Charles Hoskinson Interview - Cardano ADA Lace Wallet, Vasil Upgrade, Ethiopia Digital Identity

Charles Hoskinson, the founder of Cardano, discusses the latest updates with Cardano ADA. We touch on the Lace light wallet, recent Vasil upgrade, Ethiopia digital identity for students project (Atala Prism), updates on partnerships with Boost Mobile and Dish, potential hardware development, what Charles would have done different looking back 5 years, plans for 2023, SEC crypto regulations and much more.

Transcript

Welcome back to The Thinking Crypto Podcast, your home for cryptocurrency news and interviews. With me today is Charles Hoskinson, who’s the founder of Cardano. Charles, great to have you back on the show.

• It’s wonderful to be here, how’ve you been?
• I’ve been well, been following Cardano very closely, as you all know, well, the folks listening, I hold ADA token, I’m a big fan of Cardano and a big fan of yours, Charles.
• I appreciate the Cardano pillow behind you.
• Yeah, it’s definitely there, so lots of questions for you, some for myself as well as the community, so Charles, I would love to start with Lace, which is the light wallet platform. Can you tell us about that and what are the goals for the Lace Wallet?
• Sure, we’re really excited about this product. So we’ve been core protocol developers for a long time, and we’ve done Cardano, we’ve done work in Ethereum Classic, we do work with Horizon, all across the board, and we’ve understood a lot through that practice of what is required to construct a protocol, what is required to make it secure, what is required to do that deep engineering work. So what area that we’ve had to as a result of that work, get involved in is the wallet space, and so we created Daedalus, but Daedalus is a reference. It’s not meant to be commercialized, it’s just meant to be a representation in the minimum viable functionality for an ecosystem, and then what we always assumed was that a rich quality ecosystem would start forming around Cardano, and it did. There’s Yoroi, there’s Flint Wallet, there’s Typhon, there’s Nami, et cetera, et cetera, and it’s gotten to a point where there’s enough diversity there that it justifies the existence of some new, exciting, innovative things that are actually commercial, not reference. And by being commercial, it means that they’re feature-rich and they do lots of cool stuff and there’s all kinds of ways that you can partner with people to bring mutual benefit. So about a year ago, we decided to start the Lace project where we kind of asked, what would be required for a next generation wallet? So it has to be lightweight, it has to be fast, it has to be highly usable, but also it has to innovate, it has to bring new things to the table. So in addition to all the things you would expect, like having the capacity to vote and delegate and store your money and easy to back up and hardware wallet support and so forth, we wanted to do two particular things, and bring them into the space and get them really exciting. One, we wanted to say, can we reimagine the security model? Right now it’s light wallet, full node. Full node, super expensive, super heavy, you’re basically running a database or server and a lot of other infrastructure on your computer. You can’t really do that well on a laptop and most desktop computers, and you don’t get a good user experience. That’s why a lot of people will say Daedalus is slow or it takes a long time for Daedalus to sync, that’s a universal problem amongst all full nodes, it doesn’t matter if you’re in the Zcash ecosystem to Bitcoin or Ethereum, that’s just how those wallets work. Now, the advantages, they have great security and you don’t trust anybody. When you get a transaction, you’re in a position where you can know with certainty that that transaction is completely right. When you look at a light CLion, they’re very lightweight by design, which means they work on a cell phone, they work on a browser, the problem is the security model does involve trusting a third-party to a certain extent. So we said, could we have something that’s like a full node, but it has the light CLion experience. So this required the invention of a new protocol called Mithril and we spent now about a year working on that protocol and we’ve got it to a point where it’s almost ready for prime time, and Lace, we believe is gonna be the first Mithril-enabled wallet. So as it goes through Beta, we have to get a lot of things cleaned up, but then next year it’ll be enabled with Mithril and that effectively means it’s as if you’re running a full node in terms of security, but you get the performance and the user experience with a browser wallet well like CLion. So that’s really cool and that’s really exciting and it’s something we hope that can spread throughout the entire Cardano ecosystem and every Cardano Wallet eventually supports that technology and we’re happy to be the first mover there. The second thing we really looked carefully at, was this idea of an identity-first wallet. So we have this great product called Atala PRISM, it has about 7 million customers and those customers are doing some great things, but basically, it’s a data standard identity framework, and what’s so cool about that, is that you can start talking around how does identity operate on the cryptocurrency space? So how does that fit into DApps? How does that fit into wallets and why do you care? Well, you go from sending to a synonymous address to a human readable address. So you send to Charles, not a pseudonym, you send to Bob, you send to Alice, these types of things. You have friends, you have secure communication channels. Eventually you can talk about higher order things, like estate planning considerations. A great example would be what if you die, what happens to your crypto? Well, using smart contracts and identity, it’s very easy to create sweep accounts where if you don’t have a proof of life or a dead man switch, something you’re doing like decrypting your wallet every 120 days or something like that, it gets swept to a custodian and then there’s a recovery process. So if you lose access to your wallet or you die, you have this means to basically recover it, amongst Tide, are a whole bunch of other things like enterprise wallets, how do you do in an organization where you have 500 employees and you wanna give each and every one of them spending policy and do that type of orchestration and so forth? So the integration of PRISM into Lace, it’ll take some time to do that, but step by step, each step of the way, it’ll add new capabilities and functionality, and you can start talking about all just kinds of cool stuff, just like what I mentioned in addition to how do you add the regulated space into this? Like for example, some offerings like IPOs, they say, “Well, we can only allow non-US citizens to participate.” Or if you wanna create an exchange account, you have to go through KYCML, if you go through KYC with a DApp for supporting exchanges, what you’d be able to do is one click creation of account with an exchange, and just start trading and you don’t actually have to go through KYC for each exchange, for example. So these are kinds of things that we’re really excited to explore in the space and in addition to a DApp store that we think is gonna be best in class. And there, we’re really pushing deeply into the certified software space. So we have this problem of how do I know a DApp works? How do I know DApp is functional and secure, how do I know DApp is not fraudulent, how do I know it’s really Charles’s DApp versus a scammer’s DApp? I mean, look at Twitter with the bots, it’s pretty, pretty pervasive, so what if you had a certification standard and you visually represent certified software differently, and part of the certification process is answering all those questions. So our DApp store that we’re deploying with Lace, which will be in Beta this year and launched next year, that DApp store is going to actually be able to visually represent certified DApps differently from uncertified DApps. So as a user of software in the Cardano ecosystem, we can start differentiating the things that where people did their homework and there’s a higher probability of security and reliability and honesty, from other things. So that’s kind of an ecosystem play, spaces for Dexus to play, spaces for NFT stores to play, identity first and being able to integrate that and make it much more usable, so that grandma can finally use the wallet securely and safely, and then also being able to maintain our reputation as a protocol developer, meaning that we can roll around crypto, we actually understand security at a very deep level and we understand reliability and performance at a deep level, so very high level of software quality, and being able to lead and take the space with us. Everything that we do in Lace, we’d like to turn it into an open standard for wallet certification, and then we’d like to do is try to use Catalyst so that other wallet developers can actually get paid to get certified to meet those standards, so that across the board, everybody in the Cardano ecosystem enjoys the same level security, regardless of the commercial experience that they choose. So this is a way where we can kind of work with the industry and learn by doing, and our hope is that eventually, it’s gonna result in a situation where everybody in the industry, at least in the Cardano space does well. Now the other cool part about Lace is also that we’re planning on a self-serve backend, where we can make it easy for third-party cryptocurrencies, whether it be Algorand or Tezos or Polkadot, to integrate against it, similar to how people integrate with Rosetta and Coinbase. And then if they can do that, it means it’s very easy for us to support new cryptocurrencies. So our long-term vision is for Lace to be a platform for all cryptocurrencies, not just Cardano, Bitcoin, Ethereum, et cetera, et cetera, so we’ll do Bitcoin and Ethereum and then we’ll partner with lots of people and find ways to bring them in to do that, and then my hope is eventually have hundreds of cryptocurrencies supported and native assets, ERC20 assets and other things supported in the Lace platform. And then every single one of them, will enjoy that same quality of security, performance, reliability and hopefully, we create some cross-industry standards about these things, especially for interoperability.
