55 - Welcome To Bankless | 2021 Edition

Transcript

[Music] welcome to bankless where we explore the frontier internet money and internet finance this is how to get started how to get better and how to front run the opportunity this is ryan sean adams i'm here with david hoffman and we're here to help you become more bankless david i'm really excited about this episode first things first happy birthday to bankless happy birthday to bankless it has been a fantastic year of the banquets podcast and this is the one year anniversary episode and so what we are doing is we're going back all the way to the very

beginning and redoing the welcome to bankless podcast episode but we're doing it with a year of education a year of better precision and a year of just more overall information about what it means to go bankless and the tools at our disposal to do so i think this is going to be a great recreation of what i think was already a fantastic episode but it's important to keep these things updated because the cryptocurrency industry moves so incredibly fast and both you and i ryan are one year smarter and one year in crypto is a lifetime outside of crypto so this episode's gonna be really fun yeah david you know in order to prepare for this i went through and i listened to a bunch of our early episodes like the first eight or so episodes and you

know like we were we were just getting started on this so there were some rough patches but i was also amazed at how well it held up i was amazed and impressed so guys our purpose with this episode is to condense those first eight episodes or so into one so this is a what is bankless episode that you can send your friends basically uh we're going to try to distill and summarize the bankless program the introduction uh like this is the the single episode you can you can send your friends on the 101 of crypto the 101 of of defy and the 101 of the bankless program but david i'm a little scared because this is somewhat like eating an elephant dude like there's so much to cover so the art

here is going to be can we condense it well enough and give everyone kind of a a drive-by preview of what this whole crypto thing is all about you think we're up for it absolutely and i think that's something that we have specifically gotten better at over the last year and so for the the bankless veterans out there the the people that have gone through the program and are not noobs i think this will still be valuable to you because ryan and i endlessly try and sharpen our speech and sharpen our models and sharpen our way to explain things and i think that's why that's definitely why we want to redo the the first episode is because we've gotten better at explaining things and that and i think for the veterans out there who are also

on the journey of learning how to explain this industry this might be a good episode to just sharpen your own sticks as to the correct mental models that land really well with crypto newbies all right excellent well let's get into it there that the other benefit of course is now we are doing things on video so you can check this out on youtube as well as on the podcast and before we begin with the episode we want to thank the fantastic sponsors who made this episode possible ave is a borrowing and lending protocol on ethereum and just recently released ave version 2 which has a ton of cool new features that makes using ave even more powerful with ave you can leverage the full power of defy money legos yield

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into it why are we going bankless in the first place what is this whole crypto thing why are we on this bankless journey the the cryptocurrency industry starting with bitcoin and expanding into ethereum is inherently based on cryptography and cryptography is inherently putting power back into the hands of the individual the entire cryptocurrency revolution is based on this fact cryptography puts power into the hands of the individual user this is the creation of public private key cryptography where if you are the owner of a private key and you are the complete uh you have complete control over your domain and in the world of crypto your domain is your

money and on ethereum it's also your finances right and so we are going bankless because of a number of different reasons it's inevitable we think and we're going to get into why it's inevitable in the future but first and foremost we're going bankless because money and personal finances and personal wealth should be something that you are in 100 control over at all times this is about personal sovereignty this is about personal agency and not having anybody or like controlling your personal financial lives when you go to work every single day and you toil for eight hours a day 10 hours a day whatever if you don't have maximum control over the

the storing of your wealth and the management over your money you are giving up some of your time your life's energies to somebody else and so with crypto tools that eight hours a day that you work to to generate savings gets retained because you have these personal sovereign financial tools like bitcoin like ethereum yeah cryptography and economics or the magic that make this possible but the end result is this is about building a self-sovereign money system where we can all have less dependence on the banks that control our lives and we can control our own lives this is a this is really a journey towards towards freedom david let's talk

about the the banks that control our lives i think people are vaguely aware of this you know do you remember back in 2008 the occupy wall street sort of movement this is this has generated some anti-anti-bank kind of pushback but like what are the two groups of banks that control our lives let's first talk about the the first group which is the central banks what are the central banks david yeah the central banks are extensions out of nation states right so the country you live in likely has a central bank and that central bank manages the currency it manages the money uh and the the ability to manage money is really really powerful and it's something that the nation state wants to keep for

itself and so it employs a central bank to manage the currency of the world uh the most powerful central bank in the world is the federal reserve the bank that controls the dollar and so the central bank the federal reserve determines the value of a dollar and the central bank has certain mandates it wants full employment and it wants price stability in the dollar and it leverages different levers dials tweet it tweaks some some metrics to make sure that it can achieve its mandates of full employment and a stable dollar there are some issues with this because human management over money is an inherently subjective exercise and that subjectivity can be pushed and pulled by

interests uh people are have certain interests in the money the management of the money being in one particular way and that can be corrupted over time uh in the in the bankless world on the bankless nation we believe that money is a public good that no one can have control over and so the central banks are one of the the top you know the man behind the curtains that's controlling our lives by determining what the value of our money is and i think that a bankless world where uh money is an opt-in system where money is defined by protocols is a much more sustainable de-politicized future i believe money should be de-politicized and the central banks are inherently a political institution to have political

management over currency and i i personally think that's bad right so um that is one way that central banks exert control they're really masters of the financial world and they they are at the base layer which is kind of the the the m0 the base money layer so if you notice why like financial analysts on tv they'll constantly talk about what the fed share said it's because what the fed share is says is so important for everything like bonds stocks asset values home values everything that affects your financial universe is is ultimately dictated by a very small group of people who are supposed to be apolitical but they are they are

definitely politically influenced at the fed so the central banks are are one group certainly at the base layer of all of this that uh that controls our lives some sometimes it's not all bad either um so there are some benefits and we could get into a conversation around austrian economics versus keynesian economics if you're interested in that check out our second episode that we ever published in bankless we'll include a link in the show notes but david let's talk about this term because before we leave the conversation of uh central banks i think we have to talk about the the cantalon effect some people call this the the cantillian uh effect what is the cantelon effect why is it bad yeah so with central banks the central

banks have immense power and with immense power comes immense responsibility they have responsibility over the management of the money everything with value is downstream of this and the cantelon effect is this unfortunate side effect that results from the existence of the right to issue currency and what the what a central bank is is an institution that has the right to issue a currency they're all all the the only legal dollars out there came out of the central bank everything else is counterfeit right only the central bank has the authority and the legitimacy to issue currency and as a result of this uh ability to issue currency when the central bank does issue currency it has to get injected

into the economy somewhere it can't just you there's one thing to print money but you actually have to put it in the economy and when you put money into the economy somewhere the places that you put that money into are are inflated in value because that's what money is right uh and so the cantelon effect describes the this unfortunate consequence of money printing where the places of monetary injection into the economy become inflated and and overvalued because that money hasn't yet diffused out to the rest of the economy money takes time to diffuse it takes time to get from point a to point b and so when the federal reserve injects money into one specific spot that one specific spot

benefits it has very strong tailwinds because it gets access to new money before the rest of the whole entire global economy can uh integrate that new level of money right and so if there's twice as many dollars out there because we just printed a bunch but all all of that new printing goes into one specific spot whether it's the bond market equities market housing markets those markets will have increased value versus all other parts of the economy and this is called the cantillo cantillion effect people and institutions and companies that are proximate to the money printer where the the approximate to the federal reserve they benefit they have tailwinds on the valuation of their assets and

everything about um everything about what they do because they are close to where the money gets printed yeah absolutely and one effect i think that we've seen from this is massive wealth inequality so uh basically the us and the fiat system has been on an experiment since the 1970s when we got off of the gold standard and uh we've slowly kind of ratchet ratcheted up the amount of money printing that we're doing at the central bank layer and the net effect of this you know some people think that when the fed prints money that instantly causes inflation in the prices of things like you know uh household goods or things like food

items things you might buy at a store the consumer price index that's that's one measure of inflation uh cpi but where this money printing has has actually gone over the last 30 years or so and in an accelerated way over the last 10 years and in fact we've just seen it over the past years is it's gone to asset prices you'll notice that wages have largely stayed stagnant since the 1970s but asset prices have accelerated massively and even in in 2020 where um you know most people had a very difficult year from a from a wages perspective uh from a salary perspective small businesses shutting down due to coronavirus

we saw record stock market prices you know the stock market up 44 and so uh people ask where where's the inflation the inflation has gone to the asset prices and the the tragedy of it is um wealthy people are the primary owners of of assets so many in our world today whether you live in the us you live in europe wherever you live in the in the world many live paycheck to paycheck they don't have much money to to store away uh in the form of wealth but but the wealthy you know 25 or so of the country that can afford to buy stocks for instance uh they they store their their value and their money in other places they store it in stocks they store in

bonds they store it in property and those assets have just massively increased in value well things like wages haven't that's an outcome of the cantalon effect it is exacerbated wealth inequality due to the way we manage uh base money so that is one net effect of the central banks and it affects everything in your life like it affects you know um the political landscape and this rise in populism that you've seen and the reason why everyone's angry at each other is because they're focused on this this you know relatively fixed pie and divvying that up and there's massive wealth inequality so this is what we mean by central bank monetary policy controlling our lives these are the ways

they control it and by the way these are not necessarily evil people they are caught in the system uh just like the rest of us and they are making the best decisions that they can make but not having a credibly neutral monetary system having that the the dials on money printing in the hands of the few uh has led to this sort of outcome parsing apart inflation i think is really really important because when people when people talk about inflation uh the typical canonical uh way that people talk about inflation is from consumer price index then those are your consumables your foods uh the the cost of filling up your car car prices housing prices uh and then there's there's other kinds of inflation

there's also asset price inflation which is what you just talked about and then there's also monetary base inflation so there's three different types of inflation here and when we inflate the monetary base we tend to inflate assets and because of that monetary base inflation which is quote unquote the the money printer go bur mean when we print money the monetary base increases and that tends to be reflected in asset prices and not in consumer price in the in the consumer price index and what that means is and because there's a large amount of just general financial illiteracy a lot of people don't understand that you know just because inflation in consumer prices hasn't gone up doesn't mean that they're that they have kept up with inflation

inflation is this very broad subject and it's really important to point out that like fantastic we haven't had consumer price inflation over the last 30 years that has generally been under control but what has not been under control is asset price inflation that has gone out of control and so while salaries have generally stayed the same over the last 30 30 40 years maybe even some have kept up with inflation many many haven't what they definitely have not kept up with is how much it costs to purchase a share of the american economy or the global economy so while the bottom 99 percent they are still able to afford food and they can afford netflix and they can afford rent even just

barely what they cannot afford is a share price of amazon stock which went from one thousand dollars to three thousand dollars in the last year right they can no longer afford wealth they can just afford consumables and so there's this massive discrepancy between people can that can just scrape by and afford consumer price index goods the things that they need to do to survive but they can no longer afford the things that they need to survive and thrive and retire on and that is what is now causing i think so much political turmoil both on the left and the right is because no one can afford the things that generate wealth passively because asset price inflation has gone through

the roof as a consequence of money printing and this is why central banks are inherently a political institution it's not possible to strip this effect of money printing away because the cantalon effect cannot be eliminated there will always be an injection point of currency into the system and that will always create wealth inequality downstream it will also always create corruption as well because there is extreme incentive if you are are wealthy if you hold uh particular assets there is incentive to push the monetary policy in the direction of asset inflation right so so when you have a very small number of people able to govern the dials on of the on these things what you see is less you

know uh helicopter money for the people and more helicopter money for the businesses and and the banks so all of this the net effect on the central bank side of things david is that we have unequal access to the money printing i want to bring that the second uh class of banks in here too david so we said central we talked about central banks uh commercial banks it's the second class of banks so these are your wells fargo's in the us hsbc if you're in europe you know bank of america um these are the banks that that we think of when we say something like oh i just opened an account a bank account right these are the banks we use from from a day to day we might have a checking

account there we might have a savings account there and these effectively are private public institutions so they almost operate as as nodes on the central banking network so they're very tied into nation state and um and the central banking system but they also uh operate privately as well um we're talking about unequal access to the money printer there's also unequal access to the banking system maybe the first place to talk about this is if you are in a developed country you have access to some decent banking services so i can go and i can open um you know bank account in the us i live

in the u.s and it's one of the world's leading financial systems if i live in a country that does not have a developed banking system i am shut out i do not have access to the same banking system that you do so we have these geographic boundaries david on the quality of banking system that we have access to can you talk about that a little bit more the the idea that currently today geography dictates banking quality right because uh currencies are inherently an extension of nation states the dollar is something that is domiciled inside of the u.s and the u.s banking layer is confined by borders and politics

which is something that i think personally is not fitting for what money should be money should be a global public good that everyone has access to yet the banking network is just a patchwork series of connections between bank to bank to bank which ultimately ends back at the federal reserve and this is true for all countries right with all countries with their own in internal com commercial banking layer it all connects back to the country's native central bank but it's all very patchwork and it's in really when you make a when i send an ach wire to you ryan it's going to go through a couple of hops of banks and those banks need to be connected and that works for us because we both live in the united

states but if i wanted to send a wire to somebody that lives in europe it's even more hops between a bunch of just different intermediaries and it takes time and sometimes it doesn't even work and you know we can and go and make even crazier connections like maybe we wanted to try to get some money from some southern american country and we wanted to send it over to some african country there might not actually be a pathway to get that done we might not actually be able to use this banking layer to connect person a to person b when they live all across the world because there isn't one single global payments layer there isn't one single global banking layer and so the commercial banks are this desperate interconnected mesh that

sometimes doesn't actually connect and it's kind of inefficient because there's no one single substrate that it operates on yeah absolutely so uh these the traditional banking system is is very closed it's it's not transparent today it's analog and it's inefficient as you said i think anyone in the financial sector today would tell you that there are definitely areas that are broken about the existing financial system right so for instance um like if you want to wire money to me david you might have to go to an actual banking branch in person and show your id in order to transmit money like from yourself

to me and that's because you have to go through this this banking intermediary and this very inefficient uh analog system so one other reason we go bankless is because bankless presents a a better money system for the world more more efficient we can send money in a peer-to-peer fashion we don't have to go through the old banking network of intermediaries with with all of the costs associated with it um we'll talk about that more soon david but i want to touch on this this other idea uh we talked about nation states controlling the commercial banking system the central banking system and that seems to me uh

that that could definitely lead to bad things in a world where more authoritarian leaders get elected or assume power of various countries and the world turns more authoritarian governments should not have the ability to lock people out of the banking system and out of the economy and with the current traditional banking system that we have set up they absolutely have the ability to do that can you talk about that yeah it's one of the key ways that governments maintain power and authority and you know governments having power is a good thing we want our governments to be able to you know execute on strategies coordination is

