20 tokens, and that doesn't include Bitcoin or any of the other chains. And so that was this huge problem. Thorchain comes out in April of this year. And Thorchain allows you to do trades across chain in an immutable way where there's no counterparty and there's no centralized custodian. So once we integrated Thorchain among the other Dexes into Shapeshift, we turned off our own trading and got rid of kyc, got rid of the whole compliance apparatus, and went back to being like a company that could actually respect its users. And then a few months later, we announced that we're decentralizing the whole thing. And so this has been a process of finding the places, finding the things that are regulated, and then figuring out how to get rid of those things. And so we're in this process of decentralizing the whole company at this point. So I can talk about that if. Interesting.
- [63:42]
Robert Breedlove
Yeah. So you announced that, I think, in July 2021. And the gist of it is, I mean, you say you're open sourcing everything, and then you're winding down the corporate structure. Effectively, you're migrating to a governance model that's enforced through the Fox Token. But the Fox Token was not sold. Basically, you've been given this out through your app. Right. So there was no ICO or anything of that sort, I guess. I mean, I don't. I would just want to understand, again, keeping the conversation on the theme of decentralization. Where do you think you are today on that path? Like, are you guys decentralized today? Are you part of the way there? Are there certain aspects of this that are more decentralized than others? How would you describe I guess your journey and your position today.
- [64:46]
Eric Voorhees
Yeah. So right now we have this sort of dual situation as we decentralize the Shapeshift Corporation, which is a Swiss ag corp with several international subsidiaries, shareholders, employees, business contracts, bank accounts, company. That whole structure is getting dissolved and it's being dissolved starting from July of this year. And it will take at least until the end of this year and probably into into next year to just mechanically unwind that whole thing. So Shapeshift, the entity is going to zero. It's going away. Shapeshift, the product is all that matters, right? Like the corporation is only there to support the product. The product is what we care about, what we want to build, what people use. So how will the product actually continue on? The product will continue on. First by becoming completely open source. So yeah, the entire Shapeshift platform is open sourcing. We've been releasing repos and we'll continue to do so until it's all open. So anyone can start contributing to that as an open source project. And then the way that it is governed, instead of being governed by shareholders that have a board who elects the CEO, who then hires employees, that's the traditional way a company works in the decentralization world. You have token holders. So in our case it's the Fox Token, and There are around 35,000 Fox token holders in the world. They can, when they want, vote on proposals. And these proposals can range from anything like, hey, a bug needs to get fixed, so someone needs to spend this money to fix it. To like, hey, I'm going to do marketing for the, for the platform for the next year and give me a million dollars and I'll hire a team and I'll take care of your marketing for you. So it can be any kind of arrangement, contractual arrangement, that the dao, which is just a treasury of Fox Tokens, can pay out to do things that the DAO wants to do. And anyone that holds Fox Tokens is part of that dao. So I am a part of it. I don't control it. I have influence and I have a lot of tokens, so I have more influence than the average person. But I have around 5% of the tokens. So I can easily be outvoted by people if they disagree with me. So I don't have a controlling stake in the future of how Shapeshift goes. And it's just kind of self organizing at this point and it's kind of like a beautiful thing to watch. It's messy and it's not like a panacea it doesn't solve all problems. But to give you an example of how powerful this can be, hiring employees absolutely sucks. And it doesn't suck because the employee sucks. It sucks because of all the government regulations around hiring an employee. And it's bad enough in the US but in other countries it's often even worse if you try to hire someone. In France, for example, the amount of crap that you have to put up with, if you ever need to let that person go, is so bad that you generally just won't hire that person because it's not worth it. So there are literally developers that we have wanted to hire, but they're in other jurisdictions, and it's just not worth the time and money and headache to hire them, like, as an employee. And we could just pay them as a contractor. But now we're risking legal battles because if they're paid as a contractor, but they are supposed to be classified as a W2 employee, then now it can be sued by some government. It's such a headache, and it doesn't do anything to actually improve the product of what you're trying to build. So all that, we're just getting rid of it. And now if we want to work with someone, you just have a voluntary term. The dao says, hey, let's hire Bob to go run marketing. Bob's like, cool. Here are my terms. If the dao thinks he's credible and wants to pay him, they send tokens to him and he does his work. And when he wants to come back for more tokens, he better have done a good job or else he'll be voted off the island and someone else will do that job. There's no employment. He can work for the dao for a day or a week or 10 years. He can work on his own schedule. No one has a nine to five job anymore. People can be flexible in relation to the dao however they want. It's like an entirely new method of organizing economically. And it was impossible to do that pre tokens. And for all the bitcoin maxis listening to this and who cringe whenever they hear about tokens, consider that bitcoin itself is the first dao in existence. Bitcoin is not a company. It is an organization. People contribute to it in all different ways. People build things on it, People disagree within it. And while the bitcoin itself isn't how you vote, you vote essentially with mining hash power or with running a node. But it is a decentralized organization. And that principle is now being applied to Smaller apps where the app itself becomes decentralized. And this is. It's super cool. I mean, I will admit that a year, year and a half ago, I was pretty skeptical of this whole concept of these daos and everything. And certainly when the original DAO happened, that was a disaster. So it was a bad word for a few years. But, yeah, I gotta say that seeing the freedom, the dynamism of an organization that is decentralized is really, really quite cool. And I think a lot of crypto organizations are gonna be well served by that structure.
- [70:13]
Robert Breedlove
Hmm, interesting. So dao, dao, Decentralized autonomous organization. I guess we kind of get mired in terms again here, because what makes one of these organizations autonomous per se? It's just how widely distributed the governance is.
- [70:33]
Eric Voorhees
Yeah, the A is not a great letter here. Like, they're not autonomous. They're not executing under code, although code is used for some of the functions.
- [70:42]
Robert Breedlove
Right.
- [70:43]
Eric Voorhees
So there are certain back office parts of a company that are completely handled by smart contract code now. So those parts are autonomous, but it's still a group of people that are associating with each other on their own terms. It is decentralized, and that these people are from all over the world. They don't have any formal relations with each other, and it's an organization, and that they're all working toward a specific or specific objectives, and they have an economic interest in the outcome of that objective.