• I love that, Charles, and one thing that stood out to me that you said, is to make it easy for grandma to use, and I was literally having this conversation yesterday in spaces, that for the end consumer to use these products and get over these technical hurdles and barriers and the trust factor, which DApp is Charles and which one’s Tony, is this a scammer, there’re just so many open or unanswered questions and no solutions for some of these problems yet, but I love what you guys are building and then you said that you’re also looking to have support for other blockchains and cryptos, which that was gonna be a question I was gonna ask you, so that’s amazing.
• Yeah, and also doing it in a standard-driven way. Like when we say identity first, well, we’re not inventing a new standard, we’re following in a standard that the industry has adopted, the standard that’s cross-blockchain and the great part about all this is you own it, you own your identity, you own your assets, it’s a non-custodial wallet. And so what’s so cool about that, is that you have maximum freedom, you can leave at any time, no one can stop you, you can move from one experience to another experience, and that’s really the values of the cryptocurrency ecosystem. But by having these capabilities, what it allows you to do is have much more control over when you trust people and how you trust people to augment services. Like if you wanna live in a world where you think for the rest of time, you’re always gonna remember your keywords and always remember your password and always be able to access your wallet, that’s a world you could live in, you have that freedom. But if you think that maybe there’s some scenarios that that’s not gonna be the case, now we can have a conversation about who do you trust and at what level do you trust them and how do you wanna do your estate planning and so forth, and that needs to be a seamless experience for you as a user. So you start in the least trustful world and then you can escalate accordingly and pick your partners along the way, and that’s why it’s a commercial wallet instead of a reference wallet, because a reference wallet, they can’t make those types of decisions or relationships, it’s just there to serve the need of the protocol. Whereas a commercial wallet, they could pick preferred partners who are trusted, vetted, and make it very easy and turnkey so that grandma could just click a button and it works. And for the most part, it’s okay with them and then obviously competition occurs and reasonable people have disagreements about what needs to be done. Another thing that was important to us, is that we need to bring up the standard, and so what we need to do is leverage our ecosystem where once we know what is a good open standard for a certified wallet, we need to encourage every single major wallet developer who has access to ADA, who is securing ADA with their wallet software, to get upgraded to it. And the community can make decisions of whether they want to compensate that or not through the Catalyst program. So I think this is an example where everybody can work together and then we can all hold each other to high standards, and that effectively will mean that Cardano remains the most secure experience in the cryptocurrency space and ultimately, helps us be the most competitive experience in the cryptocurrency space.
• Before the wallet security setups, will it be similar to other wallets that we have right now where you have your seed phrase and your private keys, things like that, and that’s something you custody on your own?
• Yeah, and what’s nice is you can escalate from there. So once you introduce an identity standard, then you can create cloud backups and all kinds of backup schemes, in addition, we really do want to integrate other technologies like hardware modules, for example, UV keys and these things, and the ability to use technology like PGP as part of that process. So just as an example, one of the things I’d love to see done in 2023, and it’s on the roadmap, but we’re doing so much it might slip a bit, but so far, it’s looking good, is this idea of a paper wallet generator, where instead of generating a bunch of keywords, what it has is has QR codes on it, and then you have a public QR code and a private one, the public one you can scan, the private one is colored and it’s colored representing how secure the encryption of it is. And so it would start red and then you can enter a password or encrypt it with a security key and then it gets green over time. Then the beautiful thing is because you have an encrypted private key in QR code format, when you print it, you replay a task on the printer, you don’t do anything. You see, and this is something that you can generate as a backup of your wallet. So while you’re creating your wallet, in addition to having your spending password and your 24 keywords and whatever you do with them, you also have an option to just click a button and generate a paper wallet at the same time, super easy user experience. If you have a YubiKey or you know something like that, just plug it in, click a button, boom, it’s done, and then suddenly, you have this super secure thing and your back up experience is super easy. If you ever wanna move from one thing to another, you just scan the QR code with webcam and your YubiKey, tap it and you’re done. The wallet’s fully backed up, this type of a thing. So these are the the cool things you could do when you talk about a commercial wallet, you can add these capabilities in, the other thing is we have great partners, like the Human-Computer Interaction group at Carnegie Mellon. We’ve been in discussions with them and they’re one of the world leaders in interface design and user experience, about talking about are there ways we can get away from 24 keywords and move to maybe some other standard like a pitcher or something that you can reconstruct or restore a wallet, to make it more user friendly in that respect. And being able to have great data and great focus groups and work hand in glove with the people that use the software, this means that we’ll have the ability to grow as they grow, learn as they grow, and as a cloud product, every six weeks, eight weeks, we can do an update, so it has a rapid release cycle. So we’re always experimenting, we’re always adding, we’re always partnering, and the goal is to always improve usability and security at the same time.
• I love that.
• It’s a great ecosystem too, there’s so many devices, whether it be hardware modules like YubiKeys or Ledgers, there’re just ways to interplay with cloud software so that you can hook things in and if you want to do a backup with Dropbox or Gmail or these things, there are patterns you can follow to still keep that very secure.
