The future of crypto: What's next for this craze?

Caitlin Ostroff: 0:00

I feel like we should have a boxing ring a couple of chairs? Yeah. So there. So I mean, let's just kind of start off with a broad overview of this year, we've had a lot of crypto downturn, prices are down. Terra Luna, three AC,Celsius. I mean, just starting off, Ben, I'm curious, you know,you've been walking around this conference for the last couple of days. Is the crypto hype still there? Or has it fizzled?

Ben McKenzie: 0:45

Well, I think crypto is looking for a new story to tell. A lot of the stories that it has been telling haven't come to fruition. You know, it's... these currencies are not really currencies economically, you know, my degree is in economics. They're not a medium of exchange, a unit of account or store of value. So they're rather investments of money in a common enterprise with the expectation of profit to be derived from the efforts of others. So they're securities, they're unregistered, unlicensed securities that are being sold to the general public. So, you know, we've experienced this about 100 years ago, prior to having securities laws. And now we're sort of reliving it 100years later. So I think that,you know, the the air has come out of the bubble thus far. A lot of it right 2 trillion sort of vanished in about six months.But we're, where we go next, I think is not is hasn't been determined yet. You know, I think there's a lot of sort of dust to settle.

Caitlin Ostroff: 1:46

Charles, you're scoffing, you want to have a battle?

Charles Hoskinson: 1:49

It's absolutely bizarre to call a protocol, whereas the founders could disappear like Satoshi.And say it's a security I mean,what policy consideration is achieved with this. And you can create currencies with these things. That's what's El Salvador is attempting to do,you can construct something that is a means of exchange and has stable value. It's a derivative of basically a digital commodity. Now, you can certainly make anything you want a security, you can make oil a security if you want to. So I tend to take a more nuanced view of this industry. And I think we've achieved great things.We've gone from nobody to 300million people worldwide,according to Broadridge, who are cryptocurrency users, who are who have done something with a cryptocurrency 1000s of companies have been formed,publicly traded companies have been formed that are listed on exchanges like Coinbase, for example. And we've inspired an entire generation of people to reimagine how money works to reimagine how finance works,because let's be honest, here,the financial industry fucks people, 3 billion people are underbanked or unbanked.Billions of people don't have economic identity, there's inequality everywhere you look,it's hard to get a loan and Africa 85% interest rates for microfinance, these are the problems the legacy industry gave us. We didn't just wake up one day and said, Let's replace a perfectly good system. Crypto was born from 2008. And they promised us they were going to fix everything. And the solution was to make too big to fail bigger. So we created a whole industry to reimagine how money works, identity works and all these things. And to say it's just a security is a bizarre,bizarre notion, and it's not productive at all.

Caitlin Ostroff: 3:39

I mean, I think the jury's still out on some of the actual classifications of these crypto assets. There's,

Ben McKenzie: 3:45

I'd love to just stroke I don't know, have you had the opportunity to go to El Salvador?

Charles Hoskinson: 3:52

I actually met President Bukele,personally, I went to San Salvador so

Ben McKenzie: 3:56

so I did too. And as you know, you know, people really aren't using it as a currency there...

Charles Hoskinson: 4:01

Becasue it's a digital commodity and you can use it to make a currency. Okay.Okay, it's a bi monetary system.We have everywhere, Argentina does it. They have the dollar as a store of value, and then they use the peso to spend. It's perfectly reasonable to do that.

Ben McKenzie: 4:15

Well, you know, I have to say that the fact that it's not being used in the one country that's trying to use it as a currency to me speaks volumes.

Charles Hoskinson: 4:24

Did America use its gold reserves as a transactional currency under Bretton Woods?

Ben McKenzie: 4:28

I really don't think that's a fair comparison.

Charles Hoskinson: 4:31

It's digital gold. That's what they're using it for.

Molly White: 4:34

That's also lost half its value since introduced it as a store of value and he introduced it as a currency but it's not being used as one and it doesn't work well as one.