good however it's uh it's up for debate whether or not they should have control over money again like on the bankless journey the bankless narrative is that money is a public good in the same way that gold is a public good you know if you have a lump of gold gold in your hands you can pass it between two people and it's just this thing that exists on the world that we can all use collectively gold has some problems and we think crypto can fix these problems but importantly gold is a public good the us dollar and specifically non-cash us dollars or other fiat currencies that largely live on centralized database ledgers like the ledger of wells fargo the ledger of bank of america the ledger

of the federal reserve we need to ask permission to use these things and so when you give up your money uh your cash and you give it up to wells fargo and you let wells fargo manage your monies you are allowing them to control how you use your money up to the rules and laws of the nation-state and while this can be for good this can also definitely be for bad um we've seen very authoritarian leveraging of this power out of argentina where argentina and and definitely in venezuela as well where people would come and submit dollars to their bank accounts and the argentine government would forcibly sell their dollars for venezuelan boulevards

to ensure the value of the venezuelan boulevard in india we saw uh the indian government just uh abruptly uh discredit the value of certain fiat currencies and so if you owned certain types of bills they were no longer legitimate and you would have to swap them out there's there's just a bunch of uh power issues when a centralized group of people can have the ability to control how we use our money and again our money is something that we work for and so when we go to work for you know 40 hours a week or however long or in however long and hard you work ultimately you that work the money that you use to store your labor in is

dictated by people that control this money and that's both the central banks and the commercial banks and there's i think there's a better world out there than just having the rules of commercial banks just be an extension of central banks which are an extension of governments money is a public good and that's not currently the form that money is in when we use uh nation state ledgers look we we figured out that the separation of religion in state was a good idea uh you know some some hundreds of years ago and now i think we're figuring out that the separation of money and state is also a good idea for some of the reasons you mentioned so why are we going bank less this is a story of self-sovereignty this is a story of freedom we talked about unequal access

to a banking system that shouldn't be the case we should all have equal access to the banking system maybe just with an internet connection if 4.5 billion people have the internet let's allow them all access to this new banking system that we build the current system is is corrupt uh it breeds inequality so there's money money printing for the the already wealthy we need a more credibly neutral system without a small group of people being able to move the dials up and down we should have a system that is immune from authoritarian control so that individuals the people cannot be shut out of economies if they're political dissidents or if they don't agree with a certain set of politics and finally david we need an open system

something that's not closed inefficient the financial sector today consumes a massive amount of gdp and it's it's through middlemen it's through intermediaries that are that are rent seeking and taking a cut of this why do we need that maybe we don't so let's get to the second item on our list how does crypto solve this maybe we should talk about this first david this this idea of rather than putting people in charge of this whole thing let's put code in charge let's put what we call protocols in charge of this david what is a protocol and when we say you know we want protocols not kings when we say we want protocols not

bankers what do we mean what is a protocol yeah communication protocols over the internet are endless right like sms text messaging the email is a protocol tcp our protocols there are many protocols that compose the internet that we use and when we say crypto protocols we are just adding another protocol into the internet stack and so we can consider bitcoin to be a protocol and we can also consider ethereum to be a protocol and what's unique about these protocols is rather than just communicating data these protocols can communicate value and that is what basically bitcoin unlocked satoshi unlocked in 2009 and what ethereum in

2015 has really expanded upon is we are able to take rules about money if then statements about money just logic about money and turn that into a protocol that exists on the internet and when it exists on the internet it's so much more powerful than your typical patchwork connection of banks between the commercial banks and this the central banks when it exists on the internet everyone can access these protocols and what's also unique uniquely compelling about crypto internet based protocols is that they are inherently an opt-in system where the le the nation state central banks and commercial banks you cannot opt out of those things if you want to live in those nation states like you can't

really just function as an individual without using these things and you have to use them but with bitcoin and ethereum you choose to use them and they have to compete for you to use them just like all the other protocols out there they have to be competitive and so they are fighting for your attention and they are just they and they are competing in ways that legacy uh commercial banks and central banks don't have to compete so these protocols are competitive and at the net result of that is competition is good for the people that use these protocols absolutely so opt-in you mentioned competition when i think of a protocol it's really simple it's just a set of rules and the protocols we're talking about in this new crypto money system uh

these are rules defined by code and math so inherently there's no bias and no human judgment we use this term a lot in bank list this term called credibly neutral we talked about you know corruption when we were talking about uh central banks credibly neutral means very difficult to to corrupt unbiasable it's it's credibly neutral people believe that it is um a thing that can't be biased in favor of one party or another whether it's you know the wealthy in favor of the poor or whether it's someone from the us in favor of china credible neutrality is important for protocols i think one great example that we see every day is like because you know humanity as a society civilizations really scale on social coordination technology right like money

is just a social coordination technology governments are just a socially social coordination technology one great example of a credibly neutral protocol i think david is the us constitution um that was a set of rules embedded in a 4 000 or so word document called the constitution and it was just a set of rules and it outlined some balance of power sort of things so there was credible neutrality baked in and what did it allow it to do it allowed a young nation state to replace a king with a constitution with a set of protocols right so we could do that for the monetary system as well david and in fact that's essentially

what bitcoin does as a monetary system rather than having the fed uh coordinate the dials around how much money should be printed based on these various things the bitcoin monetary system says here's the issuance right uh there shall be only 21 million every four years we're going to cut supply in half and that's issuance and it's credibly neutral everyone knows what they're getting into when they buy bitcoin when they become part of the uh the bitcoin network right they opt into it as you said so it's a credibly neutral monetary system so what we can start to do is we can take some of these banks and financial rules whether it's a central bank monetary

system and issuance policy or whether it's commercial banks deciding whether to loan or to borrow and what the rate should be and we can turn them into credibly neutral protocols that are digital that are code and math driven and that's what this crypto story is all about i really enjoy the comparison of like the united states constitution as like a very early attempt to create a protocol out of a country right a country like you said a government is a way to generate scaffolding for people to coordinate around and we coordinate around laws we these laws that we all agree to follow and then if we do not

agree to follow them bad things happen there's punishment right and the the constitution is this very early set it's it's like the very bottom substrate of the code that creates the us government and every single governmental institution is built on top of that very early protocol right and so all of that just the the cost of government and which many people would call very very large the all three branches the executive branch the judicial branch the legislative branch these are all branches that try and establish and extend like verifiable if then statements that turn into laws that everyone inside of a country can follow and because we all know what the laws are we are better

able to coordinate better at the end of the day there's no removal of subjectivity from this system right that's what the judicial branch is it's a system of courts where people go to court and say well i interpret the law like this or i interpret the law like this but it's still all an attempt to make credibly neutral if then statements about how we govern our lives and the reason why ethereum and bitcoin are so revolutionary is that it strips out all subjectivity from uh from the code from from the protocol it is straight math and math alone there is no subjectivity in these things and that inherently makes them more socially scalable we don't have to go to court and fight about what these things mean because it's just built natively into the

protocol and that lack of subjectivity is something that humans can really really really latch on to yeah and this kind of technology i think it's important we're familiar with the firm the term international but this is extra national right so this exists outside of the domain of nation-states in some respect and here's the reason that's important is because when nation-states can't agree uh and come into conflict they need a way to settle their conflict right so let's say china doesn't want to adopt the the us's swift network which is basically you know the the the way the world uh transmits dollars and and other forms of value in the traditional banking system well they

they can settle a value transaction on crypto networks something like ethereum something like bitcoin uh let's say you know that certain countries around the world no longer want to adopt the us's monetary system well there's a crypto monetary system that can't be influenced by nation states and political parties that they can adopt and said so crypto is extra national it's above the nation states or maybe it sits sort of at the bottom of nation states government uh and what we're really doing here david with this this talk of of protocols is it turns out the entire money system like everything we know about banking and money is really uh a a set of general ledgers right almost like

excel spreadsheets and if then statements so it's all it's all code underneath it as well so the the question then becomes for crypto is what if we can replicate this existing financial system in a way that's more credibly neutral that can't be biased can't be corrupted can't be influenced from the base layer financial system all the way up and what if at birth this thing was open accessible to everyone with an internet connection permissionless like the internet so anyone could build on it anyone can access it it was completely open so you could click view source on everything you could fork it you could create copies of it you could modify it there were no silos it was completely

verifiable what would that be like what would the internet of money be like what would the internet of finance be like and it turns out the answer to that is what we're building in crypto um and it's it's it's like a hundred x more powerful um we think of the bankless journey as is almost giving you money and banking but with superpowers like my ethereum account where i do some of my my crypto banking right now it's got to be 100x more powerful than my wells fargo account in terms of the things that i can do with it and it's getting more and more powerful every day as well do you want to say anything else about that david

yeah absolutely the the i think the core innovation really that we're getting to is that bitcoin and ethereum these cryptographic protocols reduce the costs of human coordination they make human coordination easier they facilitate human coordination and they start with the money and they start they start with the base asset btc and eth but they go it expands out from there so the money money is always first but the the conversation goes so much further than just money but the point is is that you know humans throughout our entire history of humanity have been trying to develop technologies that allow us to coordinate better and this goes back basically as far back as time like recorded history like the the

establishment of religion is actually a human coordination system and it just and religion is kind of like an early government if you will it's the bible or the quran or the uh or the torah is a is a is a book of code of how to live your life in order to that in order to create a way of how to live a life that works with other people and these institutions were successful and then we invented the democratic nation state and that was even better and now we have bitcoin and ethereum which we think are going to increasingly reduce the cost of human coordination and allows humanity to be humanity even better yeah absolutely and and use that term even

better and i think that's true but it's also the case that uh these crypto systems will work alongside those other institutions as well human institutions like religion and like the nation state there are things that the nation state can do that crypto will never be able to do build roads build hospitals that sort of thing but the things that crypto can do uh more efficiently more effectively than the nation state will will move toward the crypto based system and it turns out david that one of the things crypto can do much more efficiently than the nation state it seems is finance is money is the entire banking system so that's really the start of of the bankless journey

realizing that what we're building here is a parallel financial system so there's the existing legacy financial system we use terms for that like traditional finance and you know trad fi or like old fi or like there's lots of terms for the existing banking legacy finance that's what it is and um there there's this new system that we're building from the base layer up and the base layer of course is money we're building uh all the way from the from the base layer up and that's kind of the bankless financial system the crypto financial system the defy financial system which of course stands for decentralized finance so david i think what we should do is start describing this parallel financial system because it's not

complete yet like we haven't built the whole thing out yet but we have some of the foundational scaffolding for it and it's real and you can start using it today let's start to describe what that actually is and david i think we should probably start at um the base layer which is this m0 david that is the monetary layer and in the traditional financial system the legacy financial system the reserve currency of the world is dollars that is the m0 of the world let's talk about the base layer money money in uh in traditional finance versus crypto finance but i think in order to do that david we might have to take a step back and actually

describe what money is so like david what is money yeah money is what i like to call tokenized time and energy right when you like like i was saying earlier in this podcast you go to work you for eight hours of your life which you will never ever get back and then you labor for somebody else and that somebody else owes you a favor right and so they owe you something because you worked for them and money is really this tool that can take that labor that you provided that labor and your time and puts it into a symbol a token and money is really the transference of somebody else's labor and energy from one person to another person and when

you so when i say like hey ryan you owe me a dollar what i'm really saying is i you owe me a dollar worth of your time and energy and so you can go and do whatever you want to generate your dollars do whatever you want to generate your income and then you can pay me a dollar because you owed that to me and it's really just a way to as a substrate for storing people's energy and then it's also the way that we communicate value and so if if my specialty is that i grow apples and i want somebody to make me a pair of shoes i will spend my time and energy to grow apples and i will sell them to somebody that wants apples and they will pay me money and then i will take that money to the person that can sell me shoes and they

will sell me shoes and so money is just really this communication layer of value it communicates value between asset a and asset b it's really this substrate thing that we all use collectively and money is often defined as the most saleable good and this is why i was talking about gold earlier gold is very saleable gold you can you can trade for almost any item anywhere in the world because people equally value gold everywhere in the world money is something that you can always depend on there being a buyer for and so no matter what you produce or what you want to purchase money is the thing that people will always accept for their goods because people always can uh

understand that you know the dollar or the the euro or gold or whatever is is good for the money is good uh equally across all worlds across all time across all scales and so money is really this value communication tool it's really a communication tool not of language not of words but of value it's really kind of like a a point system right but the way you've the way you described it david it almost makes it sound like money can be this this arbitrary thing but it is the case that societies across history and even even today uh settle on some consensus of what money is so david if you were to give me like hoffman bucks right uh i'd be like david that's not money i'm sorry

like you owe me real money you can't just pay me in hoffman bucks okay that doesn't work or like monopoly dollars or whatever you want to use so you individually can't just decide something is money right there has to be this social consensus this collective consensus on what the money is right in some ways we've described uh david money as as like this this shared meme and and that is true although institutions can also um push social consensus in one direction or another so we were talking at the beginning of this about central banks and the nation state and one of the ways they push money in a certain direction is they say the u.s dollar

shall be the mechanism and the denomination by which we will charge taxes in our country and you are forced to pay taxes or lt will break the law you are breaking the law and there will be repercussions so you know you have to own some dollars in order to pay your taxes if you are a us citizen they also do things like they make the us dollar the only legal tender so essentially all merchants if you're doing business in the u.s you have to accept the us dollars so they can push money in one direction or another but can you talk about this is is that all money really is is it just a you know social coordination and why do we choose the money that we have

yeah it really is just a social coordination game and ryan you said that monopoly dollars aren't money monopoly dollars are money inside the context of men of monopoly right when you are playing monopoly they are money they work as money you can buy and sell these things as money inside the context of monopoly we can just scale this this that metaphor out to the united states as a country where the dollars work inside of the context of the united states and that's actually one of the unique things about the dollar is that the dollar has such a strong brand that people likely will still honor the value of the dollar everywhere else in the globe and that's something that's unique about the dollar that's not true about basically all other currencies uh the argentine peso

the the euro the yuan these things generally don't have the saleability that the dollar has outside of the context of where these currencies are accepted and when when we talk about how money is just this social coordination meme it's money is whatever people call money it it to be right we can if humans collectively decided that you know monopoly money is actually the money then maybe that would actually be the money and so it's really a social coordination game except this social coordination game has like guard rails or borders or restrictions around who can play the game and it's these guard rails and restrictions are literally the the physical geographic borders of the countries that manage the money right

and so with the the us dollar the game stops at you know the border between canada or mexico right or with the argentine peso the game the coordination game stops at the borders but people don't stop at the borders people are global people are everywhere across the world and that's what makes the internet such a unique platform to play this social coordination game of money and why this revolution behind bitcoin and ether are is extremely compelling is that it offers a borderless substrate to play this social coordination game of what is money and now i think in the 2020s people are re-asking themselves the question what is money and they are looking towards the internet to offer them a platform to play this social