• I love that and I love that the ease of use is progressing, the ability to make things easier for mass adoption You mentioned hardware and one of my questions for you was gonna be, what’s on your roadmap as far as hardware, if any, there’s certain blockchains that are launching phones and so forth, I don’t know if that makes sense, but any other hardware items that you’re thinking of?
• Well, it doesn’t make a lot of sense and I think that anytime you see a blockchain phone in this day and age, there was a time where it made a lot of sense, but in this day and age, it doesn’t make it because the cost of developing hardware is in the hundreds of billions to billions, you have to contend with the fact that there’s enormous amount of patents, and at the end of the day, most of the things that go into the phone, are fairly commoditized. If you look at the camera design, the chip design, you’re probably getting something that’s arm and it’s quail calm or this type of thing, on the Android side. Now, if you have the money to roll your own silicon, like Apple does or these things, or Google does with the Tensor chips, it’s, wow, that’s great, but we’re not a multi-trillion dollar enterprise and it doesn’t make a lot of sense to do that. So really, the thing is that you have to ask, do you have software? And if you want to have a super secure phone for crypto, I would argue 10 times out of 10, that whether it be Solana phone or all these other things that people are thinking about coming up with, just doing something like taking the Google Pixel and putting GrapheneOS, is probably gonna be a better experience or secure and ultimately a better phone, why? Because you’re starting from a phone that had billions of dollars of R&D behind it, great hardware in it, and you’re putting an operating system on top, that has been built from the ground up specifically for security, and so it has everything in it that an InfoSec expert would expect, and it’s actually used by militaries and other people for secure communication and clearance information and so forth. So it’s very trivial to put that and just make sure that your cryptocurrency wallet is supported in GrapheneOS and then suddenly you have a great crypto phone. By the way, you’ll have much better battery life because all the Google telemetry’s turned off and it actually updates faster than normal Android does, they’re pushing stuff all the time, and we use it all the time in our COMPSEC in the field when we go to countries like Mongolia or other places where there’s a lot of spying and other things in industrial espionage, because it’s a great secure communication platform. So that’s where I think innovation can be done. There’s also other phones like Samsung that have crypto wallets already built in, they use the Knox framework for it, much more secure than most people’s stuff, and frankly, if you want extra security, just buy a Ledger or Trezor and they work with the phones, they work with these things. And so why would we need to buy a completely new phone? Because our design space as a cryptocurrency developer is we want you to have a secure experience. A phone design space is you wanna take pictures, you want to communicate with people, you want to record things with video, high def 4K video, you want a long battery life, you want durability, you want all these things. Like, okay, well, none of those things are core competencies of a cryptocurrency development team, and to make those core competencies, you have to spend hundreds of billions to billions of dollars, to build up the brain trust the intellectual property, if you’re doing something proprietary. If you’re not doing something proprietary, you’re just using off the shelf equipment, why not just take Google Pixel, which is a great phone and new one’s coming out this month, and just put a new operating system on it, write some software for that operating system. That makes a lot more sense and it’s much more accessible, Google Pixels, there’s no supply chain issues, there’s none of these things, and with your own OS, you can do whatever you want. Graphene is a great option in that respect. So I think it’s a very bad strategy in that respect. Now, it does make sense to say maybe there’s room to compete with YubiKey, maybe there’s room to compete with Ledger or Trezor or these other guys for specific use cases and applications, that’s what every key does and these other guys do, and now maybe that makes sense. So we had this conversation with Tangem because the chips that they were using in the Tangem cards were very old, and we were always thinking, is it possible maybe to do some electrical engineering work to create an ASIC that’s specifically good for the types of things cryptocurrencies are doing? ‘Cause we were talking about offline off-chain transactions there. So you go to Africa, somebody in Ethiopia or Burundi doesn’t have internet connectivity, so how do we build a system where I can transact cryptocurrencies offline. If I have like RFID cards with good secure hardware in them, you can do that through a protocol of secure ratio and proof of uniqueness for key generation. So it is possible to build that and that’s a very bespoke design space that Google’s not gonna cover and Samsung is not gonna cover and Ledger or Trezor aren’t gonna cover either, so it makes a lot more sense to say, okay, well, ’cause I need a price point of a dollar for one of these things, ’cause I’m giving them to everybody in the country, let’s do some custom work in hardware there. It makes no sense to say, let’s build a brand new phone and compete with Apple and compete with Google and compete with Samsung, when they’re multi-trillion dollar companies and they have thousands and thousands of engineers, ’cause even if you’re successful, they’ll see you into oblivion for patent infringement and all this other stuff and then at the end of the day, you’re also competing with the operating system as well. So I guess you could do Android, but then if you’re doing Android, you have a huge backdoor and all these things here and all this problems, so you’re gonna have to do a fork of Android and then you’ve basically reconstructed GrapheneOS under the hood. So, okay, was that an efficient use of your money and your trust that you had in your community? Markets will decide. And by the way, Microsoft even failed with their phone, and that’s Microsoft. Look at the Windows file, they put probably $25 billion and into that they bought Nokia and with all their patents, their legacy, their trillions of dollars, the ownership of Nokia, they still failed to bring a third option to market.
• Yeah, great points and when I first saw that specifically with Solana and so forth, I was like, yeah, this does not make sense and I was just curious if you guys are thinking about it…
• Yeah, I will point something out though, that Solana phone will be a world leader in its ability to restart.
• Oh man, well, let’s not even talk about that, like is it down today for six hours or…?
• You just take it out, you blow it, put it back in…
• Let’s talk about the Vasil upgrade, which took place recently, tell us about that and the outcome and did everything go well?