- [71:11]
Robert Breedlove
Hmm. And can they fork the. We'll just stick with dao, even though we know autonomous is not a great letter in there, but can they fork this dao? So if there was a schism in the group, they could just split into. Yeah, Shapeshift. Is it still Shapeshift, by the way? Is it still.
- [71:31]
Eric Voorhees
Yes, Shapeshift. Okay. Yeah. So, yeah, the project is still Shapeshift and, you know, shift. Shapeshift. Dao is the name of the organization, whereas Shapeshift AG was the corporation that is unwinding. Yeah, I mean, you could fork it. So Shapeshift is open sourcing, and it's all oriented around the Fox token. Right. So let's say someone's like, you know what? I don't like that dao, but I like what they're trying to do. I can do it better. I'm going to copy all the code, I'm going to release my own token, and I'm going to airdrop that token to all the holders of the Fox token.
- [72:03]
Robert Breedlove
Mm.
- [72:03]
Eric Voorhees
Right now, suddenly, all those same people have a stake in the. In the spinoff that can absolutely happen. And if they do better than cool, Godspeed to them. I mean, this is like hyper competition in an open, you know, unregulated way that is just so, so beautiful. And I think it's an incredible achievement.
- [72:25]
Robert Breedlove
Yes. Kind of like a hyper capitalism in a way, right?
- [72:29]
Eric Voorhees
Yeah, hyper capitalist. I think some people think of daos as, like, these kind of like Kumbaya socialists. We're all just going to share in this thing together, but they're actually hyper capitalist. Like, you have discrete units of ownership in the thing. You can buy it or sell it whenever you wish. 24 7, no rules. You can participate to whatever degree that you want. And if it's all successful, people are going to make tons of money and get really rich, and the whole thing can absolutely fall apart and you can lose all your money. There's no coercion, like, no one can force each other to do anything. It's all based on contracts, either at a social level, like, if you trust me and I tell you what I'm going to do, I need to perform, or I'll lose your trust. Or you can have contracts at the smart contract layer in which they will execute according to the code. So, yeah, I mean, it's incredible. And I think we're just starting to scratch the surface of this stuff.
- [73:24]
Robert Breedlove
Interesting. So does it also give you, again, decentralization? The typical chief aim of that is censorship resistance. So have you gained resistance to censorship as a result of this migration?
- [73:40]
Eric Voorhees
Yeah, I'd say there are two main reasons we did it. One is just seeing where the puck is going in terms of competition in the crypto world. These open, composable systems, I think, are going to win out over closed walled gardens. That's just the nature of crypto, is that it likes the openness. So I wanted Shapeshift to have that in its DNA, to be open and composable itself. So that's just sort of a competitive, strategic reason. The other reason is that censorship resistance, I mean, we have dealt with such bullshit regulations and so much pain and misery and suffering and resources put into things that I find completely unethical. I'm just done with that. I'm not going to keep marching down that road. I'm not going to play that game anymore. I'm not going to spy on my users. I'm not going to violate people's rights just because some politician tells me to. But I'm also a known figure, and they can throw me in prison if they want. Right. So what do I do? I don't want to go to prison. So I have to figure out how to actually advance those goals without breaking laws in a dao structure. I'm not the CEO and there's no corporation anymore. So what is my contribution to that dao, and what is the thing that I would do that would be illegal? Going on Twitter all day and saying my opinions. That's certainly not illegal. Posting opinions in our forum and saying, like, hey, I think the dao should do this. That's not illegal. If I was an engineer and I wrote code, you know, submitting a PR request, thank goodness that's not illegal yet. I mean, maybe they'll try to go after actual writing of code, but that's a bigger problem. So. And there's no. No mailbox for them to, like, attack the entity of the corporation. So, yeah, I think it's not like we're immune to regulation now, but I think we have removed many of the mechanisms by which governments try to impede and coerce and control. So that's the step we've taken, and we'll see how that pans out.
- [75:45]
Robert Breedlove
Interesting. So you're in kind of a middle ground of some kind because you. I guess current law just doesn't contemplate something like a dao. So you're just in no man's land to some extent.
- [76:03]
Eric Voorhees
Yeah. I mean, that's the way to say it. Current law does not contemplate it. And so the question is, well, can it contemplate it? Maybe. But that's a whole new field of law, and that takes years. Crypto moves so fast. So if the crypto industry can decentralize some of its applications, some of its organizations, and that buys it a few years of time, that's fantastic. And even then, to try to regulate daos, you start running into constitutional issues, issues of speech, some very fundamental lines which they can potentially cross, but it's not guaranteed that they can.
- [76:40]
Robert Breedlove
Interesting. Wow. Do you see other organizations following this path?
- [76:46]
Eric Voorhees
Actually, let me. Sorry to interrupt, but to go back to Bitcoin here for a second, There is no universe in which Bitcoin would be allowed to do what it does. If it had been centralized, Bitcoin would have been shut down in 2010. It is providing a service which is essentially illegal. The transmission of money. Without following the rules of money transmission, why is it still in existence? It's because it's decentralized, because it's not immune to regulation, it's not immune to coercion. But it is such a better defensive mechanism that governments as powerful as they are, have not been able to shut it down. This is the path. This path of decentralizing sensitive systems is the primary lesson to learn from Bitcoin. And that's what we're trying to humbly apply into Shapeshift.
- [77:42]
Robert Breedlove
That makes sense. And I guess you could maybe argue that Bitcoin is the closest thing to an organization that's immune to regulation or politics we've ever had. Kind of like an incorruptible institution in a way that may be too strong of a word, where it's not. As its market cap grows and its network is more widely dispersed across all these measurements of decentralization, it's kind of asymptotically approaching that ideal. Not that it would ever hit that.
- [78:17]
Eric Voorhees
But yes, that's the way to say it.
- [78:20]
Robert Breedlove
Yeah. It's way closer than anything else we've ever had before. And that's why it's so important.
- [78:25]
Eric Voorhees
Yeah.
- [78:26]
Robert Breedlove
Are you okay? I guess, first of all, that would always be the digital gold standard, so to speak. I assume you'll never hit that level of decentralization. I don't even know if it would be possible to hit that level of decentralization in your organization is the first.
- [78:42]
Eric Voorhees
One of the questions I think you. You start to approach hubris when you get to the line. Right. So like to say Bitcoin is immune. No one should ever say that. It's not a perfect system. It's very strong, very defensible, but it's not immune to the universe. And if people start to think it is, that will breed complacency.