Charles Hoskinson: 4:45

It because it's a digital gold. It's the reserve the country's adopting.They're still dollarized and they're still basically under US jurisdiction. Guys. It's 13years in and we just got started. And what makes this space magical is everybody is trying to do new things and lots of it fails, VC 90% of the time stuff fails, he talks about markets going down, stock markets down $9 trillion this year, inflation is at eight and a half percent, the US debt is over $30 trillion. This is the system we have today. And they say don't worry about it, we'll make it better. Just trust us.Everything will be great. I remember when I went to college,it was four and a half trillion dollars in the national debt.Now it's 30. When does it stop?And what does the monetary collapse happen?

Caitlin Ostroff: 5:29

So I want to pivot slightly. We've also had a lot of crypto hacks that have happened this year. And you can argue that that's a byproduct of innovation within the industry.But Molly, I want to turn to you because it's something you track very closely. Is the hacks that are the hacks that we've seen this year, in the last couple of years, but especially this year,do you think that that is actually posing a barrier to better crypto adoption? Or is that just a growing pain?

Molly White: 5:56

No, it's absolutely a barrier. I mean, there have been some enormous hacks in the crypto industry, I mean,hundreds of millions of dollars,repeatedly, to the point that it doesn't surprise me anymore. I'm like, oh, only 100 million, you know, it's incredible. And the fact that normal people are being told to put their money into these projects, and then basically have to rely on the goodwill of the projects to maybe compensate them if there's a hack if they're able. But they have no, you know, requirement to do so it's unreasonable. I mean, there are no real consumer protections and the security practices are unconscionable,honestly. So, you know, I don't understand how a industry like this can say, you know, I meet crypto founders and people who work in the crypto industry and widely people in the industry will say things like, Well,yeah, 80% of it's a scam, 90% of it's a scam. But, you know,there's real stuff in there. And how can an industry accept that as, okay, and normal and healthy? And how can an industry encourage average people who don't have money they can stand to lose to become involved in something like this? Without,you know, any sort of protection?

Caitlin Ostroff: 7:17

I mean,Charles, do you think that the hacks are a barrier to crypto's broader acceptance?

Charles Hoskinson: 7:22

I've been a harsh critic of the software standards in the industry. The reason we created Cardano, in part was to put evidence behind protocol design, we've written150 plus peer reviewed papers out of institutions like University of Edinburgh, at Stanford, and other places. And we've been running for 1,200plus days, 24/7 uptime, not a single hack. So you can write software well, but you have to use techniques like formal methods for it. And unfortunately, the incentives and the industry are aligned right now to write software poorly, and get it quickly to market. This is not a new phenomena that's unique to cryptocurrency. We see it all the time in Silicon Valley. We see even Boeing doing it with a737 Max, and a lot of people died because of that. So whenever you have a misalignment of incentives, that's a problem.And that's when the regulator comes in to say it's the Wild West is being disingenuous. This is not 2012. This is 2022. We have MiCA here in Europe, next year a very strong possibility the US government is going to pass laws, and regulators have already begun trying to create frameworks, for example, the CFTC went after a certain Dow and said it's an unregistered association or unincorporated association. And there's been numerous regulatory crackdowns that have occurred and fraud is fraud. Software liability standards are difficult. And that's not our issue. That's an issue we inherited as it is science you hang on. It's an issue we've inherited as a society from companies like Microsoft, there have been tonnes of hacks in the 1990s and2000s. And ever since there was an internet on software, and the software companies don't want liability. Bruce Schneier was writing essays about this in the early 2000s, saying software developers need to be held liable for the software that they write, we say, hey, it's free speech. It's open source code. And US law enables that.This is not crypto specific, the crypto issue is that there's money behind that. Yeah. Okay.And so I do agree that there needs to be some standards here.And let's look at the average retail crypto holder. The vast majority of them leave their crypto on exchanges, and the vast majority of them are fairly diversified at this point. Yes,people have lost huge sums of money.