• Yeah, actually it went really well and the community showed its power there, we said, “Hey, we’re ready to go,” and the community said, “Nope, we wanna test more,” they’re the ones in charge and so we had to wait a little longer and actually it was time well spent, we all learned a lot in the process and CIP47 came out of it, but all things considered, what Vasil did, and I see this a lot, but I wanna make sure it’s not a missed point, you have a few options when you design a smart contract stack and we call it the spectrum of expressiveness. So on the right hand side, on the right side of the spectrum, that’s all about maximum expressiveness and by expressiveness I mean things you can do, the level of programmability you have. Well, that’s great because you can do everything. The problem is, because you can do everything, attackers can use everything to break your smart contracts, steal all your money and do things, and we see this all the time with Bridge Hacks, the DAO hack, the 35 billion of money that’s been stolen. Now on the other hand, you could be on the left side of spectrum that says you can’t do a lot. Now, because you can’t do a lot, you don’t get capabilities like Dexus and issuing your own assets, et cetera, et cetera, but you can exhaustively look at all the attack vectors, lock them off and that means you have fewer hacks. That’s why nobody talks about Bitcoin DApp hacked because it’s not a very expressive system, you can’t build gaps on it, so that by definition there’s nothing to hack, it’s a very secure system. So we had to make a decision, which side of the spectrum do we wanna be on? Where do we wanna put that? So with Cardano what we did, is we said Bitcoin’s pretty good starting point, but let’s extend it so we created Extended UTXO, and then put a very safe language on top and then upgrade after upgrade, we can move a little bit more to the right and every time we do it, we can check and make sure we haven’t broken anything along the way. So Alonzo last year was the very beginning where Extended UTXO was introduced and Plutus was introduced, and it was good enough for SundaeSwap to exist and all these other things to exist on the network, but also frustrating in that it didn’t have all the capabilities that people would want, it didn’t have the data availability that people would want and a lot of things to optimize contracts. So then what happened, is we worked with the community and developers for about a year and we threw a standard-driven process, wrote CIP-31, 32, 33, CIP-40 and other things, and what we learned from that, were basically new things that would make it much easier to write Plutus smart contracts and because of the expressives increase, new types of DApps on Cardano. So what’s happened is if you look between Plutus version one, the old Alonzo era, and Plutus version two, which both were on the chain, by the way, people who are rewriting in version two, they’re seeing a 10X reduction in transaction size and a half of transaction cost. Okay, and that translates to a huge increase in performance, a huge increase in the things that you can do, and this was done by JPX store or DONO, it was done by Easy Swap, a lot of DApp developers. So better, faster, cheaper, but then the other thing about Vasil was these new capabilities enable Oracles to work, stablecoins, algorithmic stablecoins to work, these types of things. So we’re kinda working our way down. Native assets was like bringing color coins to Cardano and now that we have it, there’s millions of assets that have been issued, Alonzo was about bringing the Extended UTXO model and programmability to the system and Vasil was about refining that model to now enable us to basically comparably match the DApp space with Ethereum. Now what’s so cool about this, is that we didn’t give up anything. Every time you start from the left and you move to the right, you maintain backwards compatibility, so any preexisting things that have been issued or built on Cardano still work. If you’re on the other side of the spectrum and you decide you have to reduce your expressiveness for security reasons, anything that was built with that needed functionality is now broken, it doesn’t work anymore, it has to be rewritten and in some cases it doesn’t work on your system. So I think going left to right makes a lot more sense than going right to left because the consequences of right to left are loss of funds, hacks and ultimately incompatibility, as you scale down. And we’ve had a great time with it, we’ve learned a huge amount, the community’s doing well, we sometimes get a little criticized for having no chain activity, but we’re on the top three to top five for chain activity and then people just lie, like we hear all the time. One transaction per second or per block or whatever the lie of the week is, but then people are publishing transactions where one transaction they’ve done something that impacts 200 people or 300 people, like an NFT drop or paying multiple wallets or these types of things, and I think what people are starting to realize is that Extended UTXO is the most concurrent and most paralyzable way of doing things and also the way we’ve designed it, it works best with off-chain stuff. So whether that be a rollup or a state channel or any of these things, it works really well with it, it’s isomorphic to these types of things. And we’ve proven those things out, we did all the homework at the end of the day, and if you look at Ethereum or these other spaces, what are their scaling models? Oh, we have to go off-chain, we have to use rollups, we have to use state channels, we have to do these things and we’re saying, well, we built our system to do all of that, accounts doesn’t work so well, you’re gonna lose money along the way, you’re gonna lose gas fees along the way, we’re deterministic end to end inside of the system. So what you see locally, is what the network does in that respect. So actually I think the bets that we’ve made are starting to really bear some fruit and now that we have equivalent expressiveness, we’re in a position where there’s gonna be tons of gaps, there’s over 1,200 projects that we know of that have announced that they’re building on Cardano, at least a few hundred of them are gonna do some great work and we should see in 2023, the fruits of those labors, a big increase in TVL, a big increase in adoption and so forth and that’s above and beyond the fact that we’re already the top three to top five, according to Messari in terms of transaction volume. So things are going well, if this is a ghost chain, I’m pretty terrified to see what isn’t.
• Yeah, we’ve talked about it in our previous interviews and there’s a lot of fun going around and it seems like Cardano gets targeted, I think it’s probably people who are scared so they have to do this propaganda, ’cause maybe their chains are not up to par and I dunno, I don’t know what it is, but you’ve been here longer than me and you’ve gone through a lot of different market cycles.
• I have certainly encountered my fair share of criticism throughout the days in the cryptocurrency space, especially on cryptocurrency Reddit.
• I wanted to ask you about partnerships, I know about the DISH and Boost Mobile partnerships, last time we spoke, you mentioned there were heads down building, folks wanted me to also ask you about New Balance and if there’s any updates on all three of them.
• Well, with New Balance it was a scoped contract and it was for the Kawhi Leonard shoe line that they pushed out. We delivered that and there’s a whole system for it, and that was done through the Innovation Group at New Balance, and so you had a beginning and a middle and an end and contract is completed and the Innovation Group decided not to go end to end with a full authentication system with any vendor. So it’s not like they said to us and they went to Ethereum or something, they just discontinued that. That said, we always talk to people, brand protection and asset protection is big deal, I mean, how many counterfeit Rexes do you see floating around, and this is a high growth market, we had a huge amount of interest in 2021 after the Recession came, Crypto Winter came, a lot of that dried up. And usually what ends up happening, is it’s very easy to get a relationship in the R&D group, but then translating that to general product lines is a little harder in that respect. That said, DISH and Boost, that’s a different animal entirely because that’s across the whole company and that’s ongoing, it’s a loyalty point system for now and our hope is to find way to upgrade that so that it can be end to end software with Boost Mobile. But those are ongoing conversations and the work continues in that respect. It’s a multi-year enterprise contract that we have with them. Now, the Ethiopia side, that’s well our way, we published a few updates about it and we should be able to get all the students probably by 2024, it was gonna be a little sooner, 2023, but the issue was that conflict in the region slowed things down, and when that happens, you just take it as it is. It’s like having a contract in Ukraine or something, it’s like, well, they have other things they’re kind of worried about, but what’s surprising is that actually we still have minister-level access and the work groups are still exercising and they’re hitting their deadlines and so forth, and that’s pretty exciting. What we’d like to see is if we can find a way to align what’s been done there with our values and the values of the community, to create some form of national ID system. So those are ongoing conversations and trying to figure a way, can we make them compatible with the Digital Ethiopia 2025 Doctrine that Prime Minister Abiy has pushed out. So like many of these things, the cryptocurrency space, they operate in a very fast turnaround enterprise and government contracting, it’s a three to seven-year time horizon. So you announce the deal, you execute it, it’s reliable and repeatable, but it’s slower in that respect, but still going strong, and we learned a lot, we led to the creation of the Africa Credential Alliance, it led to us talking about standards for how do you represent academic credentials with the deed, and ultimately a lot of that’s gonna be reflected eventually in Lace with the Atala PRISM integration as that goes from a B2B and B2G product, to a B2C product for consumers.
