AI Threatens Crypto Security

Transcript

Bankless Nation, it is the second week of Downtober, the weekly roll up. AI is breaking math. Will it break crypto as well? We're two weeks into October and blockchains are breaking according to Justin Drake. >> Not yet, >> who is calling for a mass migration of funds to more secure wallets and also tells everyone, don't panic. Uh, crypto perhaps maybe less safe than we once thought. It's all AI's fault. If you're wondering what's going on, it's AI and people are panicking.

>> Oh my god, that was a doozy of a tweet for sure. Uh, David is live in Singapore, by the way. We should say that. So, at the end of the today's episode, we're going to talk about token 2049 and what David saw there. Did he see the end of cryptography? >> That's No, that was not a topic of discussion. >> Well, I was going to ask you if you saw Tom Lee. He gave a session at token 2049. Some news from that is he's going to stop buying ETH after he collects his 5%. He's almost there. That's the hard cap. That was a question outstanding. He answered it on the week. We'll talk about what that means. Also, two Ethereum L2s 6 feet under. They are dead than dead. Abstract and Blast and maybe Starknet next.

>> Let's talk about that too. Yeah, Sarnet is not dying, but the there is a question about whether they will move off of the Ethereum layer 1 due to the quantum concerns. It all kind of comes back. >> Is that really why quantum >> I thought it was for token price? >> No, no, no, no. That that was why it's like the Starknet is already quantum resistant and so they're like, "Okay, well, our base layer is not and Justin Drake is saying get off like go move to safety." >> Yeah. And so I was like, "Okay, we'll take Justin D." Justin Drake's advice will become a layer one. Anyways, uh let's get into the markets. Uh Oto October is not a thing yet. We are still in downtober for the first eight days.

Uh Bitcoin down about 3% on the week to $82,300. ETH down 6% on the week to $2500. And then the altcoins are the ones that were up bigly are down bigly as well. >> Yeah, altcoin flush does continue. I think uh you noted Zcash down about 13%, Venice down 17%, Athena down 17%. So coughing up some of those gains from uh August and September, aren't we? >> I I believe last week we talked about how there they were already down in the double digits and I I said something along the lines of if this was all that it was then it's pretty easy. We're getting off pretty easy. Thanks for saying that.

>> It was it was not all that it was. Yeah. Yeah. I think what's really going on is u if we could just take last week's section, Ryan about yields are up and oil is up. We could just copy that from last week, copy paste it into this week. >> Ex except it's kind of worse when it's like six weeks in a row now of like high treasury yields and high oil prices. Uh we said this exact same line last week. Highest Treasury prices since 20 2002. The 10-year hit 5.3%. The 30 year is at 5.7%.

Uh you know it's one thing when you're just like noticing the market like and the yields are going up. Like oh wow yields are going up. This is different. This is starting to be a little different. I think the market both crypto and the trady just because like okay that's too fast. >> That's too fast. something's going to break. >> I think another place this comes in is if you're trying to get a mortgage. So, I if you've been trying to get a mortgage lately, but um >> I have not. >> Anytime I've tried to get a mortgage over the past 10 to 15 years, I mean, the rates have been, you know, 3 4% something like that.

>> Yeah. Favorable. Now, you're trying to lock in a mortgage, a 30-year fixed in the US, >> 7.5%. >> That's all downstream of treasuries. I feel like the housing market is going to feel some more than jitters in the short term. >> I mean, in the 1980s, we got into the double digit territory for a mortgage. Can you imagine locking in a mortgage at like 11 12% a 30-year? >> You have to be really into buying a house. Why would you buy right now when you could just rent? >> Well, that's kind of the maybe the bullish take on the yields and uh it was a take that you like to see. I think you included in the agenda because of that reason which is >> if you own treasuries so let's say

you're a whale you're an institutional investor you have treasuries you're actually receiving that yield in the form of cash you have to pay tax on it of course but here's the take higher rates inject more money into the economy that money gets allocated to equities and the effects of passive management drive valuations higher so all of those yields converts to cash investors take that cash and they plug it right back into equities And maybe that's part of the reason we have S&P NASDAQ all-time high. At least that's one ex explanation of it. I'm not sure that I totally buy it.

>> The the other thing that I always kind of just think of it when yields go up is like the whole Bitcoin the basic Bitcoin thesis of the government can't pay its debt when yields are at 5.5% versus what we were used to at like 1 or 2%. That becomes true five times faster. So if like this the debt that the government has to pay which creates money printing which creates liquidity is just is accelerating. Now a high yield environment historically has not favored Bitcoin but nonetheless like this this is ultimately accelerating the whole debasement trade.

>> I mean historically it hasn't favored stocks either yet where yields are going higher and stocks are at all time highs. So, we might be just in a I mean, we talked about this last week, but we've been in kind of the low yields regime for a long time, the Zer era, that sort of thing. We might be transitioning to a a totally new regime. Oil also broke 100 on the week. Why? >> Because of no new regime. >> You like what I did there? >> Sure. >> Uh yeah. Uh okay. Why? Uh there is oil flowing through the string of Hormuz. So the the the the data about the actual oil flow is like the hormuse is seemingly open but I think it's just insurance costs of the oil is really really high. So even though oil is flowing it is still expensive to ensure

it because Iran is still taking its attempt to strike at tankers as as it as it goes. And so even during the actual height of the conflict there was only so many days when oil was above 100. And we are once again above $100 an oil uh for a barrel of oil. >> So we've got some headwinds in macro in the form of possible yield. >> It's a tough environment. It's a tough environment. >> It's a tough environment. At the same time, Bitcoin is not yet capitulated. I mean, you said we're only down 3% even with >> We are having a normal midbull market flush right now.