Ben McKenzie: 9:39

Most people have lost money...

Charles Hoskinson: 9:41

This year alone, I lost $2 billion. I'm right there with you.

Ben McKenzie: 9:44

But most people who have invested in cryptocurrency have lost money.

Charles Hoskinson: 9:48

Okay. And the thing is that most people who invest dot com startups lost money. You see, these boom bust cycles happen. There's enthusiasm for markets. It could be 1849 with a gold rush, it can be the 1870s with the oil rush.

Ben McKenzie: 10:05

Could be the tulip mania.

Charles Hoskinson: 10:08

And I don't know how to solve problems like how do I move a medical record from Mozambique to America in a trustless way, without using a blockchain to do something like that? I don't know how to create universal credential so that your academic records in Addis Ababa can be honoured in Oxford or other places without a blockchain, I don't know how we're gonna do Cop 26, and rebuild all of the ESG stuff.You know, all the supply chains of the world and every company in the world to be carbon neutral and environmentally friendly unless you have an audit layer? And what are we going to do just put China in charge of all of that? No, it needs to be decentralised and trustless because no one nation state can run it. And this is the whole world. We're talking about your identity, your privacy, your voice, what constrains Elon Musk was Twitter. If it's a protocol, it would constrain him other than that, you just have to trust them. The same for Mark Zuckerberg with Meta. And that's the point of crypto. And that's what we're building. There's going to be tonnes of broken plates along the way. And nobody seems to complain much about pets.com.

Ben McKenzie: 11:18

Yet the broken plates are the people the broken plates are the 10s of millions of Americans alone who have lost money.

Charles Hoskinson: 11:25

Okay. And they weren't involved in that they didn't consent to that somebody put a gun there. Know what I'm saying is they made a decision. And the thing about crypto is it gives you freedom,personal accountability.

Ben McKenzie: 11:39

But with no disclosure, sir. With all due respect, securities laws are predicated on disclosure, when you invest money, you need to know who the hell you're giving your money to? And what the hell they're doing with it. Now, is our regulated financial system good? No, I agree with you. But you're you're shifting each time we ask you questions about the industry, you're shifting the blame to other places, right.It's it's the all of the problems all regulated financial this industry, we are so good.So let's address those because we're not here. We're not bankers, sir. We are. We are simply you know, I'm a journalist, you're, I don't even know how you classify yourself.But we're here just trying to have an honest conversation about, you know, the fact that a lot of poeple have lost a lot of money.

Charles Hoskinson: 12:28

so, you think securities disclosures are somehow going to solve all the issues?

Molly White: 12:32

I think it's important to realise that we agree that there are issues in the financial system, in the legal structure around the financial system. But pointing to something and saying this is different, we should do this, is you can't assume that because something is different, it's better, it's possible for something to be different and also worse. And, you know,people are being taken for a ride in crypto, you know, with the promise that this is going to be the new financial system.And this is going to free people from the, you know, big banks that are ruining their lives.And so far, crypto is ruining people's lives.

Caitlin Ostroff: 13:10

I want to stop there before like blood is actually John. But I want to I want us to feel a little bit to some of that NF T craziness that's been another component of the last year and a half, two years, there's been there's obviously been a lot of celebrity endorsements that are still continuing to happen of NF T's and a lot of issuance on that on that landscape. I mean,why do you think that all of these celebrities and a bunch of very prominent people have interest in the crypto space?What is the motivation, their

Ben McKenzie: 13:41

money? The motivation is money, real money,they got paid real money to to hock a product. They were they were I can't speak to their motivations, you know, across the board, of course, or or higher their familiarity with Blockchain technology. But my guess is that most celebrities got a call from their agent, and they said, Hey, you can get paid X dollars to do almost nothing.And the celebrity said, Tell me more.