• Are there other regions outside of Ethiopia and the continent of Africa, the other countries in Africa, I should say, are you like targeting Latin America or any of the Asian markets with similar technology?
• Yeah, we did look into Latam. The one contract we could have had but we passed on was we flew to El Salvador and spent some time with the Salvadoran government, met with President Bukele, about the Bitcoin integration. There was a lot we could have done, we brought a partner with us, the AlphaPoint and AlphaPoint ended up taking the deal and we decided for values reasons to pass on it. But we did in that process, look at the region, we looked at Honduras and Guatemala and a lot of other places and there’s a huge remittance market and microfinance market that’s in Latam. So right now working with a partner in Kenya, we have Pezesha as the partner there, we’re developing a real five-protocol for lending, and our hope is that as that grows and expands, we can escape Africa, move to Southeast Asia through partners and Latam through partners and we can get a larger market. ‘Cause at the end of the day, the economic’s pretty clear, the loan books are, they’re good, but the NPL rate is too high and the rates are too high. So the NPLs of non-performing loans, they’re about 40% on average with microfinance. So four out of 10 loans default or they get into a bad state and then the interest rates are very useless, they’re about 35% to 85%, which is great for investors, but it’s really terrible for the people there. So the hope is you bring liquidity to those marketplaces and then over time, the rates can go down, the NPL rates can go down, and then you can build financial products according to risks that can sit on top. That’s where the institutions can come in. So there’s a lot of pilots that are gonna be run, we’re already running some now with Pezesha, 2023 hopefully we can integrate that into Lace and other things and create a lending center that people can use and partners can plug into, and regulated actors can handle all of that, and then our hope is that that can spread decentralized identity, decentralized reputation, but also peer-to-peer lending where they have direct relationships and that transfer value will lower the rates and actually create better lending marketplaces that are less predatory and useless. I think the single biggest long-term beneficiary of that in the next five to 10 years, is probably the Latin market because they’re closest to America, there’s a lot more travel back and forth, and those are larger microfinance markets by pound than compared to a lot of African nations. That’s at the longest term growth, is probably places like Congo, Nigeria, massive population centers that are quite where they need to be in banking, but when they do, microfinance will be the principle form of credit for SMEs and consumers. So it’s an interesting market and we’ll have a lot of stuff to say and a lot of products to do, and it’s really exciting to have Lace and PRISM because they naturally click together, especially when you talk about decentralized reputation and credit scoring and it’s really exciting to see what we can bring to the conversation and on the Cardano ecosystem. A lot of people talk, and they say, oh, we’re doing all this stuff and it’s like, but guys, it takes patience. These things take years and it’s really hard and every step forward you have a step back. So if you talk about crypto lending, then you have a Celsius and then you say, “Okay, well, what went wrong there and how do you avoid these types of things going wrong.” You talk about JED in algorithmic stablecoin, we think it’s a great design, but then you have a Luna and that sets everything back a little bit and you have to be very methodical. The problem is that the incentives, the system were built where you get paid upfront. So everybody was in a gold rush to basically do or say as much as they could, get as many people as they could to make a bunch of money, and then when everything comes collapsing down, laugh about it at their yacht parties. And I don’t think that’s sustainable and I think it’s going to invite very predatory and negative regulation on the industry, so we just ignore it and we’re very methodical. We step by step by step by step from what the regulations need to be like, what the consumer protections need to be, what protocols need to be designed and how do you build a fair ecosystem. Even with Lace, we’re technically competing with Flint and Typhon and all these other things, but at the same time, we’re saying, “How do we make them better?” Because our problems are their problems in that respect, and if we have a certified wallet standard and we find a way to get them funding through the community to upgrade their wallets, then we know that no matter where your aid is at, it’s in the right hands, it’s okay, you’re secure, these types of things. Well, similarly with lending, it’s not good enough just to open up a marketplace, you actually have to talk a lot about how does the person receiving the loan, own their reputation and own their identity, or otherwise they’re at the mercy of an MFI network that could be quite predatory and charge them 85% interest and break their legs if they don’t repay. You see, so it’s unethical to get into that business unless you have a plan to improve the very nature of the business, but that does require lots of partnerships, regulatory oversight, auditing and ultimately a lot of nos, because you have to do it ethically.
• I think the disconnect, Charles, with a lot of the token holders, a lot of folks are just looking on the returns, they’re thinking about making money, versus it takes a lot to build these products and make sure that they’re up to par for real world adoption, and that look, it is what it is, It’s met capsule law, people are financially incentivized now, they’re holding these tokens, but they don’t realize the building aspect that has to go into that.
• That’s why VCs have a hard time with Cardano. With all these other guys, they carved out 20, 30, 40%, whatever, if you look at the Messari inside ownership of these protocols, a big check of stuff for VCs and they make a fuck ton of money upfront off of retail investors and they look at Cardano, they say, “Well, where’s our dedicated carve out?” And we’re like, “It’s a fair, it’s like Bitcoin, it’s a fair distribution, you don’t get that.” “Well, we’re not interested in that.” Okay, and you can wrap it up in whatever babble you want and lie to people about capabilities, they say… Like the other day I heard somebody say we don’t have Multisig. I was like, that’s news to the NFT people doing drops with Multisig, that’s news to Typhon Wallet, and that’s news to all these other guys. I personally reviewed some of the specifications when we were getting Multisig into the lecture. I’m pretty surprised that people would say that and that wasn’t like a random person, that’s a VC that said that. So I think there’s a disconnect there, and you’re absolutely right about financial incentives. They have a financial incentive to be disconnected, so what you do is you just ignore it. You say, “Look, we’ve gotten this far bootstrap with our community and it’s only growing, every metric is growing,” so all we gotta do is just keep the principles, keep the faith, keep growing, and we’re gonna wake up one day and have 100,000 people or 200 billion people. One of my most criticized Tweets was when I predict there’s gonna be thousands of assets and hundreds of DApps on Cardano and they lord this out in the theory community, like somehow we’re all liars, and I’m like, “Guys, you are aware we have 5 million assets on Cardano and 1,200 projects that they have announced that they’re building on Cardano, just looking at the Catalyst funding volume as an example of projects, so the prediction came true. What exactly is the scandal with the Tweet?” But they pay so little attention that they think they’re being clever by Tweeting that, not realizing they’re self-owning. It’s pretty crazy. It’s like pretending your team won the Super Bowl and you’re like Tweeting about it while the other team is holding the Super Bowl celebration rally, it’s crazy.