- [79:02]
Robert Breedlove
Right. Okay, fair enough. Do you think other organizations will follow this path?
- [79:12]
Eric Voorhees
Yeah. And certainly we can't take credit for being the only dao out there. I think we're the first established company that is decentralizing entirely. But there are lots of daos out there, including some that do projects far bigger than Shapeshift. MakerDAO is probably the longest lasting successful example of this, where Maker has created this algorithmic stablecoin called dai. And it's not centralized like DAI is not backed by fiat in a bank like Tether, which is awesome. So it's built this wonderful product and it is a dao. It's a decentralized organization. Now, interestingly, Maker started as a dao and then they formed a foundation to centralize for a while, and then now just recently, they are getting rid of that foundation to re decentralize so projects can move in and out of centralization to various degrees based on what they need to do. But Yeah, I mean, to your question, will other organizations try to do this? Yeah, I have gotten quite a few inquiries from people who are like, this looks cool. How do I do it? And I'm like, I don't know. I'm learning this all as we go. There's no handbook on how to decentralize, and we're going to make a million mistakes doing it. But, yeah, I mean, I think we found a doorway here that's been open all along. Bitcoin showed the way, and it's just a question of how much can you decentralize? And people are attacking that problem more and more.
- [80:42]
Robert Breedlove
Okay, so have you been attacked for Fox being a shitcoin?
- [80:50]
Eric Voorhees
Yeah, I mean, the bitcoin maxis have been calling me the shitcoin salesman ever since Shapeshift launched. So I don't think they have any renewed antagonism. But obviously they don't like any asset that's not bitcoin. Yeah, they'll call it a shitcoin just because it's a different asset.
- [81:11]
Robert Breedlove
Right. And then the Fox, and this was just important, I think, in your piece that you published, is that there was no. I think I already said this. There's no ico. You've actually been issuing this to customers that use your software?
- [81:25]
Eric Voorhees
Yeah. So we started looking into doing a token back in the 2017 ICO heyday. And back then, everyone in the world had a token. A lot of those projects, the vast majority, were total garbage. And so we were like, look, this tokenization thing is really powerful. There's something here, but let's not fuck this up. And we need to be really careful. And what that meant was that we ended up just slow rolling this thing over a few years. We never sold it. And then as the decentralization concept started blooming, we're like, this is what we do with the token. This is the purpose. So, yeah, we had been giving it out to customers who are using ShapeShift for about a year and a half, but most of it got out into the community. When we did this airdrop back in July, we did the world's biggest airdrop to over a million different addresses. Past users of Shapeshift, people that owned keepkey hardware, wallets, people that were part of other defi projects that had been inspiring to us, like Thorchain or Uniswap. So we just distributed about a third of all the tokens out to the public. We distributed about a third of the tokens to all the employees and shareholders of ShapeShift. So as we're decentralizing, every employee loses their W2 job, every shareholder hits the end of the road with their investment. So they'll all get a decent return from Shapeshift as it winds down, but they're also getting tokens on top of that. So about a third of it went to all those people. And then a bunch of the tokens are just sitting in the Dow treasury governed by all the people that hold the tokens. And so that's been the general allocation that we've done.
- [83:09]
Robert Breedlove
So how does the voting work then? Because you said there's tokens in the DAO Treasury, I assume there's a voting right attached to each one of those.
- [83:20]
Eric Voorhees
Yeah. So there are. Call it. There's a billion FOX tokens in the world and the supply is capped, so that's all there will ever be. About a quarter billion of the tokens are in the treasury and what that means is those are in a multisig smart contract on Ethereum, and they can only leave that contract if a majority of token holders vote through this mechanism called Snapshot. So this is a super cool tool that basically lets people that hold the token at a given block height vote yay or nay on a specific proposal to move a certain amount of assets to a certain address. And if that criteria is achieved, the Fox tokens move out of the treasury off to that address. So that's essentially the treasury management of the dao and it's all on chain so we don't have to worry about civil attacks. Anyone can vote and then leave the DAO later or participate to whatever degree they want. So it's very, very flexible. And that's the general structure and the voting itself.
- [84:26]
Robert Breedlove
So I guess just the issued tokens are voting. I assume you've got to have a lot of voter apathy to some extent if you airdropped some of these tokens. So there's just like a certain percentage votes and then it's just the majority of the voting.
- [84:44]
Eric Voorhees
Yeah. And these are all arbitrary rules that any DAO can establish for themselves. So I think with ours we have a quorum of like 8 or 9 million tokens that have to vote in any particular vote. And then if quorum is reached, I think in our case a simple majority will win the day. But those are just our rules and we might change them at some point. A vote would have to change them.
- [85:08]
Robert Breedlove
8 or 9%. Is that what that quorum is of total supply?
- [85:11]
Eric Voorhees
Yeah. So obviously the majority of tokens at any given time are not involved in governance. Right. It's the people that are really focused on the DAO that are going to care about it the most. So it's not like you need 80 or 90% of the token holders to vote. We don't care if people vote or not. The people that care about the project and want to be involved in learning about the outcome, those are going to be the ones with the interest in it. And obviously there's just the economic interest that if you own a bunch of tokens, you're going to want to be. You're going to want to have some influence or be at least aware of what's going on. So there's a natural mechanism that aligns incentives around treating the treasury well, because everyone has an interest in the token being highly valuable.
- [85:51]
Robert Breedlove
Got you. Okay. And then there's the involvement of a nonprofit foundation, which it seems like is kind of supporting this transition from traditional centralized governance model, corporate model to the decentralized model.
- [86:10]
Eric Voorhees
Yeah. So shapeshift AG dissolving completely. Shapeshift DAO exists currently and is already in operation. And we don't know. We're all new to this stuff, so we didn't want to assume that the decentralized form will just magically solve every problem right away. And there are some very practical problems, like who owns our domain name, who pays our AWS account. There are some very practical issues that we can't solve today with decentralization. Those things get handled by the nonprofit foundation, and the foundation is there to simply handle those things which we can't decentralize yet, and help work toward decentralizing them when we can. So part of this is making a bet on where the industry is going. The decentralization is a trend that'll get better and better and better. And the amount of things that can't be decentralized will. Will fall over time. So that foundation will be there for, you know, call it one to five years, and then it should itself dissolve and be gone.