>> That's right. Uh ETFs down on the week. I mean, had a pretty red day. uh you know the most red day in Bitcoin ETF since October. But on the other hand, Robin Hood added 25 million worth of Bitcoin to their balance sheet, their first purchase ever for a crypto treasury. Uh the reason they said was to align our company and vision with the crypto community. So this is not a lot of money against aundred million billion dollar market cap, but it is symbol symbolic, right? It's like you're if you're with us, you own some of our bags.

>> Yeah. I uh hosted a panel with Johan, the man featured on the page right here, and also with Joseph Luben on stage. And I asked Johan when he would be allocating $25 million of ETH to his balance sheet. >> He kind of filler bustered me. >> So you didn't get a yes from that, huh? >> I did. No, he did not. I did not get confirmation that they would be doing that. Well, um, some key levels to watch according to Mike, Michael NATO on he he actually is pretty bullish Bitcoin structurally. He doesn't think we go under 78K uh, Bitcoin price. Um, and he's not worried until we drop into the 60s. Of course, if we drop below 66, it's dunzo.

>> Yeah, it's already a little late. Like, h, okay, if it's if it drops below 66,000, I'll sell at 82,000. No, it doesn't work like that. And he does think a key on the upside trigger point is if we get past 90 into the 90s for Bitcoin price, it's looking pretty clear to get all the way to 100K. So that could kick off a wave of speculation. So maybe there's hope for October. >> What's he say about Zcash? Did he say anything about Zcash? >> He's bullish Zcash. He's got Zcash. I I will give a little bit of a teaser of my uh takeaways from the 20 token 2049. I am bullish Zcash >> even in the face of AI that's going to break cryptography David Zcash might be

going to zero along with everything else. >> Exactly. Well, not beyond mostly privacy but also exactly because of that because >> dude if in if if um AI breaks our cryptography math privacy is dunzo man it's gone we won't have privacy anymore. Uh, no. The Zcash has already got like it's already >> quantum secure, >> but not secure against AI super intelligence breaking math. At least that's what I understand. We'll get to that later. Okay, let's be bullish right now. Let's be bullish in the >> Yeah, I I'm trying to be bullish. You're making me You're trying to make me not bullish. I'm bullish.

>> Let's talk about a question that's been outstanding. I know as early as uh or as recently as last August, you had Tom Lee on Bank list. I think you asked him this question, right? You asked him, "Hey Tom, you almost have 5% of all ETH supply. That's what you said you would do. Are you going to buy more?" What did he say back in August? >> What What will you do when you hit 5%. And he basically didn't give me a clear answer. He's like, "We will consider it in 2027. We're going to slow down on our way there." But he did not close the door on 5%. He kind of left the option uh open for him. Well, I think he's a bit ahead of schedule because it seems like he's decided. This is what he said at token 2049 on stage and answer that

question of will Bit mine acquire over 5% of all ETH supply. Let's play the clip. >> Currently at 6 million. That took us a little over a year. We thought this would take 5 years. It took us a little over a year. More importantly, we did this all in the middle of a bare market. Okay. So, we bought ETH while no one wanted to buy it. We were glad to buy it cheaply. We bought a lot at 1,500, but it's in a middle of a bare market. And now we're going to stop. We only need to get another 100,000 ETH to get to 5%.

>> That's it. He said, "Now we're going to stop. We only need to get another 100,000 ETH to get to 5%. Uh they are 98% of the way there. So they're going to finish that way ahead of schedule." He said he thought it would take him 5 years. It took him one. he purchased all this ETH in the bare market. He's pretty comfy with his position. He's not going to buy more. He's just going to let it ride. Uh he also said this he gave last year at token. He gave some pretty crazy price predictions. He kind of doubled down softly on those price predictions cuz he continued in this uh talk to say now that we're we're done stacking in front of a 25x move. Okay, so 25x times

2500 ETH, I think we're at like 65K ETH price. So, he's not relaxing on his incredibly bullish price predictions for Ether, the asset. But he is saying, "I am done purchasing ETH in the Bit Mine vehicle for now." What's your take on this? >> Yeah, it it doesn't quite square if you're if you're telling me that ETH is going to What did he say? like a $50,000 market cap. >> 65 >> 65K, but he's going to stop buying it.

Like, if you do believe that it's going to $65,000 mark and you also happen to have $643 million of cash on hand. Oh, okay. Okay. Whatever. Um, also he has $643 million of cash on hand and it's a 20 It's a $13.6 billion asset. Where does he get all of the cash? >> I don't know where he gets the cash. Okay. I think >> I don't know where connected right just appears. >> I remember a couple weeks ago I was saying like I really like the idea of Bitmine equity because clearly he has money just money just appears in his hand. He buys ETH with it. He's done buying ETH. He's going to use it to

either invest in stuff or buy back BMNR which he is a huge shareholder of. Well, he actually answered that because there was a lot of discussion about this in the aftermath as you can imagine. A lot of um speculation, you know, some people said what you said, which was this was a take from a trader. I think he deleted the tweet. Fig Krugman, you know the tweeter. Yeah. Tom Lee thinks ETH is going to 250K or higher long-term, decides not to buy anymore after 5%. What is he doing? Right. Kind of mocking that like if you were really bullish on these numbers, you'd actually continue to buy. Uh Lex uh node had a kind of more of a galaxy brain read on this which is uh this is bullish actually. He said 5% is the materiality threshold for public companies under 13D. So what he's

talking about here is a law in stocks that if you if you own over 5% of an asset, that's kind of the legal line where the buyer stops being just like a general investor and becomes more of a a regulated asset manager, a disclosed watch entity. So that could be part of the the 5% rule. But in Tom Lee's own words, someone just said, "Okay, what are they going to do with the 5%." First of all, if you want to keep 5% ETH and you're staking almost all of it, which they are, you actually have to sell ETH. This is interesting. The Bitmine vehicle becomes a net seller in order to keep within >> the 5% uh range. Like not a huge amount, but anything they stake that gets above

5% they would have to sell. and he said this is what Tom is going to do with that 600 700K uh million I should say in capital buybacks scaling out their staking infrastructure it's called Maven and then outside ETH investments so things like Mr. Beast, you know, they they invested in Beast Industries, uh, data center stuff, uh, they did something with WLD, so all of these other investors. And Tom Lee basically said, "Yeah, that's exactly it." Is exactly correct. We're going to maximize shareholder value and do those three activities.