coordination game of perhaps finding in new money that doesn't have some of the restrictions of the borders of countries interesting so the question becomes what is money in the internet era right in this new digital era that we have all entered into over the last 30 years and are accelerating into even more and i think that point that money is is as kind of it it depends on your local economy is very good so in the game of monopoly monopoly money is is money if you're in jail uh you know prisoners have been known to use like cigarettes as a form of money money is certainly relative to your economy the economy that surrounds you and so the question is what is the internet economy

going to be and maybe crypto provides an answer to that but i want to get into to one thing that you said right um because their money does have to have certain attributes um you know one of those attributes is it it can't be easy to produce money right so um the reason i don't have a money printer that prints 20 bills in my house david is because if i did have that i know that the nation state would come down on me hard and that i would end up in jail right so basically the united states secures the authenticity of its its fiat dollars of its of its money system that's why i don't do it um you know the

reason monopoly money isn't money is because it's very easy to print the the reason throughout time harder assets like gold and silver's became money is because uh it's essentially impossible to produce those assets those assets are scarce can you talk about that attribute of money because not everything is fit for a money like we could use cattle as money but but cattle die talk about that for a minute yeah so going back to the money is a social game uh metaphor the game must be must land people must coordinate around good money and like you said good money has certain attributes and there's a reason why gold has been actually the dominant store of value money for thousands and thousands

of years when the average typical fiat currency has has the average lifespan of i think 27 years gold like you said is very scarce and you know you can actually use alchemy to produce gold we can actually fabricate gold but it actually costs more to do that than the value of gold that you would fabricate which is what we call hard money it's actually the only way that you can actually produce gold is by going and finding it in the crust of the earth which you know that gold was produced by like exploding stars millions of years ago like we're not replicating that no one can actually produce gold there is no such thing as the gold printer the gold printer doesn't exist and that makes it a really attractive magnet for this social coordination game the other

competitive advantage that gold has was that gold is actually found equally all across the world there is not one continent or one country where just significant amounts of gold deposits are found is actually dispersed pretty equally and so that makes it fair and humans like fairness we are attracted to fairness this is the term credible neutrality gold was adopted due to its credible neutrality uh and and i want to distill two parts about money that i think is really valuable one part is the subjective part right the shared meme the shared narrative money the the value of a dollar is not the ink in the paper it's the fact that when i give you a dollar you'll give me one dollars worth of value in return that's something that stays in the brains of people and is only in the brains of people it's a

shared myth it's a shared narrative the other side of money is actually technology uh and i i'll go even very and i'll be very reductive and say like gold is actually a piece of technology it's the substrate it's the vehicle it's the physical atoms that determine what the money is and so gold as a rock is just this carrier of human value of perceptive human value and so is the dollar it's not worth the paper in the ink it's worth it the the paper in the ink is the vehicle and this is also true for digital ledgers digital ledgers like you know the wells fargo ledger is just a carrier of value and so money is two things it's one part shared social consensus and it's one part technology it was one part medium uh one part

vehicle and this new vehicle these new vehicles that we have these internet uh public permissionless blockchains like bitcoin and ethereum offer both competitive advantages towards the shared coordination game but also competitive advantage towards the technology substrate layer that allows the value the communication of value to just be better than traditional forms of money okay i think that's a great definition of money and i think that was uh important to understand what money is because most of the traditional word we don't even think about it you know i i i i didn't really think about money david probably until i was in my 20s like i mean what is the nature of money and why is this thing money it's it's it's

so deep in the shared narrative and what we see in tv and how we interact in society that we just you know assume money is a particular thing but crypto always asks us to start at the base layer you have to ask that question of what money actually is uh and so you define it very well it's a piece of you know social coordination and it's also a piece of technology so let's talk about the parallel money system that where we're building and um you know at the base layer of that parallel money system david is a new base money that we've created if the current reserve currency of the world is dollars at one time it was gold it's no longer gold gold is still a store value

it's now the reserve currency at the m0 level the base money layer is is dollars crypto is essentially proposing a different alternative in the crypto parallel universe in the internet universe the base money is no longer dollars what is the base money in this new bankless crypto parallel universe david let's talk about both bitcoin and ether yeah bitcoin and ether and the reason why these things are base money and a very important characteristic of what makes base money base money m0 m0 is that it is a bearer asset if you have it in your hand or if you have it in

your possession there's no other dependency about that when you have a dollar inside of wells fargo that is not a bearer asset that is an iou so that is an m1 or an m2 a secondary layer base money is inherently a bearer asset and this is why gold was once the m0 of the world because because it is a bare asset if you have it in your hands you have it there is no you don't have to depend on anyone else to fulfill the obligation of the value of the money cash is another bearer asset right david so that's that's again something if i own cash if i have 20 bill i own that it's my bearer asset that's exactly right and this is what's so cool about bitcoin and ether is that

these are internet native bearer assets and what's also really important about these things is that these bearer assets are determined by cryptography and this is the fundamental difference between the commercial central banking layer versus the bitcoin or ethereum layer is that bitcoin and ethereum they democratize access to these currencies because ownership over these things can be done by owning a private key and so a private key is a cryptographic hash it's just a string of random numbers and letters kind of like a password that goes to your bank account and whoever owns that password owns what's ever in is in that uh new bank account that digital bank account that's either on bitcoin or ethereum uh and so that private key is is it the crazy

thing about it is like it's 64 characters long and you can write it down and you can even memorize it uh there's these things called seed phrases that turn these into human readable words the thing is like you can store these things in your brain and that is uniquely compelling about this this money is like imagine being able to hold money inside of your brain and that is so cool that's so powerful and that that what that really does is that puts so much power back into the hands of the individual because they can hold their value inside of their brain and so there's no way that anyone can ever steal your funds from you if you hold your money inside of your brain other than some ridiculous uh mechanism like torture like it would you would have to

go so far to extract what people's ownership over their assets are because of the power of cryptography and even with that of course if i used you know some violent method to try to extract your private key from your brain david of course i'd have to know that you you actually have this amount of money or i wouldn't even know to try to extract it that's why privacy is also essential here so this idea of private keys and public keys i think of private keys david is basically um you know away the only keys to some lock in like there's this vault in the cloud right somewhere that doesn't exist on the bitcoin or ethereum ledger think of this like visualize this volt here and if you have private keys

to that vault which again can be represented by um you know a string of characters but also can be represented by 12 words 24 words if you if you know that private key you are the only person who can unlock that vault no one else can no nation state uh can attack it and open up that vault no individual no company uh nobody else can and so that is what you're talking about it gives asymmetric power in the hands of the person who's bankless and this is this is essentially the underpinnings of the entire crypto system this is what enables you to be your own bank and go bankless so there's this private key uh and by the way if you if you buy

assets crypto assets on something like a coin base or or gemini you don't have to deal with this because what you're actually getting is an iou right so they hold the private keys so we'll talk about the the levels of going bankless a little bit later in the show but but one of those levels is actually getting a hold of your private keys and starting to use them outside of a crypto exchange like a coin base or or a gemini um but so you have these private keys you also have a public key address right so um this is basically a it's almost like a an account address on on your checkbook if you have a you know checking account and i wanted to send money to your wells fargo address david you'd have to give me an accounting

number an account number and a routing number if i had those things i could i could push money in now i can't withdraw money but i can push money in so the public key allows me to push money into the the crypto system uh and these two things together essentially are what allows you to to go self-sovereign in in the bankless money system yeah uh my twitter handle davidhoffman.ether not my twitter handle my my twitter name davidhoffman.eat that's my public address so you can send me money to davidhoffman.edu it's a very public thing it's designed to be shared and spread right because who doesn't want people to send them money to them and it's that private key that unlocks my davidhoffman.eth address that i keep

you know very close to my heart right i don't share that with anyone and so there's this discrepancy here one is extremely private one is extremely public uh and there are also different ways to maintain privacy so you so you can have your private addresses that that you don't want people to know about and you can have your public addresses that you do want people to know about the point is you can do whatever you want because these accounts these crypto accounts you can generate thousands of private keys and use all of them and you have assurances that no one will have a copy of your private keys it's a very powerful piece of technology okay so you you said what is what does money need to be in this new digital system that's kind of the base layer and the thing you said is it

has to be a bare asset it can't be someone else's someone else's debt right it can't be an iou type tool can we talk about because we mentioned bitcoin and ether as like crypto money at the at the base layer of this new financial system can we talk about bitcoin first so what is bitcoin's value proposition why is bitcoin worth what it is right now yeah so this is where we get into some fundamental differences between bitcoin and ethereum bitcoin the first blockchain the first crypto asset uh it's uniquely compelling because of the assurances that bitcoins provide bitcoin and uh i want to i want to draw

a distinction here before i go too much further when i when people say bitcoin they they might be conflating two different things there's bitcoin the network and then there's bitcoins the asset or btc the asset so the bitcoin blockchain the the bitcoin protocol is a payments protocol for paying of btc the asset and so there's two different things here btc the asset is supported by bitcoin the protocol and btc the asset is uniquely compelling because of the assurances that it provides the owner we know for a fact that in the bitcoin protocol there is a rule that there will never ever be any more than 21 million bitcoins and what this offers is something that the central banks of the

world can never ever offer uh with with all currencies there comes the ability of issuance right all central banks can issue currency that is their right because they have control over the legitimate money printer and bitcoin also has its own money printer but the uniquely compelling thing about bitcoin is bitcoin has the ability to print money yet it does not yet in the code it will not it can't do that that is in the bitcoin code and because code is more trustworthy than human subjective statements we can we can have these strong these strongest assurances ever that there will never ever be any more than 21 million bitcoins and what this offers is a new

measuring stick for measuring value because the supply of bitcoins stays the same and the the value of the world can change around the value of bitcoin so we can now use this hard cap this is what people say the word when they say the word hard cap bitcoin is hard capped it has a finite supply and that finite supply has cryptographic assurances that will never change and now we can use that those assurances into the long-term future about how to measure value against this new measuring stick because of the hard cap nature of bitcoin now it's not like the dollar in in that it's uh it's you know much more volatile of course so that is that is kind of a

trade-off for the base based money of of these new crypto systems is they are very volatile they will fluctuate in in price at least they'll fluctuate relative to existing uh you know fiat value systems the other thing of course that we've created here david is digital scarcity that's something we didn't have in the original internet so everything on the the internet of course can be copy and pasted right if you send some email to me i can copy the the text of that email i could send it to someone else but you can't copy and paste something like bitcoin because of the crypto economic guarantees that undergird the network so that creates this new primitive in the story of humanity the social

coordination technologies that we all have called digital scarcity which is super important and i think we'll talk about a little bit later when we talk about ethereum so um what can bitcoin do besides give us this this guarantee of its of its scarcity of its fixed cap i can also send you bitcoin right on a on a peer-to-peer basis so if i know your public uh key in bitcoin and i have some bitcoin i can use the bitcoin network to send you some value at least value denominating in bitcoin is that correct that's absolutely right and that's really what bitcoin's core competency is bitcoin is good at storing value because of its scarcity and it's good at sending

bitcoins and that's really all bitcoin wants to do it wants to do those two things and those two things alone it wants to really reduce all of the the other kind of crazy cryptoeconomic stuff that we see going on on other chains because it really just wants to be an m0 and it wants to be a really really really good m0 and so it's kind of it's actually attempted to strip away other features right like people other people projects would use the the bitcoin blockchain to like timestamp events uh and they would use bitcoin's block space to record an event like and and just make that verifiable in the bitcoin blockchain but we haven't really seen those use cases take off the use cases that we've primarily seen with bitcoin

is using btc the asset as a reserve currency and then also using bitcoin the blockchain to transfer btc the asset that's why actually david i think this meme of of bitcoin as digital gold has held up so well like in the early days of bitcoin people um thought it was going to be all sorts of things thought the block space of bitcoin would be useful for other things like stable coins for instance um thought that bitcoin would be more like a peer-to-peer cash but the meme that's persisted because of its durability and because it's been validated by the truth has been this digital gold meme which is really what uh what bitcoin sort of is is it's this store of value that exists in the digital world and how valuable is it well

you're essentially making a bet on you know whether the rest of humanity will adopt it as a money and will choose to store their wealth in it that is essentially the bitcoin bet but there are two limitations of bitcoin that i want to talk about and we could start talking about ethereum and ether as we get into this um the first limitation is that the scalability of the bitcoin network so bitcoin can do like something like five transactions a second like five to ten transactions per second so that's not many transactions uh it's it's certainly not enough for everybody in the world to start transmitting bitcoin in a peer-to-peer

fashion right um you know at most it's it's maybe enough for a uh you know dozens or maybe hundreds of crypto banks or nation states to settle transactions between each other but the the typical person that the everyday person is not going to be able to use the bitcoin network if everyone else is trying to use it at the same time that's the first limitation the second limitation is it can only do that one thing that that you mentioned which is it can only transmit bitcoin from a to b so it can't for instance host other digitally scarce assets that are not bitcoin it is a mono asset network it's not a poly asset network

it's also not very programmable so if i want to do other things in the banking system so you know sending you money paying you david is just like one money verb but if we're talking about replacing the entire financial system this entire banking stack there are other things that we need to do with our money we need to lend it we need to borrow it we need to trade one asset for another uh we we need to use it as payment of course we need to to use it to hedge so there's all we need we need to save we need to earn interest on it so there are the all of these other money verbs that uh just bitcoin essentially cannot do right now so

enter ethereum and enter uh ether can you talk about ethereum's take on this and what it where it picks off picks up where bitcoin left off yeah absolutely and and just to reiterate uh bitcoin has its core competency is to be a reserve asset and it's stripped away um programmability like you said it still has some programs um there are some things that you can do with bitcoin but really it's tried to reduce reduce reduce to really just its core competency uh and when we talk about finance finance is money plus if then statements and bitcoin doesn't do very well with if then statements like if this then that right typical coder speak

and that's what ethereum is uniquely uh good at ethereum is also money in the form of ether the asset you know uh there's bitcoin the blockchain and btc the asset and then there's ethereum the blockchain and eth or ether the asset uh but ethereum is uh also a smart contract platform uh you might have heard of smart contracts it's basically if then statements plus money plus ether the asset or other assets on ethereum uh and so the metaphor that that people often often give out when trying to explain the differences between bitcoin and ethereum is bitcoin is a calculator it does one thing extremely well which is calculate numbers and produce outputs but ethereum is more of a a smartphone it can it can do that and it can also do