• Yeah, crypto on Twitter is crazy, man and it’s like these days I have to watch what is being Tweeted out and make sure I verify it because to your point, people are putting together all types of narratives and things are just false.
• Yeah, oh, another thing about Twitter that’s amazing to me is I’ve reported, so there’s a new type of bot, the verified accounts are being taken over through hacking and then repurposed to look like Vitalik or me or Brad or somebody in the ecosystem. So I reported one of the Vitalik bots, a verified Vitalik bot, not a fake account, but like a verified fake account. And then Twitter does an investigation and then they report back, “Oh, that doesn’t violate our terms of use.” And I said, “Let me get this straight, the whole point of the verification program is to give a user a certainty that the person Tweeting is the person with the name and the picture.” It’s obviously not Vitalik, because he has a verified account, there can’t be two verified Vitaliks, and this accounts, the only thing it’s Tweeting, is give money to me for giveaway scam. And then they tell me that they’ve conducted an investigation, a human being has looked at it and that account doesn’t violate the terms of service. This is pretty wild, man. It’s one thing if it’s like a regular bot account, okay, whatever, maybe it’s an impersonation, whatever. But if a verified account, Twitter is vouching that that person is Vitalik and that still doesn’t go through. This is the state of affairs in our industry with social media and these other things, there’s no incentive for truth anymore. People just say stuff and they write books and they do things and they just get away with it and it is what it is. You just smile and say, okay, the dog barks, the caravan moves on.
• Yeah, it’s wild what’s happening. And hopefully, I guess the point of… Well, let me back up. Blockchain will have to be the solution, where we integrate and to your point of what you guys are doing, identity and being able to verify that.
• Yeah, that’s exactly, it’s one of the best advertisements for PRISM. I did a video when Jack Dorsey was still CEO of Twitter and I said, “Hey Jack, if you wanna get rid of all your bot accounts and you also wanna prevent the hack that happened where the admin panel was taken over and people were Tweeting on behalf of Obama and Biden and all these other things,” I said, “Hey, if you wanna do that, then you need to gates and have verified Tweets.” So instead of having verification just be a check mark, you create a gate that go through KYC, then once you’ve done that, then it’s an additional thing, you sign every Tweet that you do with it. So even if somebody compromises your account, you’d have unsigned Tweets versus signed Tweet, and so a hacker could take over your account, but then it would appear red, the Tweet’s unsigned, and so you’d know that it’s a scam Tweet, there’s a problem there, you see, and once your namespace is signed, it’s very difficult for bots to do anything and those impersonations wouldn’t make any sense in that context.” The other thing is it’s an AI problem and it’s extraordinary to me Silicon Valley claims that they’re all like just magical domain experts in AI and they know all this stuff about AI and yet, they can’t apparently identify the same 26 keywords or 30 keywords, it’s nuts, it’s absolutely nuts. It’s telling you Twitter just doesn’t care, they really don’t care because they understand the same thing that Musk is saying, which is that once they start looking into bot accounts, probably 20 or 30 or 40% of all the platform is bots. It’s the same with Facebook, it’s the same with all these guys and they know that their valuations will go down, their revenue for advertising will go down, but if they announce that, so they all play the shell game that they’ve somehow solved the bot problem, but they have no incentive to actually do it.
• Now, speaking of social media, there was a question that came from the community, is there any plans to do anything with web monetization or possibly building some sort of web browser? And that could certainly not be relevant to you guys, but given what you’re doing with Lace, any thoughts around that?
• Well, as long as Lace has browser access, meaning that we’re able to run a browser-based wallet, we’re not shut out, and as long as we can operate that portal the way that we want to, I don’t see there’s a valid reason to build it, but that said, Brave has been tremendously successful and they’ve done great work and I really admire and like the Brave team, they made a lot of big commitments, they talked a lot and they delivered. They built a great ecosystem, they do everything from anonymizing your browser fingerprint to tour integration, they’ve thought a lot about the advertising model with privacy and they’ve been a great advocate, and frankly, I think the way to build a browser correctly. So had Brave not existed, I’d be a lot more in the mood to say, “Hey, maybe we should do something here,” but I think Brendan and his team, are just doing a phenomenal job, and I’m very glad that they’re in the space. Now, what does concern me, is that Google and Apple still have enormous amounts of control over the app space on cell phones and maybe progressive web apps or something is required to help chip away at that, but it’s problematic because they’re terminating your business models. They can just arbitrarily decide, “Eh, we don’t like NFTs, so fuck you Riot, fuck you guys, you’re gone.” And that’s problematic because that compromises the integrity of products. I believe in freedom, I believe in open access, I believe that everybody should have the ability to download and do the things that they want as long as it doesn’t violate the law, and NFTs do not violate the law as far as we can tell, so why should Apple then get to sculpt the entire marketplace, because some mid-level lawyers decided that perhaps there’s some arbitrary SEC risk or something that’s not even well defined? That’s a very problematic thing and it has to stop. So there, there are some open questions that maybe at the very least, we invest in GrapheneOS and we build an open app store with, there’s, I think it’s F-Droid, there’s a few that exist and make sure that at least these things are available there for people who do want alternatives. The problem is that that’s not mass consumerable. Grandma doesn’t have that, grandpa doesn’t have that, the 15-year-old kid doesn’t have that, they have a Galaxy phone, they have an iPhone and these types of things and until those monopolies get broken up, that’s problematic. It would be nice to see regulation move in a direction that prevents app stores from having monopolies over marketplaces and being able to sculpt the markets. By the way, it’s not hypothetical, look at Amazon. They’re no longer selling books through the Kindle app on Google phones, through… which is extraordinary as Amazon is huge company and Google basically gets to shut them out in that respect. So what chance do we have as a little guy, in that respect? So that’s an example of where Sherman Anti-Trust could potentially be used and explored because it does feel like it’s a big problem. We do talk to regulators and we do talk to lawmakers about these problems, and they’re all connected to that same collection of things, where a small amount of companies can influence and distract a marketplace. But at least in the browser space, it doesn’t seem like they’ve been able to stop that, and Brave is a great alternative for the time being.