>> Okay. Uh, I I as an investor, I'm just interested in like, okay, if I buy BMNR, do I just have a share of this money printer that he clearly has? That's like kind of where my analysis just stops. >> Do you like do you like Bitmine as an investment then? I mean, it's pretty impressive what he's pulled off and but I still the Bitmine investment is still very much the ETH investment. I know you've had a question. Maybe talk about Bitmine, talk about ETH. You've had a question. Who is the next buyer of Ether after Tom Lee? And Tom Lee just answered the question. It's not going to be me.

>> It's not me. I'm done. I'm done buying ETH. Yeah, >> I'm done buying for now. So, somebody else has to take it from here. It's kind of like Tom Lee swooped into Ethereum. He's like, "All right, guys. I got this for a little while." And now he's kind of not like he's leaving, but he's just like, "Okay, you got to take it from here." >> Yeah. So, somebody else comes and buys after me now. >> Yes. So, who's that going to be? Are you more bullish on Bitmine than you are ETH? What's your >> I'm more bullish on Bitmine than I am ETH. I do think Bit BMR will outperform ETH simply simply on the fact that he has a goddamn money printer. And I and so like I don't have any better explanation for it. And he has I think like I said I think he respects his

equity in contrast to Michael Sailor who dumps his equity to buy back stretch and Bitcoin at the earliest sign of an MNAV. Uh and so I think BMR I think does appreciate in an MNAV because the MNAM MNAV game is over for Bitmine. Like that's that's what he's saying. He's not buying anymore. >> Specifically buybacks. What are they going to do with the cash? Buybacks. That's good for shareholders. Bit mine shareholders. >> So So the BMR MNAV to his holdings is going up here on forward probably. >> All right. Coming up next, we got to talk about um Justin Drake calls it bunker mode. Crypto might need to go bunker mode because AI is doing math. It might break some of the crypto

underlying our blockchain systems. That was the story of the week. We got to talk about that and all of the implications. But before we do, we want to thank the sponsors that made this episode possible. I've been trading crypto for almost a decade and I've used so many different wallets, exchanges, aggregators or frontends. And I'm basically always looking for the same thing, just one interface with a deep liquidity across a bunch of chains and assets where I can access markets like per earn yield, trade confidentially, and still control all of my funds. And I've never really found it. And I'm just always switching wallets, juggling gas fees or getting eaten by slippage. But near.com feels fundamentally different to me. I can do anything I want from any chain and keep all of my activity confidential. Crypto, tokenized assets, per payments. I can even earn yield

confidentially. One account over 30 chains confidential by default. It's the way that crypto ought to work. And it's powered by Near, which has moved over $30 billion crosschain, uses postquantum signatures, and has run over 5 years on mainet with zero downtime. Near.com is the best way to be onchain and be in control. Get 20% of your trading fees back on near.com using the Bankless link in the show notes. Not investment advice. Bankless Nation, we've built something for you. Introducing the Bankless MCP. Chat GBT and Claude are great at a lot of things, but ask them anything beyond the basics of crypto about protocol mechanics, tokconomics, or just what happened last week in crypto, and the gaps will start to show.

The problem is context. Banklist, on the other hand, has spent almost a decade building one of the deepest archives of crypto data anywhere. more than 2,000 podcast transcripts, 10,000 articles, and countless conversations with the people actually building this industry. And now we've structured all of that data into the bankless MCP. So you can go and connect it to your claude or chatbt and suddenly your AI can answer your crypto queries with the entire banklist archive behind it. And every new bankless article or episode gets added automatically so the context keeps staying up to date. The banklist MCP is exclusively available to banklist premium subscribers. So you can go to banklist.com, upgrade to premium and connect the MCP in just a few minutes and all of a sudden your crypto queries to your AI LLM, whatever you use will

get a thousand times better. So go check it out. There is a link in the show notes. And once you become a banklist premium member, you can hop into the Banklist Discord and let me know how you like it. Cheers. Justin Drake this week tweeted out a tweet that just shook the entire crypto industry. Uh it's a long tweet and I will read out some select excerpts. Today I call on the blockchain industry to calmly begin planning for bunker mode in quotes. My personal recommendation is to set in motion a controlled mass migration of assets to fresh addresses, i.e. addresses whose public keys remain hidden behind a hash.