- [87:09]
Robert Breedlove
Gotcha. Okay. And then I assume it would just be wound down in a similar fashion as you did with ag. Yeah. What? I mean, okay. I keep hearing this prototypical Bitcoin maximalist in my ear is like, oh, you should just done all that on Bitcoin. If you just did all that on Bitcoin, it'd be fine. Is that possible? If so, why would you not? If it's not possible, why is it not possible? What are the differences here?
- [87:41]
Eric Voorhees
Yeah, so I've watched Bitcoin evolve from very early days, and there's definitely been this Theme of anything that can be done in crypto will just be done on Bitcoin sooner or later. And I used to believe that. But these blockchains are engineered systems and they have to make trade offs. They can't all do everything. You trade off one attribute for another, or you improve one thing at the expense of another. I mean, bitcoiners should absolutely understand that principle. That's not a secret. But if you realize that, then you realize that Bitcoin must have made trade offs where it's not as good as some things as others. Right. Going back to the privacy thing, the whole thing was set up in a way that is transparent. Since then, Zero knowledge encryption has become an amazing new technology. Will that get adopted on Bitcoin? I don't know. Maybe it will. It might require a hard fork, which would be highly controversial, and then would challenge Bitcoin as sound money because now you're tinkering with base layer stuff again. So I don't know that it should do that. Maybe it can, maybe it will. I also saw the early token projects on Bitcoin that were sort of built on Bitcoin like Master Coin and the colored coins. And these didn't catch on very well because the flexibility of the tokens was limited. They were hard to work with. You could do some basic stuff, but not much. And they just kind of all failed out of existence when Ethereum came on and created this Turing Complete scripting language. Now there are more recently some projects built on Bitcoin that use EVM Ethereum virtual machine smart contracts. So RSK is an example of this, there's a couple others. And in those ecosystems which are sort of like side chains on Bitcoin, you can do a lot of what you can do in Ethereum, but then they're not composable with these massive defi projects over in Ethereum. So if we created the Fox Token in a smart contract on rsk, I can't deposit that into Uniswap. Now, could a bunch of people do a bunch of work to make that doable? Yeah, maybe, but it's not available today. And so the tooling is an important element of what you're going to build. And Ethereum has this huge network effect of tooling. So a lot of things are gravitating there at the same time. Ethereum is expensive, super expensive. And so people are building other chains that sacrifice some degree of Ethereum's decentralization in order to make them faster and cheaper. And maybe someday we migrate Fox Token over to The Cosmos ecosystem or something. But these are all about trade offs. And I think we built this dao on Ethereum because that's where all the tooling is today. Maybe it will change in the future.
- [90:45]
Robert Breedlove
Interesting. Okay, so in preparing for this, I was reading a few of the things that you and your team sent over to me. This term came up that I had not heard of before and I think this maybe just applies to daos in general. But the concept of protocol politicians, are you familiar with that term?
- [91:11]
Eric Voorhees
No. Tell me more.
- [91:12]
Robert Breedlove
Well, I don't know a lot actually I was going to ask you. Maybe we'll nix that one. I think it had to do with voter apathy to some extent where people just holding a governance token and they aren't voting, then maybe there'd be some political figure that tried to mobilize them or something like that. I was just going to ask you.
- [91:34]
Eric Voorhees
About it, but yeah, well, I mean, let's talk about that for a second. So certainly whenever you have a system of competing human interests and the economics is involved, you're going to get politics to some degree. It happens in the corporate world, it happens in bitcoin. Like there are bitcoin politics. As much as people don't like to admit that politics just sort of happen whenever there are humans with different opinions. The key is, are these politics coercive or voluntary? In these crypto systems, these politics are voluntary. If you want to get involved in a project, you can do it. If you want to leave, you can do that. No one can force you to run code on your computer that you don't want to run. And when big groups of people disagree too long, there will be a fork and both sides can just end up with the software that they like. So yeah, there are politics. And I think in a lot of these daos you'll see highly controversial politicking going on. It's not either good or bad, but it's going to happen. And that's just part of it. The thing to compare it to is what would be going on if it was a corporation. There's politics within a corporation. But one major difference between daos politicking and corporations politicking is that in corporations it's all closed and opaque. In daos it's all transparent. It's happening on public forums, transactions are happening on blockchains. So you get this airing of grievances and open discussion that's in the public. And I think that's a very special and interesting thing. We've started experiencing this as shapeshift dao, which is weird and has been uncomfortable. But in centralized shapeshift, if I want to tell someone an opinion or I want to give some feedback that might be viewed as critical or something, it's kind of between me and that person or a small group within the company. In the dao, I actually have to say it out loud in the public, in the forum. That's a different kind of cultural relationship. Some people will thrive in that environment and others won't. But it's a fundamental difference between daos and corporate entities.
- [93:40]
Robert Breedlove
Are all of the other the traditionally concealed data? I'm just thinking of salaries, wages and all of that. Is that also open source and public knowledge?
- [93:53]
Eric Voorhees
Yeah, good question. So the answer is both. If an individual contributor wants to come to the dao and say, hey, I'm an awesome engineer, I'm going to go work on this part of the system, pay me X, that's obviously going to be transparent. People are going to see what they're asking for, and then there should be a blockchain transaction at some point that is a testable. But you can also have someone that comes along and says, hey, I have a team of engineers, we're going to go work on this thing for you. Give me a million dollars and I'll manage my team. So in that case, you know that a million dollars is going to this leader and he's going to ultimately be accountable for what he does with those resources. But however he chooses to manage his people is up to him that he might make it all transparent. He might tell the dao, like, here's all the people, here's who they are, here's what they're getting paid. Or that might be completely opaque. And both models can completely work within the same dao. It's kind of like a voluntary system and it'll be self organizing. So we'll see kind of what does better.
- [94:54]
Robert Breedlove
Yeah, that makes sense. Interesting. So then, didn't do the ico, did the Fox Token just go to a free float? Basically, once it started being issued, when.
- [95:05]
Eric Voorhees
We created it, we wanted it to have a fixed supply. So when we created it a couple of years ago, there were a billion of them. And that's it. So we just had them. We gave out a couple percentages to customers over the time that they were using it. But 98, 99% of it was still held by our centralized company. And so that pot is what we distributed out into the airdrop out to the shareholders and employees, and then put a huge portion of that into the treasury itself, and that is the economic resources of the dao.