almost anything else that you can code up and deploy on the ethereum blockchain so if you can code something if you can produce an if this then that statement you can put that into ethereum and make assets run through ethereum uh if the the code that you deploy uh and so ether is very highly programmable money in the same way in the same way bitcoin is its own bare asset digital currency ether it's its own bare asset digital currency but it has the tailwinds of programmability of the ethereum blockchain behind it and that that is where we go from just internet money to internet money and internet finance uh the the critique uh that we often give of bitcoin is that you know bitcoin

wants to supplant uh the us dollar right it wants to be the new reserve asset of the world but it actually doesn't really have a long-term plan to reduce people's dependency on commercial banks or centralized brokerages or centra or central banks it really just wants to keep the the existing financial system which will continue to run in parallel but it really wants that existing financial system to begin to use bitcoin the asset rather than the us dollar as the reserve currency ethereum has i think in my opinion more ambitious plans which is to also provide an alternative base asset an alternative reserve currency but also be able to create natively digital financial institutions

natively digital banks and banks account bank accounts that exist as protocols on ethereum we talked about um the social scalability of protocols earlier well ethereum is a protocol for protocols and so you can actually put protocols on top of ethereum you may and this is basically what defy is uniswap it's a protocol on top of ethereum maker dow protocol uh compound ave all these applications that you've heard about in the defy universe are protocols on top of ethereum that we can send assets to and that and that brings me to i think what is a core difference between bitcoin and ethereum bitcoin the network or bitcoin the blockchain serves btc the asset the point of bitcoin is to produce btc the

asset on ethereum this is reversed where ether the currency or ether the asset is meant to power ethereum the the system ethereum the blockchain ethereum the economy and this is why ethereum is so cool in my eyes is that it's not just a a system for transferring you through the asset it can host economic activity it can be a platform for generalized economic activity because not only is there ether on ethereum there are many many other assets as well we call these things tokens there are currency tokens like usdc which represents a dollar there are defy assets that govern over protocols like uni or ave or mkr uh there are there are tokenized versions

of gold there's tokenized versions of real estate there's tokenized art there's any asset that you can really think of can be and is being put on top of ethereum and because it's on ethereum all of these assets have this programmable nature this if this then that statements and so ethereum is really this marriage between digital assets and programmability and the the limitations on that are are limitless there are no limitations on what we can do with that because we have a fully expressive system in ethereum what it allows us to do david is to create the entire financial system from from the ground up and create this parallel financial system that we've been talking about the whole side

whereas the whole time whereas bitcoin you said its aspirations are to replace the dollar and that's even like super ambitious right like um you know the the the bull case for for bitcoin is is maybe that it replaces uh gold it's very hard to see how it replaces entire nation state's financial system um you know but but the the mandate of ethereum is essentially to create an entire decentralized banking system from the ground up david i have this graphic in in front of us right here so if you're on youtube guys you could see this if if you're listening on the podcast we will attempt to describe it but this was actually published in the st louis fed uh and it's a diagram from somebody

actually created in the bankless nation uh fabian and he sort of created the the d5 stack as he calls it or the the bankless stack as we might call it and the base layer of this stack is the settlement layer right so the traditional financial system the settlement layer might be done through something like fedwire or swift this is how this is a financial network you know the way banks essentially settle transactions uh between themselves and it's essentially controlled well in this parallel financial system we have ethereum as the settlement network at the the base level here and of course we have ether the asset that serves as a base money

and then a layer up we have the asset layer which we can talk about then we have the protocol layer these are all the d5 protocols that david was mentioning then we have the application layer and the aggregation layer and he lays this out really nicely in this in this d5 stack uh diagram david maybe we could talk about a couple of those layers so you you described ethereum and what it does is essentially it's it serves as almost like a a property rights system for digital scarcity for the internet it it settles assets of any type so whether that's an asset that represents a stable coin like the dollar or whether that's an asset that represents a piece of digital art

you can settle this you know permissionlessly on the ethereum network and settlement means you move it from one you know private key account to another private key account right so it's it's settlement in in sort of a peer-to-peer type way but let's talk about this this next layer up david which is the asset layer and there's two types of of tokens i think people should be familiar with on the bankless journey the first is an erc20 token that represents a standard the second is an erc 721 token can you describe what these two different tokens are maybe in terms that we'll understand a bit better

yeah erc stands for ethereum request for comments and that title actually doesn't really matter too much ironically think of tcpip or sms erc is a similar thing it's a standard it's a protocol that people agree to use it's a social consensus by social consensus and so erc20 is one of the earliest uh deployments to the ethereum blockchain that people agreed would just be the standard that we use for erc20 tokens and erc20 tokens are fungible tokens fungible assets and maybe you don't know what the word fungible means but you know it in practice if you have two one dollar bills and one is crinkly and old and has like graffiti on it and maybe

it's ripped in places and then you have another dollar that's pristine that you just got to the bank got from the bank both of these things are worth one dollar and you kind of don't really care which one you have because they're fungible right and then we can also take 10 one dollar bills and those are equal to 110 bills because they're fungible right they're interchangeable uh and currencies are like this and many other things as well and then there's also the alternative to that on the opposite end of the spectrum is erc 721 again erc721 is just a standard the 721 standard that got put into ethereum these we don't really can uh think too much hard about the numbers behind these things it's just what people settled on erc721s are unique assets they are the opposite of fundable assets they're

non-fundable one asset is unique and different from another asset because like in in the real world this could be like the the specific painting that you got from a painter that you hang on the wall it could also be the d to your house because the d to your house is not the same deed for another person's house or the title to your car or your diploma or your certification or anything that is a unique contract between two people one contract is one specific asset that is unique and so it's non-fungible you can't interchange these things these are really basically the only two types of assets that exist in the world and therefore they are replicated this truth is replicated on ethereum because again ethereum is trying to replicate and

build an alternative financial system and so we need to replicate traditional financial instruments and be able to allow them to exist on ethereum and that's really what these two token types are uh do yeah great description right so like you know think of um think of standards that we now accept like jpeg or or gif on the internet these are image standards at one time you know these were new to people right but they digitized existing analog images into the digital world that's what erc20s are and erc2721s are essentially so erc20s are tokens as david said so stocks bonds um currencies things that are fungible with one another they can fit in the erc 20

category and be represented by tokens and then collectibles art pieces things that are unique and non-fungible uh can be baseball cards baseball cards whatever yeah they they can be represented by erc 721s and you may have heard the term nfts to describe these or nifties uh nft just stands for non-fungible token and it's the same thing as an erc721 so this is the asset layer and of course anything that is created on the asset layer and by the way creation of these tokens is completely permissionless so it's permissionless like the internet if i want to create a website i don't have to ask anyone's permission i just have

to find a server and publish the code somewhere um in in the same way that that that's what it takes essentially to create an an erc 20 or an erc 721 any token i can just create it permissionally permissionlessly i pay a fee and gas in order to mint that that is essentially the the compute mechanism for settling something on ethereum it's it's measured in in gas it's called we'll get into that in a little bit but once created that then settles on the ethereum network so that's the we've got a settlement layer we've got an asset layer the next layer up david which is gets really interesting is the protocol layer these are d5 protocols decentralized finance protocols uh if

you as you've heard of them and david was describing some like uniswap like ave you may have heard of these protocol d5 protocol primitives but they essentially allow us to do the the money verbs like exchanging like lending like derivative products basically anything that exists in the traditional financial world can be represented in some way on the protocol layer here david and you know we've often talked about uh defy and crypto in general as it's like it's speed running through the last 500 years of of finance right so you know uh from the base money layer to like collateral backed loans to credit type loans we are replicating the

traditional financial system in crypto can you talk a little bit more about this protocol layer and maybe give us some d5 protocol examples here the protocol layer is where assets achieve logic achieve financial logic right the protocol layer is where the if this then that statement gets embedded in and just for context like the bitcoin blockchain uh if again for the podcast listeners we have five layers here we start at the settlement layer this is the protocol and then then we have the asset layer and above that is the protocol layer and above that is the application layer and then above that is the aggregation layer bitcoin is just the settlement layer and the asset layer there's bitcoin the settlement system and then there's btc

the asset and that's by the way the asset layer it's only bitcoin in that asset layer right so right yes no ears 20s no erc721s exactly just btc the asset and this is why ethereum is so cool is because ethereum and its smart contract capabilities have this additional layer these additional layers on top of it that allow us to disintermediate more things and that starts at the protocol layer the protocol that probably everyone listening here knows first or learns about first is uniswap this is basically a very simple exchange protocol for people that want to exchange two different erc 20 tokens so if you have token a and you want token b you can go to the uniswap

protocol and you can get that done and you will be able to deposit one token and withdraw a different token of an equivalent amount of value minus a fee there are lending protocols such as compound or ave and this is where you can deposit your assets and earn yield denominated in that asset right and so you can take usdc to compound and deposit your you know hundred dollar thousand dollars into us into compound a borrowing and lending protocol and then you'll be able to earn an interest rate on your usdc or your eth or any other token that is part of the compound protocol there are other borrowing and lending protocols such as ave dydx is a borrowing and lending protocol and there's also derivatives dydx is also a

derivatives protocol uh synthetics it creates a synthetic asset protocol there are so many so many protocols this is basically what we're talking about is defy and why why defy decentralized finance is so cool is now it's this open sandbox for developers who love to tinker and now have the ability to access this open free permissionless sandbox to tinker with finance tinker with assets tinker with value this is not we've never been able to put financial tinkering or financial innovation behind the people who code and the people who code love to code and what we're finding is that people are really experimenting on ethereum with creating new

financial primitives that we could never have unlocked before and the really the best part about this thing is all these protocols on ethereum the goal is to disintermediate the legacy financial system uniswap is a protocol where the new york stock exchange is a centralized server with a centralized company right like uh compound and ave these are protocols where in the legacy world where your sofi is a centralized lending service they're all these legacy companies that are now instead protocols on ethereum that return value back to the hands of the people that use them because they don't extract fees right they don't have employees that they have

to to pay they don't have shareholders that they have to pay dividends to they're just protocols they're extremely thin and they are just tools for you to live your financial life without having to get gouged by an intermediary remember we defined the term protocols earlier and i want to just underline that for you so what is a protocol it's just a set of rules and ideally those rules are credibly neutral this is this is best i think expressed in something like uniswap so uniswap runs on ethereum and it will trade one asset for another and it's just a set of of code and rules there's no centralized intermediary that

can that can tell you that no we won't list this asset yes we will list that asset so it's completely permissionless and it runs without the uniswap team entirely if the entire uniswap team which is like right now a team of 15 people were to disappear uniswap would continually run so this is something that finances has never seen most of financial transactions have been conducted through banks through these centralized intermediaries but this this credible neutrality of protocols unlocks something uh completely new for civilization uh and again it it makes it so that these these systems are permissionless they're open they can't

be shut off they can be forked in all of these different ways the other thing i wanted to emphasize here david in the protocol layer is a term we use so often on bank loads that you actually coined and has become sort of a meme within crypto is when we think of protocols and d5 protocols in particular these are like legos and so people have called these we've called these money legos essentially because once you have lego primitives like the ability to exchange or the ability to lend or you have a asset that is essentially a stable asset so it doesn't deviate very far from from the dollar and it's not volatile like like ether or bitcoin is once you have

these primitives then you can construct them in all sorts of different ways uh and create increasingly complex uh constructions and that's where we we start to get to the level of being able to replace the financial system and i think people don't understand david the rate at which the developers are tinkering here right uh i mean think of hundreds of thousands of developers around the world all economically incentivized to build really cool things on this open permissionless decentralization decentralized money system right uh that's what the banks are up against right the banks with their 500 000 or so executives making decisions not really

innovating like i mean maybe maybe building a new interface for you once in a while they have to compete with this open ecosystem of developers who are incented to drink their milkshake that's what they're up against and these these these protocols these defy applications essentially could be stacked on top of one another in order to build increasingly more complicated more sophisticated more interesting things there's a very important concept that we talk often about in the bankless universe called the protocol sync thesis and what this means is that some protocols are more secure than others this is a very nascent technology

and protocols are being stress tested and this is different than a protocol or a standard like a gif or tcp where like you know we could there's not too much to lose if like tcp at least when the genesis of the internet was was occurring if we got tcp wrong there was not there was communication loss in d5 if protocols break there's value loss and that's a much bigger deal that's people's money and assets and so this is why this this industry is a little bit hairy is because there are some protocols that are better and than others and there are some protocols that are more vulnerable than others and this is a constant learning process but nevertheless the ability to stack protocols together is so incredibly

powerful that this is where you know the future of financial innovation is going to be because this is not something that we could ever replicate in a legacy world financial walled gardens uh don't do so well with financial innovation well if if wells fargo and citibank want to collaborate on some sort of financial product they don't really do that because they want to keep that walled garden up the thing about ethereum is that it's inherently an inside out system and so when uniswap is deployed to ethereum which it has been that means that other not only can people use unit swamp but other protocols can use can use uniswap and these protocols start to stack up against and on top of each other and the protocol sync

references that the best protocols the most uh hardened and secure protocols will sink to the bottom and be leveraged by not uh not just other people but by almost all other applications and protocols and so uniswap we would consider to be very very deep in the protocol sync because of how dependable and secure it is and then we work our way up the stack and each protocol offers more and more surface area for other protocols to build on top of and so there is both compound and and uniswap and then there are applications that build on top of both of these things that offer a third protocol uh and so like we've seen pool together do this uh

where pulled together it's built on top of compound and maker dao and then it also uses unit swap in the background and so that is a third protocol that leverages three protocols beneath it to execute its protocol and so the the there's there it has been a cambrian explosion of financial innovation as developers plug and play with different protocols and create their own protocols which then developers can plug and play with again and so there is a little bit of riskiness here because there's a lot of tinkering and sometimes this composability can cause unintended consequences and that's bad but also it creates this immense immense like creative landscape of possibility with what can be done which is not something

that humanity has ever seen before yeah another i guess point worth emphasizing on the the protocol sync thesis is that the the most credibly neutral protocols tend to sink to to the bottom and become the basis for other protocols as well uniswap is nice because it is maximally decentralized the code just runs autonomously it's a fairly simple code actually other d5 protocols are less decentralized and we talk about this this model called the the d5 truss spectrum that um you know kind of shows shows the difference on one side you have fully decentralized more autonomous protocols much more like a uniswap on the other side you have a code that

essentially has operators still behind it and that people can can tinker with and is is more centralized so in this protocol layer there could be a spectrum of things it's not all autonomous super decentralized protocols some of these assets can actually have corollaries in in the real world for example the stablecoin usdc for every usdc that is a dollar that's issued there's a dollar in a bank account somewhere in the traditional world that is much less decentralized than some other stablecoin assets like a rye or a die that that you'll get into as you go through bankless and get into some more advanced topics so there is this