Holders starting with large and sophisticated ones should consider moving the bulk of their funds to addresses that have never assigned a transaction. Don't rush. While I believe that there is caused for action, a rushed migration would do more harm than good. Don't panic either. Moving assets to protected addresses is a simple preventative step which does not require new cryptography or new wallets. In my opinion, it is now reasonable to break brace for the possibility that ECDSA breaks before Qday before quantum. What >> in the worst case months not years and by break I mean fast private key cryptography as in you can break a private key inside of one week on available hardware i.e. a large GPU

cluster which by the way we have been investing in those heavily all across America for two years now. >> Wait what? Yes. Okay. So that is what he is saying. That is the action that he is calling for is that if you are having your funds in insecure wallets, EDCSA wallets, you should move your funds to wallets that don't use that cryptography. >> Hold on. Can we just define what that is? That is at least 25% of all Bitcoin. >> Okay. >> Uh which yeah has a um a public key on chain somewhere. And that is also all Ethereum addresses >> that have a transaction outbound from them where there is a

signed transaction of funds moved from the address. So not a fresh address where it's just deposits in >> but any address that has an EOA address that has deposits out. That would be susceptible if ECDSA broke. And then also all Salana addresses too. >> So And I'm I'm sure there's many many many more blockchains beyond that as well. >> Okay. And now we knew this was a possibility with quantum. In fact, we had Justin Drake on Bankless >> two years ago and then with recent updates about kind of the quantum threat and that's why the whole lean Ethereum road map exists. And so quantum at some point maybe 2030 as early as that could

start to break our cryptography. He's not talking about quantum right now. He's talking about something else that could break this cryptography. >> Just math. Just normal math. >> How? What is the vector that he's talking about? What has just emer once again from Justin Drake? Recent days have been humbling for human mathematical intuition. Longheld unquestioned hypotheses have fallen. Wow, really big words. Uh, yesterday, OpenAI dropped a bunch of solved math problems. And so, we'll get into that in a second as as soon as I'm done reading the section. So, back to Justin.

Yesterday's OpenAI drop made it clear that mathematical super intelligence is upon us. They said is they say there are weeks when decades happen. We are about to live through weeks where centuries of mathematical progress happen. Could our magic 64 bye ECDSA signatures be too good to be true? Was it just security through obscurity this entire time? Elliptic elliptic curves feel especially vulnerable to super intelligence. Okay, so let's get into the OpenAI news. So on Tuesday, OpenAI released uh ma to mathematicians. Hundreds of new findings that span a wide swath of topics including algebra, number theory, theoretical computer science, and mathematical logical topology. Uh these this is kind of a continuation down from

the the Millennium Prize problem, the Navier Stokes Millennium Prize problem. Well, sounds like OpenAI was like, "Hey, we just solved that really big problem. Let's go take care of 377 also medium to medium large problems. Uh and the rate at which they just solved all these problems downstream of the Na'vi 6, it was just it all happened so incredibly quickly. >> Yeah. I mean, it turns out AI is really good at math. It's a verifiable domain like coding. And it can spend tens of thousands, even millions across agents of hours on individual problems and just solve things very quickly that human mathematicians haven't had the time, don't have the skill level to actually

solve. And so I think when Justin is seeing information like this where 377 unsolved math problems are now solved, he is kind of just extrapolating into the future >> and saying I think that's right. But I also think that he has more in like more behind the scenes sources and insights than just the open AI disclosures. probably probably yes he is an insider in the world of quantum certainly because he was connected to the Google quantum team to me I am also I also think he could just be kind of vanilla extrapolating the normal progress of AI which is very

very fast and it's not just the quantum issue but it's the parallel path of there are normal classical computing tricks that you can do to accelerate breaking cryptography in a brute brute force way. >> Mhm. >> And using AI, there potentially are more tricks right around the corner. And when we have an industry, a $3 trillion industry, he's saying, "Okay, the largest ships that need to turn, the coin bases of the world, the fire blocks of the world, the custodians, the the bits, the uh the bit goes, all of these people need to start thinking about this problem now because it might take them 6 months, a year to turn their ship."

>> Well, it will take them that long. I mean Ethereum's road map right which solves a piece of this is what earliest 2029 something like that you like 2030 and so what this means is super intelligence like AI getting really good at math and what is cryptography it's it's just math uh could actually break some of the some of the signature schemes before that >> and before quantum it was like almost like 2 years ago 18 months ago for some folks there was sort of a wakeup call that quantum is on the horizon and could fundamentally break blockchain cryptocryptography.

This is like a second wakeup call from a different vector of attack that could result in the same or a similar outcome which is breaking underlying cryptography. That's what Justin is saying here. And I don't know I think he has reason to say that. I think it's more than just an extrapolation of just kind of seeing, oh, like AI is really good at math. >> Uh, he is deep in cryptography circles, you know what I mean? Like in the same way he was deep with quantum. I think there's a reason he is tweeting this out now. And it also seems um backed up and coordinated like Vitalik put out a tweet about this. Did you see Matthew Green?

We had Matthew Green is the most credible evidence to me that what you are saying of just like this isn't just like Justin Drake waking up on a Thursday and deciding to like pull the alarm bell. Read the tweet. What's he say? >> Yeah. >> Matthew Green is a cryptographer that we've had on the podcast once before. Uh very prestigious uh cryptographer and he just tweets out very casually, I think we might lose public key cryptography, which is wild. which is wild. >> Yes. And he says when people ask, okay, what do you mean? Well, encryption specifically, maybe not all of it, but encryption, we lose encryption. That means all HTTPS stuff. Okay. Banking, email, health records, passwords,

signal, WhatsApp, iMessage, all that stuff could be decrypted. Um, card payments, ATMs, all that could be forged. And this is broader obviously than just blockchains. If we lose encryption, we lose all of that stuff across cryptography. And Matthew Green, he's not even in the He's in the crypto industry, but cryptography industry, let's say. He's not cryptocurrency, >> and he is validating this claim as a possibility as well. >> Yeah. Yeah. Nick Carter put out an interesting tweet where he says, "AGI and Qday could probably take place in the same year." So these different paths of threatening to the security of our cryptography are are they're separate,

right? Like so like AI is accel accelerating both of these, but nonetheless like the underlying push is AI is accelerating classical computing tricks and also quantum tricks. And if you can do one, you can definitely do the other. And so it's kind of like god damn it, like there's no there's no like we're AI is just coming at us no matter what. and and things are are going to break. I feel like that's probably potentially why the market is dumping today. Like you could you could argue like the reason why Bitcoin is down like 3% today and the industry is down even more is like yeah like Justin Drake scared everyone uh because he like woke people up to just the inevitability that things break because of AI.