- [95:36]
Robert Breedlove
And that just develops its own secondary market. Those people just started trading it. And it establishes a market value.
- [95:42]
Eric Voorhees
I mean, these tokens are listed on these dexes without anyone needing anyone's permission. I mean, that's why dexes are so cool, because you can go to the dex, enter a token contract address, and suddenly there's a liquidity pool and anyone then can go in and put up liquidity. No one's permission is needed. I mean, this is one of the things that we struggled with as a centralized entity. When we wanted to add a new token, we had to read all these tea leaves from the sec. We had to be so sure that it wasn't a security and it's such a gray area. And what it meant was that we had to be overly conservative. And a lot of the most exciting assets that people wanted, we could never list. Or we couldn't list them until a month later when we had done legal review or whatever. Then you take that compared to Uniswap, which is just this open source dex, and anyone can go there and they have 1,000 tokens and people can just use it however they wish. There's no legal review. And interestingly, Uniswap, I think a couple weeks ago you may have seen that they announced that they were removing a few coins from uniswap. And this is what everyone got wrong. Uniswap, the centralized company, had to remove a few coins from the UNISWAP centralized company interface. The Uniswap protocol didn't remove anything and couldn't. So those tokens are still available there. You can trade those tokens through ShapeShift, because ShapeShift integrates the Uniswap protocol. So these open immutable systems are just so powerful in terms of giving people actual freedom and openness and immutability of finance.
- [97:12]
Robert Breedlove
Okay, Fox tokens issued and it seems like, and maybe I'm just perceiving this wrong, there's some kind of a genesis problem here though, because until you issue it, there's no secondary market. So if you're issuing it, I guess it was probably the airdrops and customer issuances first, where it essentially had no market value before you started paying employees, because that would be a hard proposition.
- [97:39]
Eric Voorhees
When we first launched it, it wasn't traded anywhere. And from our own securities analysis, we believed that we shouldn't go pitch exchanges to list it. That was one of the things we wanted to avoid. So the token existed, but it wasn't tradable anywhere. So no one knew what its price was or should be or anything like that. Probably a year ago, some random person added the Fox token to Uniswap without our permission. They just did it. And ever since then, that pool on Uniswap has existed and there's been a price. And so that happened a year ago, long before we knew we were decentralizing and even before we had integrated Dexs ourselves.
- [98:19]
Robert Breedlove
Interesting. Okay, so that, I mean, it seems pretty organic as far as a crypto asset launch can be, because the big pushback, especially from the bitcoin community, is the ICO model. Right, where you're just selling hopes and dreams.
- [98:38]
Eric Voorhees
So ICOs are interesting. I mean, there was so much garbage during the ICO craze that it left a lot of people with a lot of bad taste in their mouth. Understandably. Right. There's so much garbage. Garbage both in stupid projects, even though they had honest founders, and garbage in terms of like scammers and all that. So I get why people don't like ICOs. At the same time, if you just look empirically at how much wealth has been created by ICOS as a whole, Ethereum alone, which was one ICO, created 1,000 times the wealth of all funds that have gone into all ICOs combined. There's a scale of return that people who call themselves capitalists should acknowledge. It doesn't matter if only 1 in 100 or 1 in a thousand ICOs does something world changing, if one of those does, justifies the entire process of funding through that mechanism. And Ethereum is obviously not the only one that has been highly successful. I love ICOs as a concept. I love tokens. I think they're incredibly powerful. It's a new financial primitive and it's so powerful that a lot of people have abused it. And I think both of those things are true and fair.
- [99:57]
Robert Breedlove
Well, so this is where it gets murky for me because there's a lot of bullshit out there. We're clearly in agreement on that. I guess the question in my mind is what should be done about that? Because this is where the regulator mindset would step in and say, oh, we need accredited investor protections and da da da da, blah blah. And I don't believe in any of that. I think regulation is just a scam, frankly, in its entirety. Very anarcho capitalist in that respect. So what, if anything, should we do about this? Purely, I guess we could say hyper capitalist system that can expose people to scams, ICO scams and all that.
- [100:44]
Eric Voorhees
Yeah, I mean, the market will work this stuff out. Is the short answer. A slightly better answer is that those of us who care about this industry should take time to help people learn about what's good and what's bad. It would be really nice if all the bitcoin maxis didn't label every single project a scam because it makes it very hard to actually point out what is a scam. Yeah. So at centralized shapeshift, one thing we did is that we just didn't list obvious scams. Right. So we did our own pruning, but that happens at the private property layer of shapeshift. It's our exchange. We can list whatever the hell we want. Other exchanges might be more liberal, others might be more conservative, and that is the market process. And ultimately people are going to trade these things. The bad projects are going to lose people money. The good projects are going to make people money. And yeah, caveat emptor. I mean, everyone has responsibility with their own money. And I think the industry and the market polices this stuff far better than the SEC. I mean, hell, they just finally charged the BitConnect people four years after BitConnect was happening. Who did they protect? The entire scam played out. And four years later they went after a couple executives and fined them. That was the most egregious one. That was so obvious. And it took four years. If you think a policeman is needed, the SEC is clearly not a good policeman. The market is a very good policeman. The market destroys scams over a medium or long term. But a lot of people don't have a long term view and they think like, as soon as a scam is there, there has to be a policeman to shut it down immediately. The market works this stuff out really well. And as an ancap, it's been amazing to watch all this unfold.
- [102:33]
Robert Breedlove
Yeah, yeah. So in that situation where the pruning is occurring at the private property layer, you're effectively trading on your own reputation. Right. Because if you list a bunch of shitty scams, people are going to say, hey man, can you get a little QC going on in your product?
- [102:54]
Eric Voorhees
Yeah. And if people find a venue that has high quality stuff and that gives them peace of mind, they will flow over there. And other people are like, I don't want the exchange making those decisions for me. Give me everything. I'll do my due diligence and I'll choose what I want. And both of those are fair paths and the market can handle both of those and people can express their own Preferences.