Caitlin Ostroff: 14:13

You don't think there's an actual, I guess,creator, fan base kind of application that it's,

Ben McKenzie: 14:20

I mean, I think,you know, I think that a lot of people are hoping there will be and maybe there will be but right now, I think it's you know, it's it's it's collapsing,that was in 99%. There's a heated debate whether the NFT market is club 97% or 99%. So I will leave that unanswered, but regardless, it's down significantly. And I economically that looks like sort of the most speculative thing of a already speculative thing has fallen the fastest as the price of money has gone up.I mean, one of the things that's interesting that I actually agree with Charles on is that,you know, we have created this easy money system. That's the title of our book. So I am I am showing this book. But, you know, we have created easy money. And in those times historically where credit is sort of easily, you know, monies is readily available people gamble with it. I mean,historically. And so I think that's what we're seeing, and if T's I think are a good example of

Caitlin Ostroff: 15:17

that we're getting toward the end of the time, but I want to just kind of quickly go around. Molly, if you had blockchain that was, to as much extent possible divorced from the speculation of cryptocurrencies, is there an application for the blockchain to actually change the way that things are built? Money is moved, I guess, is there a positive aspect you see to it divorced? It was speculation.

Molly White: 15:44

Yeah, I get asked that kind of a lot. And it's an interesting question, because it's kind of like asking, Well,you know, if fossil fuels had no emissions, Would would you find you know, them useful? And should we stick to using them?And it's like, well, maybe, you know, if pigs could fly, that'd be cool, too. But, you know,when you can't actually take something away from its fundamental properties, it's sort of not a useful question.In my opinion, I think there are positive things about blockchain technology, interesting things about the technology. But you also really have to consider the full picture and the negatives of it, the industry and how it is preying on people, and the damage that it's really doing and sort of look at it from the full picture, rather than saying, Well, if we solve these problems, you know, this long list of problems that has no real promising solutions, then yeah, sure. It'd be great, you know, if we can solve all the unsolvable problems, and absolutely.

Charles Hoskinson: 16:43

So protocols,or companies, those are your two options, the world either runs on those. And if you want to live in a world in the 21st century, to continue what we started in 20th century, of having a small group of companies have total control over the way your money works,your identity works, the way information flows, the media that you consume, we can do that. And they can live in nice regulated silos and have shares and you have no say, okay, and that's where we're at multi trillion dollar companies like Microsoft and Facebook and others. Protocols are like TCP IP, it's how the web works. And when you have a protocol,especially when you tokenize it,then that's a resource that you can use the regulate it,maintain it and sustain it.That's the point of the tokenomics. The why is it so volatile, because we're having difficulty finding value of price. And like the Gartner Hype Cycle, you tend to overvalue then undervalue, then overvalued. And eventually you find something. Amazon is a great example of that beginning2000, they collapsed, a lot of people lost money there, and 20,it took them till 2011 To get back to the value they had in2000. It was a scam company.Now, it's just people knew it was gonna be a big deal. But they had a hard time pricing that now. Well, hang on, I got it.

Caitlin Ostroff: 18:06

I want to I want to let Molly get one last word, and then I unfortunately have to end it so you guys can continue fighting.

Molly White: 18:12

I was just gonna say that you can compare a collapsing industry to Amazon,which did return to being a fairly highly valued company. Or you can compare it to the many more companies that have collapsed and have not continued to succeed. It's like people saying, Oh, well, it's the early internet that's going based on the assumption that blockchain is equally as revolutionary as the internet, which is something that you have to really prove.You can't just say that about any technology.

Caitlin Ostroff: 18:44

I have to cut it off there. If they're gonna wind up yelling at me. That was sad for me. Thank you guys so much for watching everyone's power. Thank you guys for taking each other on. And it's been a pleasure being with you. Thank you.

Ben McKenzie: 18:57

Thank you.