>> Well, Arthur Breitman, he's the founder creator of uh Tzos Tezos. He he he made the point that it's notable that open AAI is not saying anything about cryptography. And the reason they're not saying anything publicly could be tinfoil hat because they've already made some breakthroughs or are on the cusp of making breakthroughs and have to privately start to inform the rest of the world that these things are coming. >> Yeah. the the words that he used the lack of cryptographic results in OpenAI's breakthroughs could itself be a tell. So the 377 math problems apparently none of them were cryptography related but like that that's a matter of national security and

we've already seen the government step in on the Google paper when Google released a paper saying hey we actually have found a way to get to Qday even faster than we thought and like the government made them like censor that the the the information that they had so we've already seen this happen before and so people are there's there's a lack of information and It's giving people's imaginations room to like fear to have fear and fear-monger. And then also when you have Justin Drake saying, "Hey, don't panic." People are panicking.

>> Well, he's saying don't panic. He's saying don't panic, right? And you could do that. You could step into the the bunker calmly and slowly over time, but we're going into the bunker, right? Like what he's >> what he's actually saying >> the bunker is scary. Well, what he's actually saying is potentially all Ether on any EOA address that has sent ETH from it could be susceptible for this type of attack. And so what is the bunker? Well, that's you actually have to move your funds into a key into an address that's never been used before. That is massive not >> and then also not use it. You can't you can't use it while it's in the bunker otherwise you you explode the bunker.

>> All right. Nobody do anything on chain until we figure this out for like the next like it's another honestly it's another blow against um self custody I would say and onchain usability cuz like now you're telling people like oh yeah the address that you thought was safe that's actually not safe you have to go like move funds go tinker with it >> so I mean he might be right in raising this alarm it's just like it just kind of sucks there's no way to like not have some level of being scared about this.

>> Now, there are some people pushing back against this take entirely, saying it's a bad take, saying it's actually FUD. This is the head of um cryptography at Coinbase, saying, I wasn't going to comment, but Justin's take is a really bad take, so now I feel like I need to. He said, the fact that AI can prove theorems have uh been hard does not indicate in any way that problems assumed to be hard are not. our assumption on hard problems are not based merely on human fallibility but on a belief that inherent hardness exists. So he's saying like look in some of the cryptography there's some things that are just like really hard and doesn't matter how intelligent you are they might be like I guess physically impossible to break. I know there's a

whole thread here and cryptographers can kind of get into the merits of this case, but he's saying like don't go overboard. We like we don't know, you know, there might be some thresholds here that are just like more physical than um you know, then we, you know, a super intelligence can cook up a better algorithm to actually go solve these things. Uh Donrad also pushed back and he basically said, "Forget bunker mode. Okay, if this happens, we're all going down. It doesn't matter. There's there's nuclear fallout everywhere. You might it doesn't matter if you're in a bunker >> or I mean more practically, let's say ECDSA is broken. You've moved your crypto from one address to another, >> but the value of like because it's broken, the value of your asset goes

down 90%. Like, okay. >> Yeah. Yeah. Yeah. Mer had a take that he just uh rejects Justin's advice. He says, "You are way more likely to lose your money by superficially moving it around than for fundamental cryptography to break overnight." Uh, and then to to Don's point, if that happened, the whole world would break, not just the coins, and calls it an unnecessarily performative post. Uh, and for further down, he also does make the point, and I've seen this kind of echoed in a few of my chats, that Justin is a very competent mathematician and cryptographer. He is not the has not had the best track record with timelines.

That is not that has not been his best skill set in the past. Uh and so I'm trying to square these two things. Like if there's one person I know to trust about math is Justin Drake. >> It's true. >> And if there was one domain about timelines that he was going to get right, it would also be about math and cryptography. However, I will admit that Justin Drake's timeline projections in the past have not been uh the best. although he's been more right about quantum than just about anybody I can name in cryptography and that threat. And I think part of the genesis for Justin's tweet was to sort of accelerate the lean Ethereum timeline re really it's just like hey this is the reason we need to get this right because there's a question does lean we know lean Ethereum

fixes quantum does the Ethereum road map actually fix this vector and the answer to that question is like mostly yes Vitalic actually confirmed that this week lean has gone hash only no lises okay so hash is less susceptible to this type of AI super intelligence kind of like breaking uh lattises are more susceptible and so lean ethereum is leaning into hash only uh cryptography rather than lattises so that's a good thing the thing is there's still we're still years away from that okay so there's a gap here we're years away and then also if Matthew Green is right encryption could be broken so this means my understanding not a cryptographer is

that privacy feature just like might not be possible on Ethereum. So, you could get the hash and the signatures and the blockchain would still operate, but like say goodbye to like private mess, say goodbye to like uh any kind of like secret private coin data, FHE, like you could be saying goodbye to the privacy part of crypto if this is true, which again I've not explored what this means for Zcash. Um, but anyway, it's a whole category of like, holy like AI could really change this fundamentally and we're just uncertain as to where the future is pointing to.