- [103:16]
Robert Breedlove
Okay, so the bitcoin maximalist view is that I think I'm saying this correctly, but basically distributed consensus is useful only for digital cash. Full stop, the end forever. Everything that's not bitcoin is a shitcoin is a scam. Everyone that touches it issues it, trades it, offers it any services it anyway is a scammer or a shitcoiner. And I agree with you actually, by saying that, you've actually destroyed the language. This is the boy that cried wolf, right? If you just call everything the thing and you cry wolf about everything, then all of a sudden it's all fucking meaningless and no one comes running when there actually is a real scam one.
- [104:07]
Eric Voorhees
I think a lot of the bitcoin maxis really think they are all scams. I don't think they're lying, but they've gotten themselves into a delusion where they actually believe that everything that is in bitcoin is a scam. And their friends who are maxis say the same thing. So there's a validation there and they cheer each other on on Twitter and you just get this super dangerous bubble.
- [104:26]
Robert Breedlove
Well, this is why I think it is so. And I'm thinking about it so much is like, how do you, how do we objectively determine when something is decentralized or market proven? I know we touched on that earlier in the episode, but that's what I think is important. That's the nuance that's missing here, is that you can't just call everything a scam. You can't say total. I mean, I guess it is still a total free market, but there's a weird murkiness where there's such an information asymmetry in this business. There's just a huge opportunity to scam people, right? That was the ICO boom in 2017. You throw up a website, put some people's faces on there, a white paper, and you raise $30 million and then you disappear. So it's like we are ancaps, but it's like that comes with this trade off of scamminess in certain times. So I'm just wondering where the middle.
- [105:21]
Eric Voorhees
Income, from the individual perspective, or if anyone is trying to discern what is a scam and what is quality, try using it. This is how I first understood Bitcoin to be real. I read some articles about it. I understood it. I liked the vision. I was like, that sounds great. This immutable money, this new thing. It wasn't until I used it, I downloaded the bitcoin core client and I bought some bitcoin and I sent it to a friend and I was like, it works. It's doing what it says. I can functionally get utility from this thing. Any project that you can functionally get utility from is valuable. So if you're skeptical of a project, see if it exists, or if it's just a bunch of promises on a website. And if it exists, see if it works. Right? And if it works and it's useful to you, then cool, you just found something great. You really don't need to get much more advanced than that.
- [106:21]
Robert Breedlove
Yeah, it's a great suggestion there. So what's weird here for me is that the same reticence to evaluate any other distributed consensus project, crypto project, if you want to use that term, that's the same reticence that keeps people from taking bitcoin seriously. Like in traditional finance, they just say bitcoin is a scam, and they just are fixed on that. They have, I think has been called bitcoin denial or derangement syndrome. I think someone titled.
- [106:59]
Eric Voorhees
Well, I saw this early on in bitcoin back in 2011 and 2012. I was trying to get the libertarian communities that I was involved in to like this, to see that this was the coolest technology ever and would achieve or could achieve many of the things that we all cared about. And so many people early on dismissed it, right? They were all gold advocates, which I was also, and still am. I still like gold and appreciate it for what it is. But they were unable to see its utility because they were blinded by their tribe of gold is money. Like that slogan had been drilled into that community forever. And anyone who wasn't saying that slogan was like a fiat banker. So you just get this group thing, gold is money, nothing else is money. And then this stupid digital virtual thing comes along that you can't hold or touch, and you're just going to dismiss it. And those people did not take any time to learn about it. Or stated differently, those who did ended up getting extremely rich because they had an open mind and they were willing to try a new thing. And it didn't mean that they had to dismiss everything they had learned about why gold was good money, but it meant that they used the principles of. This is why I liked bitcoin, because I understood the principles of why gold was good money. And I saw how those principles were even better expressed in bitcoin. So that open mind is critical. And it's so sad to see people that say they care about Bitcoin. And if you care about Bitcoin, you shouldn't actually care about the coin. You should care about its principles, like what it's actually doing for the world. The principles of decentralization, immutability and open monetary standard for the whole planet. It's those principles that matter. And a lot of these other crypto projects are helping those principles also. Not instead of bitcoin, but also. So if you care about the principles of Bitcoin, you should have an open mind to some of these other projects which are really cool. Doesn't mean you need to accept everything out there. There's a lot of garbage. But it's been sad to see so many bitcoiners be closed minded to technologies which are advancing the causes which they claim to believe in.
- [109:01]
Robert Breedlove
Well, this is where I am really kind of in a no man's land myself because I'm 100% Bitcoin. I don't hold anything else. I haven't for a long time. When I first got into Crypto Back in 1617, I had a few shitcoin positions and then got out of that. But I refuse to be dogmatic or what I would consider even arrogant to say that no Bitcoin is it. It's all we're ever going to get. The end. No more thought about it.
- [109:35]
Eric Voorhees
It's a total arrogance.
- [109:37]
Robert Breedlove
I can't conclude like that to the point of principles. The freedom to think and talk and look or whatever I think is just more important than any dogmatism, including bitcoin. So that feels right to me. Maybe I am wrong to some extent. Maybe bitcoin is the whole thing and they're right. But. And I'm trying to talk to more maximalists about this and this is why it's so important. How do we quantify decentralization or market success? Because I'd want to put it back to them. It's like, okay, your position is Bitcoin maximalism, but what would cause you to change your mind? I think it's important to develop a way to quantifiably measure decentralization or market success in this asset class such that we can actually, in discussing this with a bitcoin maximus, say, at what point would you change your mind on a certain asset becoming decentralized or market proven or whatever, in the same way that bitcoiners look to have that conversation with people from traditional finance that are stuck on gold or they have Bitcoin derangement syndrome for whatever reason. Like we really need some standards of communication here, otherwise you just have this shit Slinging tribalism. My project's better than your project and it's like you can't put it to the market test. I mean, I guess market cap is roughly it, but even.
- [111:13]
Eric Voorhees
I wouldn't use metrics like market cap or decentralization or anything like that. I would say, are there any blockchain based systems that have utility to any subset of people? And the utility can't just be speculative, right? Because that begs the question of what are they speculating on. But does the system or the app or the blockchain provide any utility to any group of people? If so, then there is some value in it. That doesn't mean you should go buy the token. It doesn't mean that it's better than Bitcoin. It just means that there's a group of people finding utility in that. So clearly people are finding utility in Ethereum. Clearly people are finding utility on apps built on Ethereum like AAVE or Uniswap. Clearly people find utility in a privacy coin. Clearly people are finding utility in NFTs, even though so many of those are stupid. Some people are loving that as a cultural phenomenon. They like collecting the digital art and there's a ton of froth and noise there. But there's utility, right? NFTs are not a scam, even if 99% of them are completely overinflated in price and are going to crash in the next cycle. So the utility question is I think really where you should draw the line.