• There’s a question from the community, if you could look back five years, would there be anything that you would change as far as your strategy, your planning and things like that? I know that’s a loaded question.
• Oh, there’s a ton of things that we would’ve done differently. Knowing what we know now, we probably would have invested a lot more time, effort and money early in building a proper specification language for formal methods. And also there was a collection of Haskel technologies that I thought would mature faster and we would’ve invested a lot more time, effort and money in building those technologies out upfront to save us a huge amount of heartache. We would’ve been much better at interface design, and we’d also have been much better at protocol design and standards and a lot of the wonky, stupid stuff that we did early on, we wouldn’t have done it all, and then you wouldn’t have had problems like with DB Sync and the Byron Standards and these things that have just… there are a lot of legacy code that are very problematic to maintain. We would’ve probably invested a lot more effort into developer experience, and instead of launching with what we did with Alonzo, we would’ve launched with what we had with Vasil, and if we had just paid a little bit more attention, we probably could have done that, and it would’ve saved us a lot of heartache in the initial wave of DApps on Cardano, probably faster development of the on-chain voting artifacts, but it’s Monday-morning quarterback, probably would’ve released a browser wallet upfront and not had a full node or have a full gooey, so Daedalus would’ve just been a command line interface for enterprises to use, and we would’ve built Yoroi to launch and we’d have had a significantly better consumer experience for adoption for Cardano. We’ve never had a problem of foresight, we’ve always known kind of where the space would go and there’s evidence of that ’cause we’ve written 150 academic papers and you can look at the papers and literally years before people were talking about stuff, we talked about it. So we kinda knew where the world was coming, our problem has been execution, where our time to market has been because of the processes we have, sometimes have bit slow. That said, some of the things are starting to now be recognized as big differentiators like between the Ethereum merge and our consensus protocol, Ethereum is the Hotel California of cryptocurrencies where you can check in but you can’t check out. Your money gets locked, you can’t unlock, and also if for whatever reason something happens, you lose your money, the slashing mechanism, and it turns out that Cardano, none of this is necessary. And then the Ethereum people say, well, that there’s no evidence that that’ll be secured, and we’re like, “Well guys, we’ve been running since 2020 and it’s worked, we’ve never had a problem and by the way, we’ve published all our papers, we went through the peer review process, so both the practical engineering community, the real life experiment and the academic community all agree that our model is viable and we know how to scale that model, we know how to build out that model,” so I think we won in the consensus fight and Ethereum eventually is gonna have to admit that, but they’re very arrogant people, I got in a fight with an Ethereum core developer and he straight up admitted, the Tweets are still there, that the reason why the Ethereum Foundation didn’t look into any of our technology, is their personal distaste for me. So apparently because they don’t like me, they think that every paper we’ve written is wrong, even though the third-party, independent review agrees that it’s right and we actually have more citations in our papers than any other consensus papers in the industry, okay. So I think we won that fight, and so would we do that differently? Probably not, maybe we would’ve been faster with simulations, maybe we would’ve been faster to market with partial delegation, there’s a lot I’d like a do-over on user experience as well and I think we could have done a lot of things differently in that. But all things considered, given the scale of the project where you’re talking about innovating with interoperability, governance, scalability, identity, building it in more than 100 countries with 3 million plus users, bootstrapping an entire ecosystem without VCs or a lot of capital, the total project cost was the allocated $72 million to create a $15 billion ecosystem. EOS raised $4 billion, and their ecosystem is what, 2 billion?
• Yeah.
• And now they kept the money, at least Daniel Larimer gets to live the Steve Millers song, “Take the Money and Run.” But it is what it is and so you just accept that sometimes you’re not perfect and you just move forward. What’s really exciting is the community’s doing a great job. We probably would’ve done over the Trinity structure with EMURGO, CF and IOHK, some things worked really, really well, but the foundation should be a members-based organization and it shouldn’t probably be in Switzerland, the stiff thong structure in hindsight is not very good. So that, you can complain about it, cry over it, or you can just set up a new NBO and get the community to help bootstrap that and get the existing foundation to help bootstrap that and get it where it needs to go. Probably there should have been some tighter controls on the VC side of Cardano as well, but we created the cFund and Catalyst seems to have been able to bridge that gap and EMURGO just announced that they’re investing $200 million, and so that’s improving as well. We could have probably done a better job with VC relations, we didn’t have any representation in Silicon Valley and New York and other places, so these poor VCs are sitting in a situation where 100% of their opinion of Cardano is coming from Polygon developers and Polkadot developers and Algorand developers and Avalanche developers and Ethereum developers, these people are just legendary for their love and admiration of me, and so I can imagine that’s probably not easy to have a positive opinion. It’s like probably trying to sell Donald Trump in San Francisco or something like that, you’re not gonna have a good experience with that whole situation. That’s okay, but again, it’s Monday-morning quarterbacking and at the end of the day, it’s very easy to get caught in the weeds of, oh, we made all these mistakes and ignore the fact that we still are a top 10 ecosystem and we have built so much amazing stuff and we’re speeding up, not slowing down, we’re gaining traction, every day we have more people, more transaction volume, and ultimately we’re delivering on our roadmap and if you pay attention to cryptocurrency Reddit, you’re just super obsessed with the months of December of 2013 to June of 2014, and think the whole world began and end there, meanwhile, if you’re actually paying attention, you realize that apparently stuff has been done and continues to be done. Vasil came out, I was on a panel with Ryan Selkis at Messari, while Vasil was being rolled out, no problems at all. So there’s something that’s being done right and the community is really driving forward, they’re doing a great job and I’m really proud of that and I think that our best days are ahead of us as a result.
• For sure. I wanna switch gears and talk a bit about the crypto market at large, folks wanted me to ask you, what do you think about what’s happening with the SEC and all they’re doing with crypto regulations? A lot of people are not happy with Gary Gensler, the recent Kim Kardashian PR stunt, as well as the SEC, Ripple lawsuit and the judges takes on what’s been happening there as it relates to Ethereum, and the amicus briefs and things like that.