spectrum of decentralization as well the fact that that spectrum exists i think is a is a good one there are many many uh people that are decentralization maximalists who only want to see fully decentralized protocols and that's a very tall order decentralization and you know uniswap level of decentralization and trustlessness is very hard to achieve and that's one of the reasons why uniswap is so compelling uh mimicking that level of trustlessness and decentralization is is a hard thing to do so i'm actually happy that there is this spectrum that of of trustlessness and decentralization that that we can play with because not all things i think are optimum to be

maximally decentralized i think there's plenty of value in hybrid centralized decentralized as we saw with usdc we would never be able to have usdc without some sort of compromise on our trustlessness having the the the spectrum where people can make things that need to be centralized centralized and make things that can be decentralized decentralized i think is extremely valuable one of the things that we talked about that that gets us of course this gets us is the ability for anyone in the world who has an ethereum address uh to use uniswap without a centralized intermediary so this is the the ability to trade any digital asset without a third party without a bank without

anyone else's permission so this is a huge unlock for for humanity for civilization for like our money coordination systems the the other thing that's so interesting to me about d5 david is um how much one developer can actually do so similar to the internet where you could create a website uh like reddit and if it was good enough it could it could put traditional media companies out of business so like bye-bye new york times right we've got this new website that does everything you do better and it's instantly available distributed to a global audience uh this allows developers essentially to disintermediate banks

from their home office right so uniswap which we keep coming back to because it is it is a fantastic example of a defy protocol was developed by one guy and it was his first coding process a project and he did it for less than a hundred thousand dollar dollars right um you know less than ten thousand dollars there's a ten thousand dollar grant that got him started oh it's so so this is the point that anybody in the world can start chipping away at the existing financial system uh you know it's inexpensive to do that it's expensive inexpensive to do that because you have the settlement layer out of the box you have the asset layer out of the box and all of these things compound uh as well so david we should talk about

the last two layers here in the bankless money stack this is the application layer and the aggregation layer i think not a ton to talk about here necessarily because there's tons of examples of these things but you know one example on the application layer might be something like a a coin base which is actually an application that's that uses this entire money stack that's a crypto bank that uses this money stack another application example might be a portfolio viewer like azirion or or a zapper that taps into all of these money protocols and gives you a user interface into your portfolio and your ethereum address and in into what's going on do you want to talk about anything on the application

or aggregation layer here yeah yeah that's a really good that's a great place to to end with i think because there's so many protocols out there there's uniswap for exchange there's also sushi swap for exchange zero x for exchange matcha for exchange uh and then with lending there's also i could list off five protocols for derivatives there's i could list off so many asset management so many so many so many protocols do you need to memorize all of these things like do you need to understand like what the url for every single protocol website's front end interface is no no you don't you can just go to the aggregation layer which ryan said is like things like xerion or a zapper which i use on a daily basis which will give me a summary of all my assets that i have and then also it will

give me options for what i want to do with my assets and it will route what i want to do accordingly to how i want to do it so if i have a bunch of usdc in my wallet and i want to trade it for ether i can just go to xerion or zapper and say hey sell my uscc for ether and then xerion or zapper will actually route my my trade my order through ethereum in an optimal way so that all of those protocols are totally obfuscated and this is this is what people are used to you know when you people are used to robin hood there's a bunch of logic going on beneath the hood of robin hood that that makes things seamless and automatic and this is what the aggregation layer does for people is it aggregates all the

protocols and it does all of the legwork of do making the right move according to the instructions that you give it and it does it all all of it for you and at the end of the day the ui on these things is absolutely fantastic there's a little bit of a learning curve to get into crypto but once you get over that that learning curve this this user aggregation layer is such a treat to use that it's just it's super powers like you say it's super powers for your money and finances yeah we're so used to the the traditional model in the traditional banking system of your the user interface being tied to your bank account so if i want to access my wells fargo account i have to go to the wells fargo website and it's i'm dealing with their crappy user interface i can't do

anything else with it but with with d5 with crypto essentially i could plug my ethereum address which again is like your crypto bank account into any user interface and these interfaces are you know constantly improving constantly one-upping each other constantly getting better and better so already the user experience people say that the user experience of crypto isn't yet as good as uh or is bad right and that's true in some areas but in other ways it's absolutely not true in other ways the user experience of crypto is a 10x or 100x that of traditional finance right here right now today but is getting better at a much faster rate so super excited about this

application layer and also the aggregation layer but in total that compiles the the d5 money stack this is the parallel financial system that we think is destined to replace uh the the traditional financial system or at least assume a lot of the capital a lot of the value from the traditional financial system hey guys don't go anywhere there is so much left in this podcast once we get back from the break ryan and i go into the value proposition behind ether the asset which we call ether the triple point asset we talk about the three different assets super classes and where ether and other assets fit inside of those asset superclasses we then talk about defy tokens and how they represent

pseudo equity tokens in this new new defy universe we also talk about the inevitability of crypto why is it inevitable that crypto is going to dominate the financial landscape of the future and then we finish up with some action items how to actually go bank list how to set up a crypto account how to manage a private key and then what to do next and what does that unlock we're doing our best to condense the most amount of information into one single episode which means there's so much left to talk about but first we have to talk about some of these fantastic sponsors that make this show possible if you are looking for a product that connects your fiat bank account with d5 tokens and products you need to download the dharma mobile app dharma is a non-custodial

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www.dharma.io that's d h a r m a dot io download the darba app and get yourself unbanked today if you want to live a bankless life you need to get a monolith defy visa card monolith is a one-two punch of both an ethereum smart contract wallet and an accompanying visa card that lets you spend the money that you have in your ethereum wallet everywhere where visa is accepted when you swipe your monolith visa card at the grocery store or at a restaurant it actually makes a transaction on the ethereum blockchain that spends some of the money you hold in your monolith wallet it's insanely cool and it's one of the best tools out there for living a bankless but still

normal life monolith also offers on-ramp services for getting your fiat money into the world of defy so it's trivial to top up your monolith card if you ever need to and your deposited money goes straight into your non-custodial wallet so your money is never held by a centralized intermediary because monolith is native ethereum infrastructure the money you hold in your monolith wallet still has the power of d5 behind it swapping assets on uniswap or earning yield in defy is at your fingertips go to monolith.xyz and sign up to get your monolith visa card today david this is the point at which i think we need to circle back and talk about ether as an asset because ether is a very important

money primitive as well inside of this inside of this financial stack in the same way that bitcoin is in the bitcoin network can you talk about ether as an asset and let's talk about an idea that we kind of created on the the bankless program that that helps illustrate the value proposition of ether which is the triple point asset thesis what is the triple point asset thesis and how does it apply to ether the asset yeah this is this is so cool uh and this is this is a great example of why programmability on ethereum is so powerful um so there are three asset super classes and this is true before crypto and crypto is all the crypto

assets that we talk about fall into one of these three outside superclasses all assets fall into one of these three asset super classes and and the three asset super classes are capital assets which are assets that produce yield uh like for example the the if you own real estate you can produce rents with that or if you own an equity you can receive a dividend uh capital assets produce yield over time then there is store value assets which are things that are uniquely good at holding value across time gold is a store of value asset interestingly real estate is also a store of value asset things are these things are intrinsically scarce and they don't decay over time

at least not very much uh currency and money like the u.s dollar is also a store of value asset but some sort of value assets are better than others many people would argue that gold is perhaps a better store of value over time than the us dollar because back in 1970 when the united states defaulted from the dollar uh and the gold standard one ounce of gold i think was worth like 30 or 50 dollars and now today one ounce of gold is worth 2 000 or something something crazy amount like that so not all store value assets hold the same amount of store value anyways that's store value and then the third type of asset super classes is transformable or consumable assets and these are what i like to call one-time use assets or assets that you consume in order to

produce something else or to achieve a goal and so like for example wheat wheat you can have it as one asset and then you can do something with it and then it can become bread and then it's a better asset or the gasoline in your car that is a consumable transformable asset that allows you to go from you know your home to your work allows you to produce something better like and really energy i think is such a fantastic consumable asset and those are the three asset super classes so david before you go on i want to emphasize that that point that you made about real estate is that an asset can span multiple asset super classes so you mentioned that real estate of course is a capital asset it produces a cash flow

but it is also a store of value because if you are looking to store your value for the long run and you're wealthy enough you don't necessarily store your value into something like the dollar that can be inflated away you store it in capital assets like real estate or like stocks so assets can be one asset super class or they can be multiple asset super classes so is that correct yeah that's absolutely correct gold is both a store of value asset but it's also a consumable transformable asset because it's used in industry right it's used in electronics to pass data and so there's many different assets that transcend more than just one um more than just one asset super class

so that so that brings us to ether then uh and you know the triple point asset thesis so it does that have something to do with these assets super classes absolutely and so this is what ether the asset is uniquely com why it's so uniquely compelling we have never seen one asset transcend all three asset super classes until ether the asset so ether is a capital asset because of proof of stake which is ethereum's consensus mechanism this is a very deep subject that we don't have time to go into on this on this episode check out our episode with vitalik buterin on designing ethereum where we go into why proof of stake is a very very strong

consensus mechanism but basically ether you can stake your ether which means basically that you lock up 32 or more ether into a contract on ethereum and then you are allowed to participate in network consensus which if you promise to not lie about processing transactions you will receive ether dividends again this is a very complicated subject but the point is you can stake your ether to receive ether denominated dividends and that's how ether becomes a capital asset ether is also a store of value asset it is the main trustless store of value inside of defy and it's the only asset in defy that has uh the level of trustlessness that it does have there's

no other asset in defy that has the permissionlessness and trustlessness that ether does like usdc the the uh the currency that represents a dollar that's also in d5 but you ultimately at the end of the day you have to trust that the usdc is in the bank with ether because ether is native to ethereum there aren't any intermediaries between either the asset and d5 protocols which means the d5 protocols love ether the asset as collateral that that runs that program so as a valuable asset ether inside of ethereum is is uh there's no and there's no competition for the the trustlessness uh for either of the assets so it's a great store of value because of the assurances that it offers and then

lastly the third asset superclass is consumable transformable assets and ether is you again uniquely positioned inside of ethereum because it is what we call gas for processing transactions if you've ever made a transaction on the ethereum blockchain you've no you know that you have to spend a little bit of ether to pay for the people that are validating those transactions and so you pay ether to the network and then that ether is actually what is paid to the validators or the currently the miners and in the future proof of stake the validators and that's what pays them a little bit of that ether cash flow that turns into their capital asset that comes from people using ether as gas for ethereum

now there's this future change to ethereum called eip1559 that will actually go from instead of just paying the transactor to the staker that share of ether it goes to burning ether which is a whole another rabbit hole that's worthwhile to go down that we don't have time to go into here but the point is is that ether powers ethereum if you want to make something happen on ethereum you have to pay the network a little bit of ether and that makes it a transformable consumable asset and so as as a function of the ethereum economy more and more ether needs to get consumed as gas to power the ethereum economy and so the amount that ether the asset will be used as gas

that powers ethereum will be a function of the magnitude of the of the size of the ethereum economy the fact that all three of these asset superclasses are combined inside of one asset which is ether is so incredibly revolutionary and that i'm just so excited to see how this plays out because it's a really interesting story i think the metaphor of triple point asset comes from kind of the state of states of matter you know metaphor or the states of matter that we that we all learned which is basically like you know matter can be a gas a liquid or a solid and ether can be a capital asset a commodity or a store of value a transformable rather or a store of value depending on how you use it so it spans all three of those things it's interesting to contrast that to to

bitcoin because bitcoin is a store of value as of we talked about this this kind of meme of digital gold people put their wealth in bitcoin for the future as is ether people can use ether for the same thing and of course ether as you mentioned david is also a great trustless collateral for this entire d5 economy in fact the only trustless collateral for this defy academy economy so it's a store of value anyway bitcoin is also a story value bitcoin is also a commodity because bitcoin is used to pay for um transactions on the bitcoin network so it's also a transformable in the way that that ether is people often overlook that they're so fascinated with bitcoin

being used as a store of value that they forget that actually if you do a transaction the bitcoin network you have to pay in bitcoin so it's a consumable in that way as well um but it's not bitcoin is not a capital asset so you cannot use bitcoin to produce cash flows denominated in bitcoin in the network in the way that you can with ether with ether you can stake it you can put it inside of a smart contract in the ethereum network and it will provide yield to you this almost reminds me of like a t-bill we sort of use that analogy a treasury bill so if you have dollars the government will say um you know we will accept your dollars and we will provide you a yield for those in

the form of a treasury bond and you get yields for your dollars you can do the same thing in the ethereum economy essentially take your ether and you stake it you bond it and you receive a relatively risk-free return on the ether that you stake and that's what makes ether a capital asset and again this is so incredibly revolutionary because the east stake rate or the amount of yearly uh dividends you get from staking your ether in my mind that is like the new internet bond that is a bond a bond market that's baked into the internet itself because this is a protocol right and so we now have this hybrid bond market protocol that uses ether the

asset to to run and likewise like the the taking that comparison even further bond markets are meant to power uh treasuries are meant to specifically power the us treasury but also corporate treasuries and they uh with the united states bond market the you can actually the united states as a network as an economy protects itself with the bond market it it financializes and funds itself with the bond market and ethereum and its proof of stake is uh this proof-of-stake system is using ether the asset and the ethereum bond market to provide security for the ethereum blockchain so the the comparisons here i think are really strong

yeah absolutely okay so uh we've kind of described broad strokes what the bankless money system is i think we should put a bow around this topic of of crypto monies at the at the base layer so we consider bitcoin and ether as the two primary crypto monies i think first it's worth maybe contrasting them and then talking about um all of the other competing blockchains because there are a lot if people go to you know any market cap listings you'll see a lot of other competing blockchains but first let's contrast bitcoin and ethereum because um we're of the mindset that the two chains are symbiotic right bitcoin helps ethereum ethereum helps bitcoin they're growing the pie together despite

the tribalism that you might see in the crypto space the reality is bitcoin is good for ethereum and ethereum is good for bitcoin but they are distinct and i think they're distinct on on two dimensions there's there's two different experiments grand experiments and crypto going on um first is it's a different monetary experiment so bitcoin's monetary policy and that is the the rate of issuance how it issues currency and of course it issues currency to secure itself to protect the network it is fixed cap so you said earlier there there shall only be 21 million bitcoin that is baked into the algorithms of bitcoin and if that ever changed if somebody tried to change that of course bitcoin would fork and it