- [112:25]
Robert Breedlove
So we're coming back. We've actually done a little circle on this actually, because it comes back to these two forms of value, marketability, which is kind of like the monetary premium, as in the value to this thing is I think other people will accept it in exchange for the same or more than its current value, Utility is going to be something much more like economic consumption. You're actually using this thing to do a thing. What is the utility value of Ethereum? Because I think the Bitcoin maximalist counter argument would be it's all speculative, right? You speculated on Ethereum, used Ethereum to create more speculative assets, and you chase this to the bottom and there's just no utility. It's all speculation.
- [113:07]
Eric Voorhees
So what is it? I smile because that's though the argument of the derangement syndrome. People with Bitcoin, the Steve Hankes of the world, the Peter Schiff's of the world, it's just speculation. It's all a bubble, it's all just tulips. And anyone who has used Bitcoin knows That that's bullshit. There's a ton of speculation and it gets frothy and it goes through these speculative bubbles. That's all true. But there's utility there. The system works as advertised. I can send units on this blockchain to another person and no one can stop it. That's incredibly powerful. So what is the utility of Ethereum? I mean, a lot of different things to different people, but I would say the most generalized way to frame it is that it allows you to build decentralized apps. That's it. And that's incredibly valuable. Huge, important apps have been built on it, including Dexs. I just bought a home recently and instead of selling some Bitcoin to do that, I took a loan against some ETH through a decentralized lender called aave. I put up my eth, I borrowed Stablecoin, sold those, bought the house. I didn't have to sell any Bitcoin for that. That's amazing. I didn't have to sell my Ethereum for that because it's using this collateralized smart contract that got built using the Ethereum EVM system. So don't come and tell me that Ethereum is a scam. When I used it to buy a house and not have to sell my Bitcoin for that, to me as an individual, that was utility. So, yeah, I mean, when you've used these systems and you see the utility, the absurdity of someone who has never used them, telling you it's all just a scam and all just a bunch of speculation. I saw that when I got into Bitcoin against the gold people and I see it being someone who also likes Ethereum with the Bitcoin maximalist. It's the same phenomenon.
- [114:56]
Robert Breedlove
Well, I think that's a pretty strong argument. You bought a house with it.
- [115:01]
Eric Voorhees
The other one, I was visceral one.
- [115:04]
Robert Breedlove
Yeah. I was thinking people have been reaching out to me about this video game phenomenon that's going on in the Ethereum world. I don't know much about it other than I guess Ethereum is. Or maybe Ethereum apps are functioning as in game money for these different online video games. That seems like another area where maybe there's a real utility. People just want to play this video game and it just happens to be integrated with Ethereum.
- [115:36]
Eric Voorhees
This is a cool place where NFTs are going to be huge. Is that in game items as NFTs are awesome, people play games and collect items. It's a huge industry. It's bigger than the entire movie industry. The games are huge. And people play for hours and hours and hours to get these digital things. And they have no discrete ownership over them. They don't know how many exist. The company could destroy them if they wanted to. And they just, they're not theirs. And if you know Bitcoin, you understand what it means to hold Bitcoin and to control that key. And there's a property right, in something digital that is profound. And you can now do that with NFT items in games. So even if you don't care about video games, even if you don't care about NFTs, you have to acknowledge that to some large group of people, that's going to be profoundly cool. And you can take that NFT from one game developer's game and move it to another without the game developer's permission. That's incredibly powerful. And you're going to see these artifacts and these relics move between these game worlds because they are blockchain based assets. And that's profound. And that programmability happens on the smart contract layer. That is the utility of Ethereum. So you can say Ethereum is never going to be good money, right? I think it's a reasonably good money, but it's not as good as Bitcoin. But even if you don't think that eth is good money, you can still acknowledge that what it's done with smart contracts is profoundly interesting.
- [117:01]
Robert Breedlove
Yeah, I don't know enough about the NFT phenomenon. I've kind of stayed out of it. My general understanding was that you're still subject to the issuer, whoever is certifying that nft, that's your counterparty. Right? So it's not, is not like Bitcoin's counterparty. Risk minimization. It's a different brand of it. Is that not the case?
- [117:26]
Eric Voorhees
It's more nuanced than that. It depends on the issuer of the nft. When you create an nft, just as when you create a coin, you are the God of that NFT and you set the parameters of it, just as Satoshi was with the Bitcoin. So if you set parameters that don't give you access or control thereafter, then you won't have access or control thereafter. Some NFTs still have partial control by the creator and they can do very cool things. Some NFTs are completely immutable once they're created, and then the creator is irrelevant after that. These are all just arbitrary rules that people can create with the assets they want to build. And thing is not necessarily better than the other it depends on the use case.
- [118:06]
Robert Breedlove
As immutable as the chain it's created on, which presumably is Ethereum. Yeah. Are they doing them on bitcoin? Are there NFTs on bitcoin?
- [118:16]
Eric Voorhees
I don't know. I don't know if anyone has built it on Stacks or RSK yet. Maybe. I'm sure some people will. There's NFTs on Solana, there's NFTs on Binance, smart Chain and I think on Cosmos. Yeah, I mean, all this stuff is being exhibited all over the place.
- [118:35]
Robert Breedlove
Gotcha. Okay. So, yeah, it's a weird world because I've been distracted by all this before and I've thought a lot about it and I ran a hedge fund in the space and studied a lot of the assets, but I was so fully immersed by Bitcoin and I still am. There's just so much to unpack here. And bitcoin takes you down the rabbit hole, makes you question everything else, but. And that's reflected in my portfolio construction, basically. I'm not going to tell you what I think. Let me just show you what's in my portfolio. It's 100% Bitcoin, so that's where I'm at today. But I can't just close myself off cognitively to the possibility of other things working. So where do you see this world ending up? Endgame Crypto eats the world. What does it look like? I mean, I assume Bitcoin's money. What else is going on in that world?
- [119:36]
Eric Voorhees
Yeah, a lot of things happen. The thing that I care most about and that I'm most excited for is that fiat and central banking goes away.