>> Yeah, I feel like if this happens, like if something blows up and breaks in cryptoland, also the shit's breaking everywhere else, too. Like the banks, HTTPS. >> Yeah. >> Like cars are going to be hacked. I don't know, man. Like I I feel like the world's about to blow up now. >> Yeah, we're on the precipice of AI takeover or something. What one reason this goes back to um uh something I heard Scott Arensson say? One reason >> to maybe that I'm not as worried as I would be otherwise is I think right before this starts to happen, you know what you'd see? He he told me like quantum's not necessarily as near as people say because if it was, you'd

start to see quantum researchers like disappearing. Okay. and nothing to like they would be slurped up by open AI by governments like holy like help us solve this. >> Yeah. Put put into a literal bunker called the Manhattan Project 2.0 not sworn to secrecy jailed if they jailed if they talk and then they would be compelled to solve the problem first of the government and then of society. So, I think that's a that's a key when you see notable cryptographers maybe in crypto maybe outside start to kind of like disappear like I'm working on something else. All right, maybe that's when it's about to happen. We haven't seen that yet.

>> What world are we living in, dude? >> I don't know. I don't know. >> A world where some L2s are shutting down, though. A world with two less L2s, potentially three. We'll get to that third in a second. Blast and Abstract both have announced the shutdown this week. Uh quote from Blast. The ongoing cost of maintaining Blast exceeded the revenue generated by the L2. We do not see a credible path to making the chain economically sustainable. At its peak, Blast had $2.3 billion of TVL. Uh Blast introduced the whole uh yield and points phenomenon, rewarding points for for coming onto the chain. Uh and now it's basically at zero and it is at zero. So there is a if you have any funds left on blast uh October 26th is your date. So

about 20 days less than 20 days uh the layer 1 bridge contract will still work after that but the UI the UI withdrawal will be closed. Abstract quote from abstract after almost 3 years we are saddened to share that abstract is widened down operating chain focus exclusively on consumer crypto has ultimately proven to be unsustainable as a standalone model. This is Pudgy Penguins L2, right? Their ZK L2. >> Yes, that's right. That's right. That's right. >> And they tried to do this and they just couldn't get product market fit. So, they're shutting down as well. And then I saw this um >> Starknet. Starket tweeting out from official Starknet account. We are actively considering becoming an L1.

This would enable Starknet to become the first quantum resistant network with 2027 as our target. So, Starknet, of course, one of the original L2s >> now tweeting out that they may become an L1 for quantum reasons. >> Yeah, like it makes sense in in a technical way like like Starkness tech has always been super far like ahead of the curve and everything like that was a good pun. Ahead of the EDSA curve. >> Yes, that was great. Pat me on the back. Um, >> thank you. Uh, at the same time like, okay guys, like you guys have been posturing about leaving Ethereum as long as I can remember.

>> We're going to do it. We're about to do it. >> We're going to do it. We're going to do it. >> Just give us one good reason. One good reason. >> Granted, Quantum is a very good reason. So, it's a good reason, but like I don't know. >> I think token price might be a good reason, too. I mean, they're seeing well, like I think that >> all the tokens that are like blood on the streets this week, uh, the quantum tokens are up, including Starknet. So, >> there you go. And that the L2 premium, that L2 trade, all of that is is over. >> Um, I don't know, it's just just the smoldering of kind of the like remains of the L2 road map. I mean, >> uh, well, remember like this is I put this out this tweet. Somebody was asked this on Twitter and I was like, "Okay,

but like Ethereum will literally pay for your security on your behalf and you don't have to do that." That still exists no matter what. The the layer 2 business model is undefeated. And so if Starknet wants to become a layer 1, they're going to have to start to issue Stark and inflate Stark to pay for their own security. And why do you want to do that? >> Well, maybe because the token premium. Maybe >> maybe this is an empty threat and maybe we'll see this again in 12 months time. We might do it this time. Uh >> they might do it this time. They might do it for real. Coming up next, this was a win for for Bankless Values. Uh Fininsen with withdrew its unhosted wallet rules. This is a big deal.

Something scary on the horizon. Also, David, I want to ask you, you've been down at uh token 2049. I want to ask you what the vibes were like, what your takeaways were. We haven't gotten a chance to talk about that, so we'll do that after the break. Before we do, we want to thank the sponsors that made this possible. Some exciting news. We are launching a new podcast to help people figure out the crypto cycle, how to navigate it. The best crypto cycle investor I know, his name is Michael Nato. He runs the DeFi Report. This is the guy that sent me a sell alert before the 1010 price drop happened. His cycle analysis has been absolutely on point.

I've been following him for years and this year we started recording weekly podcast episodes. Each one we get into his portfolio, what he's holding, the market structure, entry targets, fair market value of Bitcoin and Ether, and where we are in the cycle. There's new episodes that are released every Wednesday. They're 30 minutes. They're short. They're punchy. I think this crypto cycle is harder to navigate than most. So, let's do it together. Go subscribe to this podcast. Search the DeFi Report wherever you get your podcast YouTube Apple Spotify or find a link in the show notes. There's a new episode waiting for you. Now, the Grayscale Zcash ETF passes $1 billion in aum, which is kind of crazy because the market cap of Zcash is $21 billion. So, almost 120th of the total supply of

Zcash. Pretty crazy. >> That's Tom Lee's 5% in an ETF. >> That's Tom Lee's 5% in an ETF. Uh in addition to the Grayscale Zcash passing $1 billion of AUM, the Winklvi also filed for their Zcash ETF. Ticker Wink ticker wink cute. That's cute. I think that's cute. >> I was going to I was going to buy it because like the Winklevi, they were early to Zcash. believe in Zcash when when like no one really paid attention to it and then I was like I'm not going to buy a wink >> because I'll just buy I'll just buy spot Zcash and put it in the shielding pool.