would probably no longer be called bitcoin so there's this fixed cap monetary experiment going on ethereum's monetary experiment is uh not that it is minimum necessary issuance so it tries to balance its issuance and the the amount of ether that it issues on an annual basis with security because of course all of the you know currency that you issue whether it's bitcoin or ether actually goes to pay for the security of the network in bitcoin's case because it is fixed cap that security budget denominated in bitcoin runs out after a certain amount of time in ethereum it keeps going but the goal of ethereum is to minimize that issuance to

as low as possible as close to zero as possible right now it's about four and a half percent in one once uh staking is fully implemented it'll drop down to one percent eip 1559 might drop it down into the negative territory we have an entire episode on this episode two you should check that out if you're curious so there's these two grand monetary experiments going on here but there's also these two grand banking experiments going on um we showed earlier that bitcoin has sort of the the base layer asset money system it does that but its network only provides peer-to-peer transition of bitcoin it doesn't support multiple assets it doesn't support the ability to

program against it and to create defy applications at least it doesn't do that very well in any meaningful way so that means david that the bitcoin network is very reliant on these centralized intermediaries some of which we love some of which are super helpful that we call crypto banks so these are exchanges like uh gemini like coinbase like binance these are fantastic bridges from the traditional financial world into this new world because they will allow you to upload your fiat upload your cash into the uh into the crypto world um but they are starting to do all of the other things uh that the banking the traditional banking system

does today so they're starting to provide lending and borrowing and derivatives and of course uh they always have you know provided trading and so the worry here is that bitcoin is so reliant on these crypto banks that what ends up happening with the bitcoin experiment is we don't completely replace banking at all we just create a new set of bankers and of course the ethereum experiment goes a couple levels up and it replaces the entire commercial banking layer with this decentralized finance d5 protocol layer so that we can be completely free of the banking apparatus we're no longer in controlled by the bank so it's it's it's a completion of the crypto vision

and these two banking experiments are playing out as well how do you see it yeah that makes a ton of sense to me and i i don't want to discredit like the bitcoin value proposition the hard cap finite supply value proposition of bitcoin is so incredibly strong so incredibly valuable that we live in a world where it's easy to mint new assets companies can mint new equity central banks can mint new currency but no one can can mint new bitcoins and that's actually not even something that ethereum even tries to compete with it doesn't really even want to compete with that but on ethereum the ethereum protocol issues new ether every single block to ensure that it has security and so there's a different um

prioritization of values with these things and bitcoin prioritizes unprintability and assurances around such and you're totally right its biggest weaknesses is that it it tried to achieve this goal so well and so hard that it sacrificed uh being able to have its own native financial system but it has ethereum and so while while bitcoin is dependent on crypto banks like coinbase or gemini and also which in the future could be wells fargo because all of a sudden wells fargo just has to accept bitcoin and all of a sudden it's a bitcoin bank earlier in this episode we talked about how bitcoin doesn't really want to replace the financial system it just kind of wants to replace the us dollar

it's a good start but we want to replace the financial system we want bitcoin on ethereum and the my one of my theses for the world is that bitcoin is actually more useful on ethereum and there are many different teams or implementations trying to port bitcoin over to ethereum and it is definitely possible but it relies on that trust spectrum right and so bitcoin on ethereum has some perhaps some intermediaries or some protocols that that uh perhaps uh have some risk embedded into them but my my version of the future is that bitcoin can achieve what it wants to achieve and will it will achieve it better when it's on ethereum uh and so i think the marriage between these two systems i think are

going to be really really powerful like you said bitcoin is better because of ethereum and ethereum is better because of bitcoin absolutely and you know uh th this other stakeholder that we haven't given much attention to though we did just briefly when we talked about how bitcoin scales are these crypto banks right so these are exchanges as i mentioned um like coinbase like gemini um but but but they're also increasingly providing lending capabilities like block five for instance provides borrowing and lending based on crypto i'm sure coinbase and others will will follow suit they're starting to issue uh credit cards um this is all great because we absolutely need a bridge from the fiat world to this new world um and

we we need to make that as easy as possible so the bankless program is super supportive of all of these bridges that bring more people and more capital into crypto but the thing about a bridge is you don't set up home on a bridge right you cross the bridge and you get to the other side and we do not believe that the final destination for um the the self-sovereign money journey is necessarily inside of a crypto bank we think a crypto bank is much more valuable than your traditional financial system like i'll take gemini over wells fargo any day of the week but you know what i'll take over both is my ethereum address self-sovereign full control over my assets and that is the substrate on

which we need to build this bankless money system we don't want a new set of bankers replacing the old bankers so we are constantly mindful of that constantly cautious of that and constantly pushing to move crypto in the direction of most decentralized as decentralized as possible there are some other things we could get into when we talk about and compare and contrast bitcoin versus ethereum i think you should listen to episode 2 which uh which talks about sort of the trade-offs of a fixed cap monetary policy versus minimum necessary issuance there are definitely some trade-offs there and it's not certain uh you know how bitcoin will continue to pay for security in the

future uh you know so there's some back and forth there but do some due diligence on that check that out i guess david we should probably conclude this section by talking about why do we spend so much time on bitcoin and ether and why do we consider bitcoin and ether the base monetary assets of this this new crypto money system what about all the others what about uh eos or ada or xrp litecoin like like all of these other crypto assets when people look at the you know top 100 crypto are we just bitcoin and ether maximalists like what's going on here talk about that yeah it's a really important subject and

i think this is a subject that a lot of new entrants into the crypto industry don't it's a hard it's a hard thing to understand and so a lot of people miss it uh there is certain sets of values or ethos that is baked into this cryptocurrency industry and the first and foremost is decentralization and just because you are a cryptocurrency doesn't mean you are decentralized right like their decentralization is a spectrum and eos or litecoin are at different places on places on the spectrum than bitcoin or ether um and or ethereum so that it's all it's important to understand that decentralization needs to be upheld the most because that is what this entire industry is pinned upon if there is centralization in a system

it can have its head cut off right um and and that's bad because this is why uh david chom's digi cache in the 1980s never worked out is because it was this new trustless form of payments but it had this centralized company and that was its weakness that was its downfall any centralization is a liability on a network so that's really important to understand but really the most important thing to understand is really what makes these crypto economic systems bitcoin and ethereum sustainable is demand for what their product is and their product is block space bitcoin has one block every 10 minutes it's roughly one megabyte large and if you want to get your bitcoin transaction included

into that block that only goes out every 10 minutes you need to pay a fee to outbid all the other people that also want to get their transaction in the ethereum block a transaction takes up space i think a bitcoin transaction is like 13 kilobytes or something and that takes up space in the bitcoin blockchain and you have to outbid people to get that done and when you when you make that bid you are paying bitcoin miners btc as an incentive for inclusion which is how bitcoin uh can secure itself is fees from people that want to transact in bitcoin the blockchain and so and this is also equally true with ethereum ethereum also has block space it's in extremely high demand you might

have heard how expensive ethereum is or how high the gas fees are what that means is that there is block space on ethereum and is going for an extremely high price and there is a direct connection between the demand for block space and the fees that these systems are able to charge for selling their block space and the scarcity of the asset of the network so ether specifically has the what ryan said the minimum viable issuance monetary policy and what that means is that if ethereum can can charge higher and higher fees for his block space it actually needs to issue ether less and less and less and so the more valuable ethereum's block space is the

the less and less ether issuance there needs to be to secure ethereum the blockchain so the more fees that these systems generate these stronger and more resilient and more sustainable these blockchains are and the the why we draw a line between bitcoin and ethereum is that bitcoin and ethereum are the only two crypto economic systems that have demand for their block space bitcoin and ethereum blocks have been full for years for i i think ether block space has been full for ever since 2017 and big point block space has been full ever since like 2013 or 2014 100 capacity which means there is a bidding war between people that want to get their transaction into the blockchain other

blockchains do not have this this category eos blocks litecoin blocks like whatever and there are zero other blockchains other than bitcoin and ethereum that have full blocks people don't want to transact on these systems like how they want to transact on bitcoin and ethereum and that is why bitcoin and ether are specifically money because both of these things are sufficiently decentralized and censorship resistant and their the asset are is inherently scarce because the systems that these assets run on are sustainable and they don't need to issue further currency to pay for security above and beyond what they are collecting in fees

yeah absolutely and i want to put a fine point on what you said about decentralization because this gets back to the credible neutrality of the monetary system right the question for any any money is who has the ability to print more of it right for for bitcoin it's very difficult to print more um essentially if somebody tried to create more than 21 million bitcoin the entire network would reject it they would run different code they would stick to the original bitcoin it would no longer be bitcoin there's social consensus at the bottom layer the same is true of ethereum if somebody even let's say it was vitalik decided that he you know he wanted to issue more ether for some sort of you know governance proposal that would make the world a better uh place or extend humanity's life or whatever vitalik is

into um he couldn't do it because the social contract for ethereum is minimum necessary issuance and if he did try to do that the ethereum blockchain would would fork away and use a different version of the code so these two networks have strong social consensus on their monetary policy and on their issuance policy other blockchains don't necessarily have this many many of them have something called on-chain governance which essentially enables the people who hold the token and those are generally like you might call them the plutocracy the shareholders of the token would have the ability to vote on issuance and let's say they wanted to

increase the issuance of their chain well everyone in majority say i and like let's say there's 10 people that own over 50 the change goes through um something like the binance smart chain for instance does not have a monetary premium because cz the owner of binance can inflate bnb anytime he wants so the credible neutrality of the monetary system just isn't present in most of these uh competitors and the fact remains that bitcoin is absolutely dominant in its category of like digital gold replacement and ether is dominant in its category of smart contract platform backed by a store of value asset um

that said i think the bankless program and we are are open to what comes down the pike so i don't necessarily think that bitcoin and ether are the final last word on the monetary assets to hold in this emerging crypto economy so we have our eyes peeled for monies uh and for other chains that exhibit the the values and the characteristics that we we have talked about and have kind of the the credible neutrality and you know the protocol sync necessary to become dominant crypto monies we just we just haven't seen it in other chains yet it doesn't mean we won't in the future so if you're on the bankless journey you

got to keep your eyes open as well yeah people will often identify or name call in this cryptocurrency industry as like oh you're a bitcoin maximalist or oh you're an ether maximalist i think me and ryan are really bankless maximalists if there is a crypto system that provides tools to help people go bankless in a credibly neutral way then i would inc include that into the regularly scheduled programming as soon as i see another blockchain that has full blocks implying that people are the it's block space is in sufficient demand that people actually want to transact on it i will start to include that into my mental models but right now there's only two blockchains that have full blocks and that's bitcoin and

ethereum absolutely there's so much more in the bankless program why we talk about why a monetary premium is so important in a base layer asset you could find all of those materials in previous podcasts david we we have defined what the bankless money stack is can we talk about why now it's the time and this like maybe allows us to to zoom out for a minute and look at kind of macro look at just societal impacts why is now the time for crypto and why is now the time to go bankless yeah the answer to that is because of game theory right we've talked about this social coordination game that is money where as soon as people start to

coordinate and focus on a new money there's an incentive to do that and people always want to be using the best money possible ryan i know there's something that you're extremely familiar with called gresham's law maybe you can explain to us what gresham's law is yeah so this is the idea that bad money drives good money out of circulation whenever the two come into competition for for example if there are two forms of a commodity money in circulation and both are accepted by law with at a similar face value the more valuable commodity money will gradually disappear from circulation this makes intuitive sense right so if you have two sets of money let's say you have you know

argentine pesos and you're in argent argentinia uh and they're being inflated away and then you have maybe gold or maybe dollars which one are you going to spend first well you're gonna you're gonna keep your good money uh and your bad money you're gonna spend that first you're going to get rid of that so the good money goes out of circular circulation so what what you're talking about from a game theory perspective just to kind of link this together is that if we live in a world where the money printer is printing and it seems like we have lived in that world for the last 10 years and it looks like the next decade will continue towards that and maybe accelerate that well um where are people going to keep their their their their money if the us

dollar or even even other fiat currencies right become bad money they're continuously being inflated away they no longer hold their value well people are going to store their wealth in the good money and that might mean digitally scarce assets like ether like like bitcoin those will be held driven out of circulation essentially and so you know why now the game theory behind the money printer is essentially why now i'm reminded of when the first round of u.s stimulus checks went out for 1200 and brian armstrong tweeted out this picture of deposits into coinbase for those that don't know brian armstrong is the ceo of

coinbase which is the largest exchange in the united states and so uh right after the 200 the 1200 stimulus checks got sent out to everyone brian armstrong tweeted out this uh amount of dollar deposits into coinbase of varying sizes and like it was from like 900 to 1500 except the the it was a bar graph and the bar graph at 1200 was through the roof right because everyone got 1200 and so what were they doing they were taking their 1200 stemming checks they were sending it to coinbase so they could buy bitcoin and ether and this is an example of people when uh when the value of the dollar is deflating people will flee to better ways to store their own values or their

own wealth and so they will take whatever cash they have and they will hold the one that is not being inflated and they will spend the one that is being inflated so that they can get the value that it is worth at the moment that they sell it before it devalues so this is just classic game theory the other game theory aspect that's worth mentioning is how these things are internet native internet scaled and so you know like we were saying at the beginning of this podcast the dollar does extremely well inside the domain of the united states it also does well outside the united states because it's the reserve currency for the globe because of the petro dollar but there's other currencies that don't have those tailwinds like the yuan the euro and money is a shelling point game it's

a coordination game and because bitcoin and ether are monies that exist on the internet it can attract the attention of not just people that live inside are domiciled inside of a specific geographic region but if you are connected to the internet bitcoin and ether can be money for you because and because this is true and everyone else knows this is true everyone can look towards these new internet monies as potentially the money of the future especially in times where not just the united states federal reserve but all central banks are printing new currency printing new fiat there is already this massive global incentive to get rid of your inflating money for a better money and

there's also this massive incentive to pick the same money that everyone else is also going to pick and the only money monies that people can also pick are the money that exists on the internet and those are bitcoin and ether and so the the game theory behind the value of these currencies is so incredibly strong it makes me really optimistic about the future so david you were mentioning internet compatible money and i think that's really important because all of us are digital natives now more of our world happens in the digital sphere than the analog sphere uh covid of course has just accelerated that trend but it's a trend that's been ongoing you know it seems anachronistic for the future of money to be something like uh gold if if

the future of money is is not a nation-state store of value then why would we go back to the old days it seems like the future would have to be something that is that is digitally native that is internet native what do you think and i think this is more and more intuitive the younger and younger people get um i think the older generations might have a hard time understanding digital currencies um i think that conversation is getting easier but it's not even a conversation that we even need to have with the millennials and the zoomers they are on board with digital money it's just intuitive to them it's the digital money is is is great for smartphones and computers which is something that the zoomers and the millennials have grown