- [119:44]
Robert Breedlove
Amen.
- [119:45]
Eric Voorhees
That institution is going to be absolutely obliterated by Bitcoin. And if that was all that happened, that would be enough, right?
- [119:54]
Robert Breedlove
Yes.
- [119:54]
Eric Voorhees
That's incredible. That would be a momentous human achievement. And if someone cared about that so much that they only ever wanted to focus on that and only ever wanted to hold Bitcoin because that's all they wanted to focus on, that's great. I don't think there's anything wrong with that. But beyond that, there are decentralized systems that will disrupt other parts of the world. Some of them political, some of them financial, some of them entertainment or cultural. And unless you only want to care about that one thing that Bitcoin may do, there's lots of other cool stuff out there. So past money getting disrupted by Bitcoin, I think the entire financial system becomes open source and composable and accessible to the entire planet. That couldn't happen without Bitcoin and I don't think it can happen without the financial tooling that Ethereum and other smart contract platforms are doing. So I like these banks are so screwed. They're so screwed. I mean you go to a bank website and you try to use it and they haven't done anything in like 20 years. Well, maybe they made the website, that's it. Yeah. And like, you know, using these crypto systems it is just night and day difference and there's a, there is a learning curve especially if you're trying to be self custody. You have to have some responsibility about your keys and, but it's not that hard and people are going to learn how to do that and they're just going to be interacting with each other and with smart contracts in this open, immutable, fair, objective rule set for all finance in the world. And that's going to be a magical and beautiful thing and completely controversial and transformative. I mean it's going to be an ugly battle and it's going to be going on for the next 10 or 20 years.
- [121:39]
Robert Breedlove
Do you think most organizations decentralize or if not most, what proportion? And then what do you think about other property rights? Do you think distributed consensus or this technology somehow impinges on physical property rights which are traditionally the domain of the state?
- [122:03]
Eric Voorhees
Yeah, the physical stuff's difficult. I don't know. I think a lot of the, a lot of companies will never decentralize and they shouldn't. If you have physical stuff and, or you have a small local operation, decentralization is not effective and probably makes the business worse.
- [122:22]
Robert Breedlove
Right.
- [122:22]
Eric Voorhees
So I don't think it's like this panacea that all companies are going to be decentralized in five or 10 years. But systems which have powerful enemies or systems which want to be open and composable with each other should consider decentralizing. So tech largely, what's that?
- [122:42]
Robert Breedlove
Tech largely would decentralize, I assume, decentralized social media, et cetera.
- [122:47]
Eric Voorhees
Yes, a decentralized social media. I mean how much does the world need that?
- [122:51]
Robert Breedlove
Right.
- [122:52]
Eric Voorhees
So very badly that is inevitable. A decentralized social media protocol, that'll be huge. And yeah, I mean things which much of humanity wants to use in a neutral way in which no person makes the rules are great candidates for decentralized systems. A restaurant down the street, I don't know that the whole world needs to chime in on that. Right. I want a great chef and I want a competent business owner and I want good waiters. And that's best handled at a centralized, local level. But some of these bigger, essentially digital systems, many of them, are being decentralized, and bitcoin started that process with money itself.
- [123:36]
Robert Breedlove
Interesting. Well, it's such a cool industry to be in because we're at the cutting edge of everything. That's it. I mean, that's it, man. I appreciate you coming on. That's all the questions I have. Is there anything else you wanted to hit on?
- [123:53]
Eric Voorhees
No, I just. I want to. I want to say thank you for doing this show, which, like, really goes in depth on these topics. There's so much, like, potato chip content out there. So much. And these are complicated topics. They're nuanced topics. They are consequential topics. And, like, deep, thoughtful conversations is really much in need. So you have really made that a theme of your show. And I. I just want to say I appreciate that, and I'm honored to be a part of it.
- [124:28]
Robert Breedlove
Well, thank you for saying that. I agree that I have a distinct distaste for the potato chip content, so I thought I would just zig while everyone else is zagging.
- [124:40]
Eric Voorhees
Yeah, we get that all from Twitter. Right. So I like a good potato chip now and then, but it's got to be balanced with, like, the deep, thoughtful stuff.
- [124:48]
Robert Breedlove
There's just so much here, man. I take it from. I'm inspired by Jordan Peterson, who said that digital media has basically blown the bandwidth. The cost of bandwidth has gone to effectively zero. So why not make use of that? Let's talk about these topics that are deep and complicated and nuanced for as long as we need to and try to get to the bottom of it.
- [125:12]
Eric Voorhees
Yeah, it's super cool, and it's amazing that thousands of people around the world can hear it. And it's all just available for those who care to look.
- [125:19]
Robert Breedlove
Yeah, I think we'll have, hopefully, a reawakening of. I almost feel like it's more than education in a way. Bitcoin so dramatically shatters our traditional worldview that we have to reestablish our philosophical anchor points to the world.
- [125:39]
Eric Voorhees
Yeah, that was one of the points I liked from one of your. Maybe it was with the Jordan Peterson interview. You said that bitcoin completely changes your time preferences and just the scale and scope of everyone's future that they consider it extends the considerable future. And I think that's really healthy, regardless of money. That is a very important cultural contribution that bitcoin has made. And I think those. Those of us who have gotten into bitcoin and really start thinking in that way. It changes our brain on a fundamental level to think and perceive the world differently. That's fantastic. I hope some doctorate programs will be done on that phenomenon, regardless of money. Just how Bitcoin as a technology changed the frame of reference for people's features.
- [126:37]
Robert Breedlove
Yeah, it really does change you at a deep level and it's such an interesting phenomenon to see it happening in people's lives. Yeah. Well, this is an awesome conversation. Thanks again, Eric. Where can people find you so they.
- [126:55]
Eric Voorhees
Can get the potato chip content on Twitter? So, Eric Voorhees on Twitter. Anyone who's curious about the Shapeshift dao, go to our website. There's a Discord link there. You can just hop into Discord and start learning about what we're doing there. GitHub.com ShapeShift is the open source repo where we're building the open source interface for digital assets in the world. And anyone who wants to contribute to that, we'd very much welcome it. And yeah, beyond that, just stay healthy and learn and keep an open mind to things.
- [127:31]
Robert Breedlove
Awesome. All right, man, thanks so much.