I'm not going to buy a wink. >> I can't do for David >> no wink for me. >> I mean good robust demand. Um Zcash has had an incredible year to 18 months or so and uh just a pullback right now David but I know you you remain bullish. >> Terrible week for Zcash. I am tewing into Zcash as we speak right now. >> Okay, not Wink, but Zcash. Um, we got to thank a hero, a crypto hero who has signed off for her final time. This is Commissioner Hester Purse. Has she resigned or was this just the end of her tenure? What's happening?

>> This was it. This was the end of her tenure. That's right. Uh, and she signed like a formal letter uh to the White House. Is that to Donald Trump? I think just like thanking him. Yep, that's right. uh thanking him for her her term there. And then she sent out another tweet saying, "Hey, thanks for everyone, including my haters. >> Did you see that?" >> No, I didn't. Thanks for the many kind words over the past week and for the engagement over my time at the SEC. Thanks to my many critics, too. Vigorous critics of government officials are part of way what makes this country great. No more tweets from this account. Be careful out there. Investor.gov, gov, which is the investor protections website.

>> Thank you, Hester. >> Yeah. Absolute class act. >> Yep. Just a legend. >> The greatest public servant of all time. >> I think uh Armstrong, Brian Armstrong summed it up well. She said he said, "What a run. You were always principled, humble, clear, and kind. We were all better off because of your work." I think that is true. She outlasted Gary Gensler. Some wins. I mean she sort of had the last the last laugh uh with respect to her proposal. Do you remember she proposed the token safe harble harbor proposal back in 2020 >> ahead of her time but that is basically the innovation exemption that happened in 2026 under Paul Atkins. So her policy

and her plan, I mean, she had the patience and fortitude to wait it out and actually see it through to implementation. >> Um, other than that, I mean, just what a first principles regulator. Like we need more of those types of people in in government. So, >> and she also like never cut us slack if we didn't deserve it. Like she wasn't like the crypto industry is not like bending over to Hester because she gave us everything she wanted. what we wanted. Like she gave us like responsible, >> principled regulation.

>> It was fair. >> It was fair. It was super fair. And in contrast to everything that came before her, that was like all we could ask for. >> Yep. I think she'll always be crypto mom. I think that's what it comes down to. >> She'll always be a crypto mom. That's right. That's right. >> Another win in the regulatory front was actually this uh this is from finent.gov, which usually has bad news for crypto. All right. This this press release was good news. It says this. Finen announces withdrawals of proposed digital asset related rules. And people forget, we've talked about it a number of times, but these rules were left, I guess, unimplemented, but still on the official books at Fininsson. One was a reporting rule, and the other was a uh

let's see, a mixer rule. Okay. And so these rules were first proposed in 2020. And this is what they would have required. So, anytime you withdraw anything above $3,000 from a crypto exchange to your non-custodial wallet, um the exchange has to verify the identity of the wallet before sending. So full AML KYC, if it's a $10,000 um move, then the exchange has to file a report to the government with your name, your wallet, your address, the amount.

So the whole net effect is all onchain wallets become AML KYC linked to a government database. They basically know where all of the addresses are mapped to. And again, this is like Zcash shielded. Like how do you how do you even deal with that? I guess the government knows uh what addresses are shielded. And there was also a mixer rule that was in place that if any asset crypto asset touched a mix mixer of any sort for anonymization like a tornado cash, it would be radioactive. So no exchange could touch it, no bank could touch it. It would just be blacklisted assets. So that was on the books just waiting to be implemented by some future

administration. Okay. And then Fininsen just this week withdrew both of those rules. So said we're no longer pursuing those rules, which is a big win because you we always talked about Fininsen and Treasury being kind of the final boss, the surveillance state being the final boss for crypto. Uh this is the final boss kind of like retreating a little bit into the background. So big win. One worry that I have is that with AI you can just find out whose wallet that is anyways.

>> Yeah. >> So what if they like just gave up on this because like oh with with uh chain analysis and like we are they they already have all that information >> and like they just got it for free because like what did Justin Drake say up above? He says about the cracking the cryptography. He was like, "What if we just had private privacy through obuscation >> and this is like a big topic of uh conversation at token 2049 and AI and like the the whole privacy narrative that's been happening in crypto is like okay there's actually plenty of doxing data out there but it didn't really matter before AI because there was so much data that the human couldn't do

anything with it. Now we have AI. Now we have all the data that we need. >> Yeah, there's a big problem. I think AI shakes everything up. Uh I mean, well, we were just talking about how AI could shake up encryption in general and then is privacy even possible in that world world if it starts kind of, you know, taking down our cryptography math? But I I remember um Zuko came on the podcast and sort of made this point and he he made it more, >> I guess, ardently. He he said that there you can't have privacy unless you actually do this. You actually uh convert any value you want to store into Zcash without the intention to unconvert it ever. Is that my my question was like

oh can you use Zcash as a mixer? You know move some funds in there >> go in and out >> and then take it out in a month and you'll be fine. He's like no AI is going to get so good that it can detect any of these patterns any of these signals. know if you even think it in your brain, it will know you want to do it before you actually do it. And so the only way is >> having no intent to ever bring it out. Now, someone could say, "Well, that's just Zuko pumping his Zcash bags." But I think there's also an element of truth there, which is like >> if you have a a fully intelligent AI, it it's so good at pattern recognition, like what becomes of privacy?

>> Totally. Actually, I met Zuko this week in real life. Yeah. >> Yeah. >> He's a good guy. He's He's taller in real life as I recall. >> He's tall. He He's a tall guy. He's got to be like 61, 6'2. >> Friendly guy, though. Just as friendly as >> Super friendly. Super quirky. >> Yeah. Super quirky. >> And that's saying a lot from a crypto conference right? >> Yeah. Yeah. Yeah. It was cool. Yeah. It was at a It was at a near dinner with The other person I met was Naval as well. Uh he he listens to the podcast. >> You met Naval? >> Yeah. Nal. Yeah. There was a a near Ravon.