up with and things are just moving into becoming a digital realm everything is becoming digital and now we finally have the opportunity for our money to become digital yeah i think among younger generations it's actually harder to explain the value proposition of gold like why would you hold gold bars like useless chunks of metal what is that uh you know and it's much more intuitive for them to hold a digitally scarce monetary assets that that are bare instruments so there's definitely a demographic shift that that's going on you we have many baby boomers that are members of of the bagels program there's lots of capital in the baby boomer generation but this is also going to be a demographic shift as well and i can't

imagine in the next 30 years for the value of gold and the growth of gold uh to outstrip the the the growth of something that these these new generations support more which is which is digital gold which is digital assets and this is also true even of the recognition of digital scarcity so we were talking about these non-fungible tokens earlier well these are completely intuitive to younger generations who grew up on like fortnight and you know video games with all of these various economies and skins this is just so native to them there's a sense of inevitability about it the the other reason i think we are ripe for for crypto is this this growing i'm just call it a populist type movement that

we've seen over the past uh 10 years and that seems to be accelerating and emma's hitting a crescendo this idea of a bankless money this idea of money for the people by the people is incredibly attractive to society who has been kind of disenfranchised and feels cheated by the traditional banking system and the traditional financial system and what i think crypto offers that that's kind of unique david is uh we are not talking about tearing things down here right let the legacy traditional financial system be the legacy traditional financial system we're not here to tear that down we're here to build something new and build something better and to invite everyone over to this new

financial system and it's opt-in right like so this is a movement that channels populism in a very healthy direction in my opinion because we're not talking about setting fires to things and burning things down we're talking about building things up from the bottom up and i think it's very important as we enter into it what might be a tumultuous period of time in in in human history the you know the 2020s that we have productive outlets for this populist movement that's what crypto is that's what bankless is it's money by the people for the people and that's what bitcoin and ethereum truly are and the opt-in nature of these things is truly important because we've

never had a money or financial system that wasn't just part of the substrate that we breathed in because of nation states right like you are born in america therefore you are made an american citizen and therefore you now you have to use the american currency and use the american commercial banking layer and then this is true for every single country uh that exists right the the fundamental rules of how nation states exist is you are born into them and then you are forced to use their system and because everyone else uses that system no one really questions it but now we have the internet now we have the digital nation now we have the bankless nation where people can opt into these systems and the reason why people opt in is because bitcoin and ethereum offer incentives for opting in

that nation states can't offer uh nation states offer a disincentive to use their money which is to inflate it away and so they're actually disincentivizing the usage of the dollar and incentivizing the use of bitcoin and ethereum and every time somebody opts into bitcoin and ethereum they are doing it of their own volition because these things provided value to the people that are opting in right it's an inherent it's inherently voluntary which means that these things have to be competitive uh and that is why this this system is always going to is why the system is inevitable is because these things have to earn people's usage and it's going to do that and then the legacy system doesn't have

to earn people's usage it just gets it by default because it's never had a competitor the legacy financial commercial banking central banking layer has never had true competitors it's a pretty monolith monolithic system with no other way for people to exit until now until bitcoin until ethereum absolutely and it is of course true that d5 and crypto will have to earn it we'll have to earn these new individuals uh and i'm optimistic about that david because the the last reason i think the time is now is because i legitimately believe we are building a better financial system right try to try to get a millennial try to get a zoomer to write a paper check how cumbersome does that feel or to wire money in person from a bank of account or to fill out

reams of paperwork in order to take out a loan versus going to your ethereum account you know making a metamask transaction paying a gas fee and being able to do all of these things in uh in like an automatic way this is a better financial system and it's also incredibly neutral for the people by the people as you said the time is now my friend it's the time is now to go bankless what this new financial system doesn't ask for is your passport or driver's license it doesn't ask if you're a male or a female it doesn't ask your ethnicity it doesn't ask your credit score it doesn't ask your sexual preferences it doesn't ask your ancestry it doesn't care about your human identity as an individual it just cares

that you can use it right and so there is no gatekeeping and ethereum and bitcoin there is no stopping anyone from using these systems and so as a as a great equalizer i believe in the the great equalizing nature of these technologies as it relates to getting financial services out to people that were historically perhaps marginalized and disenfranchised from using traditional financial tools and david not to get too sci-fi on what is supposed to be a beginner's episode but i think many of the biggest users of financial services in the future won't actually be human beings there'll be other money robots and you know this is a this is an environment and ecosystem that is finely

tuned for financial robots interacting with other financial robots and i think as people go through the bankless system uh they'll start to understand what we mean by these autonomous money robots and the capabilities that they will have in the future it's an exciting area all right david we've covered all of all of the areas like why to go bankless uh what the the d5 stack looks like why the time is now i think what people are hungry for at this point in the podcast is how do i get started an answer to that question so david take us through somebody is is going from the fiat legacy system from zero to one how do they get started on their

bankless journey it's three easy steps and so let's go through all three of them and then i'll go back to the first one the first one is you need to get your hands on crypto money the like we've been saying the whole foundation of this whole entire revolution starts with the money that's bitcoin and ether and what you need to do is you need to get some sort of uh you need to get a service provider that can help you bridge your bank account to your crypto account right and these are exchanges this is gemini this is coinbase kraken there's many many different uh exchanges i personally use gemiini ryan i know you also use gemini as well coinbase is also a very popular one for people inside the united states and what

that allows you to do is it allows you to transfer the dollars that you have in your wells fargo account which you are trusting with wells fargo and ask wells fargo to transfer your dollars to gemini or to coinbase and then they are custodian your dollars except gemini and coinbase allow you to swap your dollars for bitcoin or ether and that's step one now you have crypto monies this is david this is the bridge we've been talking about the whole time the bridge from that old financial system that old financial world to this new financial world coinbase gemini crack and binance these crypto exchanges are the bridge absolutely that's exactly right and there's no way around this bridge because these are two different universes they speak two different languages we there's no decentralized

way to do this we need to go through centralized intermediaries because the old world is centralized and so because the old world is centralized we need centralized bridges but once you're there once you're on that bridge and you're on gemini and you've purchased your ether or your bitcoin the next step is to take self-custody and this is something that traditionally can't be replicated very well in the legacy financial world if you want to take self-custody of your money from wells fargo you go and take a withdrawal in cash and then you have your cash but then you're like well this is actually less valuable to me because it's not in the financial system it's in my hand i can't go pay for stuff like i typically do when crypto it's the opposite crypto's actually more useful if it's in

your own custody and there are so many ways to take your own custody over your own assets and you might have heard the phrase be your own bank this is what taking self-custody means is that you are the one holding your assets by either a private key that you've managed to memorize or a hardware wallet like this ledger that i have right here that manages my private keys for me there's also a meta mask wallet which is a browser extension on top of chrome there's argent wallet which is an application on your phone there are many many many ways to manage your private key and therefore manage your own funds and once you have your mana yourself management of your own phone funds there's a certain amount of power or self-sovereignty that you get with that

because you have your money and no one can take it away from you and so the you know so many bad things could happen around the world but if you still have your private keys you still have your money no matter what that means you can plug in anywhere that has an internet connection you have access to your digital assets no one can take them away from you great power great responsibility as we go from step one to step two risk increases as well because you need to level up you need to actually understand what it takes to hold your crypto assets and if you don't do it right you could end up losing your crypto assets which is why it's so important to get educated on this this is you know if we if we think about the the 2020s this is going to be the base

level financial education everyone's going to have to learn how to do some level of private key management or understand what it is to actually manage their own crypto and if you're starting now it's a great place to be you want to start at the beginning of things so we've got step one david get crypto monies on exchange got it step two take self custody we have resources and bank lists that can help you but what is step three after i've got custody of my crypto assets and i'm set up in these wallets what do i do then the next step after that is defy and this is where your assets become useful uh and so if you have ever invested in the stock market with your brokerage or with robinhood or if you've put put your money into a high interest

savings account or if you've done something with your money this is the same thing but now we're doing it in ethereum on d5 protocols right and so once you take self custody you can start to begin to use applications like uniswap for trading you can begin to use applications like compound for borrowing and lending you can take your assets you can put it in compound and then you can borrow against your assets and the assets that you've deposited in compound are earning yield for you and then the amount of money that you've borrowed from compound you owe an interest rate too and you use that collateral to backstop your loans then there's derivatives synthetic assets there's so much beyond uh just these basic preliminary defy

primitives but it all starts with taking custody of your own assets because once you have custody in your own assets you can then send your assets into defy and start using some of that smart contracting layer part of ethereum that allows your assets to become useful and to gain yield and to increase your wealth opportunities yeah and it's important to mention that it takes some time to go from here to there you don't have to do all of this overnight and you need to be comfortable with each step some people for instance don't have the ambition and really the um the interest in going all the way from step one to step three and that's fine so like my parents are a great example of this they they can happily own some crypto assets on a centralized exchange

and be perfectly fine so they're still living partially a bankless life because they're exiting some of their fiat to this new bankless money system but they're not going all the way bankless all the way bankless eventually means you hit two kind of flippings uh in your life one is you see the first flipping where your total net worth in the crypto money system exceeds your total net worth in the traditional financial system that's the first flipping you have more money over here in the bank's money system than you than you have in the traditional money system the second flipping is where you finally close your your traditional bank accounts because you're not using them anymore and i think of this a little bit like um canceling a newspaper

subscription somebody in the 90s wakes up they've been getting a newspaper subscription their entire life but then they're realizing wow i can see more and more information on the internet and on websites i no longer need a newspaper subscription so i'm just going to hit the cancel button on that and i'm going to live a like more digitally native life that i think is what happened will happen to all of us on the bankless journey you don't have to do it overnight you only do it where it's practical but at least you are on the journey and you know how to do this and you'll be able to front run the opportunity because you are a step ahead of the curve if you are on the bankless journey closing out your own bank account like very few people have gone that far down the bankless path but that is the end

goal both ryan and i here we hold the majority of our wealth in crypto monies natively on ethereum we custody our own money and we generally just use our bank accounts as little as possible i still have my bank account and that's because like you know everyone kind of still needs a bank account these days but i kind of have it relegated to the back of my mind i don't really think about it anymore i really think about my ethereum account all the time because that's where my money is um and so really i think the evolution of this is fewer and fewer people will actually open up bank accounts i think there are people and kids being born today or perhaps that have already been born that will never open up a bank account because what they can do on ethereum will suit their needs

just fine and there will be enough people on ethereum where they don't need their bank account and i look forward to the day where i actually do close down my bank account very few people have gotten that far but more and more are getting there every single day yeah and i will say it is the case for me that uh even even my this interim step this bridge step my coinbase and gemini accounts they are far more valuable to me than my traditional wells fargo account so uh i've already started the migration already started the the transition uh and i expect as you said many more we'll we'll we'll do this it's it takes a lot to learn though to get to get from one to two to three this is not something you accomplish like overnight uh there are even in weeks or months even in weeks years like even

just to send a transaction uh on the ethereum network for instance you you need to know how to custody your own keys you need to know what gas is you need to know you know how much to send there's some user experience pain so we we always talk about this journey is it's like the like the journey west right it's like it's for those seeking opportunity recognize that there's going to be some hardship along the way like it's this is not for everyone the the the the comfy life is over on the east coast but if you're looking for this new land of opportunity and that is part of the reason where we're going and you're willing to suffer some of those things if you're willing to be a pioneer someone who lives on the frontier then the bankless journey might be for you um we'll talk about the risk

because there are certainly risks but but uh there are also rewards on the other side david before before we do that um i want to get to another question i think we'll be asked at this point so the first question is okay how do i get started but the very next question after how do i get started you gave the three steps is all right what do i buy what do i buy right um and you know for this i think we have some like this is not financial advice we have some general guidelines but the the bankless thesis is to put a majority of your money on that base layer majority of your fiat money on that base layer monetary assets so uh crypto monies bitcoin and ether are crypto monies so you want to put a

healthy allocation of your crypto portfolio into the crypto monies like bitcoin and ether um and then you want to invest in the banking layer over top of it so this could be the more centralized crypto banking layer like if coinbase ipos for instance you might pick up some coinbase stock for instance but we're very bullish as well on this d5 banking layer these are d5 protocols all of the protocols that we were talking about earlier like uniswap and ave each of these have capital assets associated with them so these are governance tokens but they do potentially in the future entitle a token holder to cash flow rights on these protocols so you can

almost think of them as like like new pseudo stocks essentially new banking stocks in this new crypto money system they're not quite stocks they don't they don't have legal uh guarantees but they could and will enable you uh to of right to to to get some of the cash flows of this new crypto money system so these are defy tokens and there are indices that you can buy one is called the d5 pulse index where you can actually get the top 10 d5 tokens in one index you don't have to worry about which uh which d5 protocol is is uh you know going to be king in the future or not you just invest in an index so david i would say it's the answer to the question of what should i buy make sure you have a

healthy allocation of crypto monies so eth and bitcoin and then also a healthy allocation to this banking layer defy money protocols you can buy that through an indice and i know you've got like a you're quick and dirty a third a third a third why don't you why don't you talk about that for a second yeah there is a another index which ryan and i are big fans of called the bed index which is bitcoin ether and dpi right so in addition to the dpi index there's another index which has dpi in it but also bitcoin and ether and i think these three domains are really the big three categories um that are really going to propel value in the future um bitcoin and ether are the big crypto

monies these are the new benchmarks and then there's the defy tokens which represent the pseudo equity of the of the defy market um ryan earlier you talked about the flippings that people have when they come into crypto first uh first people like migrate the majority of their value then the majority of their economic activity and then they close their bank account along in that process comes a very important uh uh turning point which i think you and i i'm definitely over on over the hub on this and i'm pretty sure you are too is what currency do you denominate in and traditionally people will denominate things in dollars like oh my coffee is three dollars there's a there's comes a time where the value of bitcoin or the value of ether becomes so value valuable

to you because you understand it or at least i'm speaking from experience is that you start to denominate in crypto monies uh and so when i make it when i make a purchase or when i make an investment i'm not benchmarking versus a dollar anymore i'm benchmarking versus ether because i think ether is a great crypto money and many bitcoiners will denominate with bitcoin because it's a good measuring stick of value that is a huge threshold to get across and so when you are making these defy token investments i think it's actually much more appropriate to evaluate them in ether terms rather than in u.s dollar terms because they trade against ether as the native money of ethereum and so that's i think a very important concept to take away with yeah totally agree it

very much in this crypto money system holding ether and holding uh d5 gives you kind of exposure to the ethereum economy and the bankless economy writ large right so in the same way that if you want exposure to the us economy you buy the s p 500 well these are the assets that give you exposure to uh the the ethereum economy and the bankless economy the other question folks ask of course is all right guys what percentage of my total wealth should i allocate to crypto and let me just say that is a question that david and i cannot answer for you because your circumstances might vary um we can tell you some some kind of general things of of what people do

once again this is not financial advice it depends what you need the money for what your long-term outlook is what stage in life you're in but what i will say is uh if you are younger if you are a millennial or zoomer you want to have a much larger allocation of your portfolio to crypto than than than if you're older right so crypto uh is highly volatile but when you zoom out every three year period every four year period uh it massively outperforms any other asset class that you you would buy so if you're buying crypto you have to allocate for for a long-term perspective so like don't just buy to

flip it in a month or a year like buy for a decade-long horizon and if you're willing to do that and you have faith in crypto to that extent and you're younger allocate a higher portion of your portfolio to crypto i i know some people who use what we call the crypto barbell strategy where they basically they'll have really riskless assets like um like t-bills treasury bills or something like that they'll have on one side of the bart bill they'll have nothing in the middle like so no stocks no you know bonds really no real estate and they'll have a ton of crypto on the other side that's a that's an interesting balance because it gives you the the upside exposure of

crypto um but you you always have that safety net to to fall back on with the other side of of the barbell and having kind of you know low risk t bills um that's kind of a way i like to think about a crypto portfolio i don't have a lot of faith in in stocks and bonds and other assets relative to crypto but um it's very important that you don't risk more than you can afford to lose in this in this market space there's there's all sorts of hazards on the road david what would you add to that yeah i would say the number one rule for investing in crypto is to never position yourself in such a way that you could lose the game and not be able to play um

and what this means is that like maybe you take a risky investment uh and then you are gambling your rent money and then that that investment doesn't work out and so you have to sell and now you don't have any crypto anymore don't do that always you can you can it's okay to take risky investments but make sure that when you place your bets that you are placing your bets in a way that if you lose you can still play the game and so one way to do this is to just slowly dollar cost average your way into crypto maybe just like a small portion of your paycheck every single week maybe you start with one percent of your net worth and then you move to two and then you move to three but you do it over a long time horizon this is a once in a

lifetime opportunity and messing that up would be catastrophic and so there should be some amount of risk averseness and practicality because while people consider these things risky because they're volatile i actually think that the better frame of mind is that it's it's better to make sure that you are always playing the game and you are always having exposure to these things and not getting out over your skis too far too fast and then because because this is a once-in-a-lifetime opportunity we don't have the ability to go back and do a do-over if you mess this up yes all that said of course i think if you talk to a traditional financial advisor they will skew to to an allocation that

is far too light on crypto so if you're talking to someone and they're like hey you're just one percent of your net worth uh you know two percent of your net worth and you're in your 20s you're in your 30s that is probably way too low for the type of exposure you need in this new asset class as david said um the internet doesn't come along very often an opportunity like the internet most of us listening to this many of us were too young to get in on the innovation the potential that was the internet um but we're not too young for crypto we're we're here the right time the right moment uh but you don't expect a crypto like opportunity 20 years from now you've got to take advantage of it you got to start the journey one other underrated way i think to get

exposure to crypto is set up a way to earn crypto as as david was saying this is an entire economy that is being created you can you can you can write you can construct media you can work for protocols you can uh do art and issue nft tokens you can earn crypto in this new economy that way so if you don't have the cash right now to invest in krypton a lot of us don't have the cash to put forward in crypto learn about this space and figure out ways to earn crypto figure out ways to to work for protocols there's a massive amount of job opportunities career opportunities that are going to be created in this

industry too and that's another reason to get in now yeah we should definitely be looking at the the price graphs of bitcoin and ether in 2020 and 2021 and it's this the market cap that has been piled onto these things are in the billions and billions of dollars and especially with d5 protocols and their defy tokens like ryan said some defy protocols have hundreds of millions of dollars in their treasury that they are looking to pay people for their labor in addition to that the nft industry the art industry where people are making digital art are selling for pretty lucrative sums so if you're an artist maybe look there uh if you are just a community manager or somebody who's good at just writing or content production go into the discord

channels of d5 protocols because they are looking for valuable community members ryan i have a prediction that ethereum will generate more jobs than the top hundred companies in the s p 500 combined over the next decade and it's because the amount of valuable surface area employable surface area on ethereum is so incredibly large and if you are looking for ways to break into this industry all you have to do is try a little bit just go and sneak under and peek under the hood there are job opportunities everywhere for people that have proven to be able to contribute value so first step is to get your education and second step is to get start contributing value into the industry well said everyone talks about the gdp

of the us the gdp of of china these these big nation states well the gdp of the ethereum economy is going to 10x is going to 100x over this decade so there's a tremendous amount of opportunity there okay so that's how you get started those three steps some allocation of your portfolio we talked about this bankless also provides resources for you so this entire program was created to help people on the bank list journey one of those resources is the bankless podcast which you're listening to an episode of we issued this we put this out in video form so you can check it out on youtube if you subscribe uh we we also push it out in in audio form so you can listen to it

that way in general we try to get the bankless message to you and bankless resources to you in in all of the different mediums of of media that are available we also have a newsletter that we publish so there's an entire program built around this to help you and those who want to go on the bank list journey equip you with the resources that you need to figure out this this crypto landscape david you want to get into some of the details of of what is in the bankless program yeah it's so funny when i'm looking for information about some certain d5 protocol or i want to learn how to do something i'll go and type it into google and the bankless newsletter will be the first thing to show up on like

how to do x in d5 and and if you are looking for specific information about stuff in ethereum bankless probably has content for you so definitely check out the bank list guide which is our index of all the useful tactics and information and theses and articles and it's just a treasure trove of content the bankless podcast on youtube uh every monday is a podcast which is a deep dive into one specific topic with one guest uh on tuesdays we do our state of the nation which is something in the the news cycle um and that's a live stream on youtube on on fridays we do the weekly roll-ups on wednesdays we do amas and that's just the youtube and podcast that's not including the newsletter

which on the newsletters there's the market mondays the tactic tuesdays writers wednesdays token thursdays and then for the people that subscribe to the bankless newsletter for the for the paid side of things there's also the bankless discord the bankless community where the bankless nation meets and so if you want camaraderie and support and help one of the most useful places that exists in crypto is the bankless community inside the bankless discord and so if you want that that's available to p uh to premium subscribers of the bank list program yeah absolutely i i can't emphasize enough the value of community you know when uh pioneers were going west they they hitched their wagons together right because they recognized there was there

was like strength in in community and the only way to survive on the frontier was through these communities of people who are helping one another um there are all sorts of risks in in d5 in crypto guys there there are scams there are hacks there are uh false promises uh there's ways to lose all your crypto assets if you lose your private keys you need a community of veterans who have experienced some of these things um the way i learn the most is is honestly through other people in the crypto community in the d5 community and we built a fantastic community of pioneers in the bankless nation so tune in to that david we should kind of conclude with with this because we've talked

about all of the opportunities and all of the potential i feel like people once they've gotten to this point uh and heard us describe this they're probably hyped up they're probably really excited they they want to start now they want to do this but we have to also issue almost a warning about this space because it's not for everybody crypto is not for everybody and i you know i think it's important that that that people take that message and uh let it sink in because with all of the reward and upside potential and if we're right about this industry this bankless money system like 10x upside 100x upside like there's massive opportunity massive upside if we're wrong right you could lose what

you put in and not only that when you're out on the journey using some of these these protocols and tools there's all sorts of bad things that could happen can you talk a little bit about the the risks that are involved in the bankless journey when we set when we when we start heading west yeah the risks are almost infinite right because they come in all different shapes and sizes and so somebody that's mastered the the realm of crypto today it doesn't mean that they've actually mastered the realm of crypto tomorrow things change all the time and so the learning process never stops we use the metaphor the dark forest in the crypto world and the dark forest is this metaphor where in you have to get from one side of forest one side of the

forest to the other and during that process there is no trail there is no leader there is no path to follow and meanwhile it's dark and there are monsters out there that will eat you and the cool thing about crypto people who have gotten navigated through the dark forest is everyone who's on the other side understands that everyone else has made it through the dark forest and so there's a certain amount of camaraderie for all the people that are on the other side of the dark forest getting through that dark forest is not easy and that's why we've created the bankless program to help make that process easier some of the more specific risks is there are people out there that are incentivized to quote unquote pump their tokens so you can buy their buy their

token and they really want you to buy their tokens because then they can sell their token and they make money so there's like these p these scam artists that want you to just buy their bags that's a risk their smart contract risk the d5 protocols especially the newer ones can have exploits sometimes when they hook into when one d5 protocol hooks into another d5 protocol that interaction can go wrong so that's a risk um there's plenty of different risks every step of the way and so it's all it's a challenge that we're all taking on uh together and it's something that i like ryan said is better when there are other people talking about it because the way that we protect ourselves from these risks is by talking about them not to mention the everyday volatility that crypto

experiences and this is a this will mess with your psychology if you're not used to this and even crypto veterans who are used to this i mean from from 2017 into 2018 2019 there was a 95 drop in the price of ether right 95 drop so if you engage in some riskier activities like maybe you took margin you borrowed some against your crypto you could have gotten liquidated that way uh during the the the worst of the bear market uh what always happens is narrative turns sour and everyone thinks it's it's over crypto is dead it will never resurrect and when you're in those moments it really feels like they might be right like oh shoot i was wrong about crypto and so often

times you can you can sell uh you know either you know you could sell during the the worst possible times you sell the bottom of a bear or maybe you you sell as things go up a little bit but you haven't fully realized the opportunity so this volatility alone makes makes crypto uh just very jarring and very difficult to people um the best thing you can do though is look at this asset class over the span of of decades and take a a a long-term view on uh your crypto assets so don't just buy for the short term buy for the long term and david every bankless podcast we we always say this we always say eath is risky bitcoin

is risky crypto is risky you could lose what you put in we really mean it like you could lose what you put in if you put your funds in a d5 protocol that gets hacked if you put your funds in a crypto wallet and you lose your private keys you could lose what you put in but then we say we're headed west this is the frontier it's not for everyone but we're glad you're with us on the journey and this is really important because people can get off on different stops according to their their comfort level you you talked about those three steps right if if you're not comfortable taking custody of your private keys you could stop at step one just keep your crypto assets in a crypto bank that's okay like you're still kind of on the bankless journey um you could

stop at the the second stop where you take custody of your assets but you're not using these d5 protocols um or you can go all the way and start using these d5 protocols and there's risk and reward at various stages where you start and get off on your bankless journey i think one of the the biggest points to make when we say like you could lose what you put in is is well on the flip side of things you will never actually lose what you put in if you maintain control and different different of those levels where first you started crypto banks then you start at self custody then you start with d5 protocols it's each one is harder and harder to maintain control but with for example the middle one where you take custody it

is possible to take custody and do it in a way where you will never lose those funds um when after i lost my first set of private keys i never lost a set of private keys and after that right that is a possible thing to do so it's not like when we say you can lose what you put in it's not like something like god is rolling the dice and like oops all of a sudden you lost your money like no you have control over how much risk that you want to bear and you have control over whether or not you will lose that money when i put my i'm not a coder so i don't understand solidity which is ethereum's coding language and so when i put my money into a d5 protocol i'm kind of trusting that that protocol is going to work out and i don't have those skills

to be able to vet those things so i talk to people that do have those skills but i do have the skills to manage my own crypto and so i know that i will never ever lose my own crypto because i know how to store a private key so there are different risk levels and different risk thresholds and also different skills that people can develop to make sure that they stay safe you will never actually you'll never accidentally lose your money for something that is no fault of your own if you take responsibility and you take good control over your money you will never lose your money there's something so freeing about that that sense of responsibility you don't get that anywhere else and you don't get the upside of crypto anywhere else but everything you said just emphasizes the importance of continuing to level up and

uh if you're on the bankless journey if you're tuned into the newsletter if you're listening to the podcast watching the videos then and you're doing that consistently you are leveling up on a weekly basis you know how i know that it's because david you and i are leveling up on a weekly basis as we do these podcasts as we write material as we absorb material from the crypto community we're leveling up alongside of you and the crypto community writ large is leveling up together so we're all getting better you know somewhat someone who's been on the journey for for longer might be a veteran might know a few more things but uh is still almost a toddler in terms of their learning because this space has so far to go we're all just kids trying to figure this out uh on our own but you do want to make sure that

you are leveling up on a weekly basis create a plan it's it's almost like um getting fit doing exercise right like you have to be disciplined there might be sometimes you might not want to do it a certain week or prices have got you down or something else but you have to have the the fortitude and the willpower to push through it and continue to level up as you go yeah like we've been saying this is a multi-decades opportunity and so just leveling up a little bit every single day can give you so much informational advantage um and so many people are trying to learn about crypto right now where and and ryan i know you've used this metaphor before where this is like learning to code html back in the early

internet like some of these very early basic preliminary skills if you can learn them earlier than your friends earlier than your families and earlier than your cohort these these skills and knowledge will pay dividends down the line so not only is it worth it to get your money into crypto earlier rather than later it's also worth it to get your brain into crypto earlier rather than later that's it guys we took you through d5 this is hopefully a canonical episode to take you through like why crypto is important what it is uh why the time is now and how to actually start on the bankless journey so we hope you enjoyed it a few action items we like to end our podcast with action items get to step one if you're on xero get to step one

open an account on a crypto exchange and buy some crypto money the second action item start going through the bankless guide david mentioned it early there'll be a link to what we call the the going bank list guide in the show notes click on that start absorbing the material and then make the commitment number three make the commitment to level up weekly this could include subscribing to the podcast to the newsletter to the youtube channel we've got lots of resources for you there david you think we accomplished it man did we set did we accomplish the mission of uh explaining this in one podcast episode yeah we definitely took a little bit more time than our first podcast but we definitely packed in way more

information so i think a job well done ryan all right well the other way you can absorb some of this material is go through the first nine episodes that we ever published on bank list so you can check it out that way risks and disclaimers of course eth is risky bitcoin is risky crypto is risky d5 is risky you could lose what you put in but we are headed west this is the frontier it's not for everyone but we're glad you're with us on the bankless journey thanks a lot hey we hope you enjoyed the video if you did head over to bankless hq right now to develop your crypto investing skills and learn how to free yourself from banks and gain your financial independence we recommend joining our daily newsletter podcast and community

as a bankless premium subscriber to get the most out of your bankless experience you'll get access to our market analysis our alpha leaks and exclusive content and even the bankless token for airdrops raffles and unlocks if you're interested in crypto the bankless community is where you want to be click the link in the description to become a bankless premium subscriber today also don't forget to subscribe to the channel for in-depth interviews with industry leaders ask me anythings and weekly roll ups where we summarize the week in crypto and other fantastic content thanks everyone for watching and being on the journey as we build out the bankless nation