>> Yeah, that's right. >> Actual living legend Naval. Wow, that's he was at token 249. Yeah, he was at this dinner with Zuko. Uh, and yeah, Mert was there. Uh, yeah, I think those were the big names. >> Okay. It was pretty cool. >> Tell me more about token 2049 as we close. So, this is Was this the first time you've actually gone? Uh, what were the >> This is my first token 2049. And the reason for that is just because token 2949 is just clear across the other end of the world. Ryan, it is uh 12 in the afternoon for Ryan. It is 12 in the morning for me.

>> Yeah. Thanks. >> Clear clear across the world. Uh which is why I've never really gone. But also like there's kind of no big crypto conference left. Like this is kind of like the big one. >> It's coming to New York next year. >> It's coming to New York. It's coming to New York in June. So I will I will gladly take the L to token 249 in New York. >> Well, they can come to New York now cuz it's le crypto is legal now in the US basically. >> Also, uh Dubai is really has recently gotten bombed. Uh and so they are trying to diversify from just Singapore and Dubai. So they're doing like you know ALS also throwing in New York there as well. So I'm pretty excited. So that but that being said, this is my first token.

So I don't really have any frame of reference other than other crypto events. Uh but I will say crypto very much alive. >> Yeah, >> this event is huge, Ryan. Five floors and there are people everywhere and there are people like evenly distributed all across the conference. It was massive. There had to have been maybe I want to say almost 20,000 people here. >> Wow. >> May maybe at least 8 to 12,000 at the actual conference itself. uh just massive conference and I've been to so many crypto conferences. This one felt like a true amalgamation of all of them just like a perfect it's it makes sense

as to how token got so big. It's like literally taking a bit the good stuff from all good conferences and it's just like a bit of everything. Uh the privacy tailwind I think is a huge topic of conversation. Privacy is a very big deal. I kind of think that that is going to be a reoccurring theme into in throughout next year as we've already talked about it on the podcast today. So, privacy is a huge topic of conversation. Um, uh, Hib gave a very very good talk. Remember when we had on the podcast and he was like, uh, humans aren't going to use crypto. AI is going to use crypto.

>> Yeah. >> Uh, because AI can't use credit cards. He gave a talk. He was like, I was totally wrong about that. Uh, X42 is is not being used. And turns out agents can totally use credit cards. >> Uh that that was pretty but then then it came into a conversation like AI is totally going to dox you and you're actually going to use AI to prevent yourself from getting doxed. And so I think I think there's just a lot of tension and it's AI versus AI coming in the future. It was a very big topic of conversation at the uh at this conference. And my other kind of big takeaway is like I think Ilia from Near is kind of a main character right now.

>> Um Near Ne near cracked the top 20. So maybe it's just like token price. Uh but like he's building the AI blockchain and AI is a huge topic of conversation. >> It's notable. I mean he's been pretty correct on both privacy and intents building a product and cracking the top 20. Uh >> they I mean your hasn't been in the top 20 since like 2021 or something like that. So it's a comeback story too. >> Yeah. Yeah. Uh, and then the other big takeaway was that like the conference was so big that somebody else's experience at the conference could have been totally different from mine. It's in Singapore, which is like the world's greatest international waters port. Like that's what Singapore is. It's like it's a country, but it's like international waters as a country. So many different languages. Uh, this is the second time

I've been in Asia. And so like it's crypto as an industry is matured enough to the point where like if you're into a specific corner of crypto, you could like never really butt up with somebody who's like in my corner of crypto. And so there's like an emphasis on just like this kind of the size and dispersion. Dispersion is the word that crypto has really found recently. That's great. But also like the energy is good. Energy is good. Like people are bullish. >> So are you coming back bullish? I mean some of the criticism of tokens past has been it's very sort of memecoin trader energy kind of speculative.

Did you feel that flavor or did it feel like grounded and I don't know >> more so than the Ethereum conferences because that makes sense more so than um permissionless because that's not really how when we were doing permissionless that's not really how we let it but um less than what you would expect to see uh from just like the crypto Twitter side of the world. Like crypto Twitter is very very memecoin uh focused. Uh, me and Coin had like one or two um mainstage slots out of like 30, so I wouldn't say it was overly focused on that.

>> This looks very institutional. I mean, although you did have Don Don Trump Jr., I bet he was talking some mean coins. >> Yeah. Yeah. Well, it was just like there was standing room only for Don. Did you see my tweet about that? >> I did. Yeah. Yeah. >> I was kind of like throwing some shade. Uh, no, I would say it was it was very very like done up and it was just kind of like a who's who. Like Ralph Paul was there. Um, uh, Zoron Pner. Posner that macro commentator. >> Oh, wow. He was there. Zoron was there. >> He was there. Yeah. Is that is that his name? Yeah, he was being interviewed by Ral Paul. That was pretty cool.

>> Um, yeah. So, and again, like Naval was there. Bology was there. BI is having the Zcash summit uh from the network state um summit that's tomorrow. So, I'm going to that. Um, yeah, just like it was a huge huge event with like basically everyone there other than you. >> That's fine. I'm totally fine with that. Thanks for going for both of us. Uh well, I guess let's end it there. Crypto is very much alive and well, but we'll see if we get >> an October for the rest of the month. >> Yeah, we got two more weeks for October. >> Bank Nation, it's been another week. We'll see you in a week. You know the deal. Crypto is risky. You can lose what you put in, but this is the frontier.

It's not for everyone, but we're glad you're with us on the bankless journey. Thanks a lot.