• Well, there’re some people in the XRP community that are trying to invent this grand conspiracy that there was blatant corruption between the insiders at the SEC and Ethereum, and I don’t honestly think that that’s the issue here, I think the issue is that both the CFTC and the SEC are ill-equipped from law and policy, to properly regulate the cryptocurrency space. And so what they’re doing, is they’re just trying to do it the way that they think they can with the framework they have. The SEC only has the ability to regulate if something is a security. If it’s not, then it’s not their wheelhouse. And so they’re one of the very few US regulatory bodies that has a consumer arm because everyday people own stock. And so they have lots of people, they have lots of enforcement capabilities, and let’s be honest here, Luna happened, BitKwonnect happened, OneCoin happened. So thousands of cases every year of that behavior have occurred in our industry, and the losses have gone from millions to billions to almost a trillion dollars in under 13 years, faster than any industry before, and usually when you have an agency failure in the tens of billions of dollars, it does result in the creation of new law. A great example of that would be the collapse of Enron, that led to Sarbanes-Oxley or the 2008 financial crisis, which led to the Dodd-Frank Consumer Protection Act. So what’s happened is, the legislative branch hasn’t done its job. They haven’t showed up and they haven’t passed new laws to give new powers, new bureaucracies, new standards to properly regulate the cryptocurrency space in every aspect. As a result, what they’re trying to do is just navigate this industry as best they can and different commissioners have different viewpoints. Gensler apparently is trying to take an ecosystem viewpoint, it looks like he’s not having the success he wants to have on the layer of one side, so he is pursuing the exchanges now and trying a different strategy, but he is trying to install some sort of patchwork framework, I don’t understand how it’s going to actually work when he says, come in and register, it doesn’t make any sense because registration assumes that the equity of the security dies when the issuing agency goes away, like there’s no notion that Microsoft stock is gonna continue trading, be valuable and be useful to people and have utility to people, when Microsoft goes out of business. I don’t understand how that works in that respect. And so what policy consideration are you satisfying? What information asymmetries are you resolving? What consumer protections are you putting in by a registration regime? All you’re really doing is destroying liquidity, you may be outlying non-custodial wallets, so suddenly Yoroi is illegal, MetaMask is illegal, all these things are illegal, and okay, and are you really helping anybody at the end of the rainbow? No, because the assets are still trade. They just now trade not in the US marketplaces and billions of people are using them and consuming them, so you’re destroying the American industry, which we have a lead in right now. What state would our economy be and had we destroyed the internet in the United States, we wouldn’t have Googled, we wouldn’t have Facebook, we wouldn’t have Amazon, they’d all be European companies, and what would that do to our economy, or where would we be right now if we lost all that talent? So I don’t understand that part of it, I think that it’s a very strange and counterproductive way of approaching things, regulation through enforcement is by definition, very, very problematic. Now, the CFTC side does make more sense because cryptocurrencies do kind of look like commodities. I grow hay, for example, I don’t have to go to like the central hay bureau and say, “Hey, I need permission to grow hay,” or “Can you gimme a disclosure on hay,” or something like that, no, I just plant seeds and I irrigate, then I cut it and then when I cut it, I get taxed when I sell it. And when I sell it, I sell it into regulated marketplaces that have protections in place from market manipulation, so the CFTC does this and there are principles based regulator from that perspective. So similar with the cryptocurrency, who has to ask permission at the moment to build on Cardano or Ethereum? No one, at any given day, you can wake up and have a hair-brained scheme and say, “You know what, all those pillows behind me, I’m gonna go and create an NFT project and issue NFTs and try to get my friends to buy them,” and so forth, zero communication is required with any centralized entity to do that, much like zero communication is required for me to grow hay, in that respect. And all commodity markets behave this way. If you happen to be lucky enough to find some oil and you own that area where the oil’s at, as long as you comply with local government regulations, you can go and extract it, and then suddenly, you are a member of the global oil business, right there with the Saudis and the Russians and ExxonMobil and the rest of the gang, the big and the small, in that respect. And so I think that CFTC regulation does make more sense, but it doesn’t solve a lot of the edge cases, it’s not a golden bullet. You still have a situation where you have custodial standards, the stablecoin regulations, a question about disclosures and KYC and AML for DApps and DeFi, and again, all these things are out of the scope, mostly of the CFTC and the SEC. For example, Senator Toomey wants to push regulation and I think it’s very reasonable for an asset backed stablecoins to regulate them like banks, why? Because they basically are a bank, they’re taking a deposit, they’re issuing something and the thing they’re issuing only is worth that because you trust them. Well, that’s exactly how a bank operates. You trust them and therefore they’re the most regulated of all actors in the financial industry. So if you’re gonna… It’s not a cryptocurrency, it’s a crypto asset, but it doesn’t have decentralization. The only reason Tether or Circle or these other things are worth anything, is because you trust the companies behind them, to be honest credible actors, and you trust the auditors. So more regulation is better in that particular case. On the other hand, algorithmic stablecoin, the custodian is the blockchain. We can verify on both sides what’s the case, so that’s a different kind of regulation at that point. The consumer needs to understand at what circumstances the peg will break because many cases they don’t, they treat them exactly the same as an asset backed stablecoin, and then you have a Luna incident, Luna’s a completely different design as a partially collateralized asset versus an over collateralized asset. So a different regulatory framework needs to be incubated there. So I think practically what’s gonna happen is nothing is gonna get done this year because of the midterm election, after that’s done, the Financial Innovation Act, the Lumis-Gillibrand Financial Innovation Act, will probably merge with efforts that Toomey has and the Biden executive order, and then something will be patched together to pass. If it’s a blue wave and the Democrats hold the Senate and the Congress, it’ll probably look a lot more like what the recommendations are on the Biden executive order, with some flavoring of the Financial Innovation Act, and if it’s a red wave, it’ll look a lot more like the Financial Innovation Act with some sprinkles in the Biden executive order, especially around environmental standards, the use of the EPA and DOE from Bitcoin mining and these types of things, but we’ll get it done in 2023 more likely than not. And I think as long as there’s some sprinkling of the executive order, Biden will sign it.
• Yeah, and I think to your point, nothing’s gonna happen in the remainder of this year, but definitely 2023 seems things are moving, or it will happen then. But Charles, I wanna ask you a question, and I don’t know if you can speak to it, but I understand that the legislative folks fail, that they have not put together the regulations and say, “SEC here are the rules, CFTC here are the rules.” But why would the SEC selectively say certain assets are securities and some are not, and leave Cardano and Algorand and all these other out in a wind, as to this uncertainty, for those who wanna build on them?
• This is the frustration of regulation by enforcement, and it’s the same problem with speeding. So if you’re a cop and you’re standing on the side of the road and you have your radar out and let’s say everybody on the highway is going 75 miles an hour and the speed limit is 55, you can only pick one at a time. So is that fair to that one person who got picked versus all the other people? It’s a systemic problem. So that’s their argument with enforcement. They say, “Look, we can only do so much at a time, we only have resources for so much at a time. We’re just gonna pick what we feel are the most egregious offenders first and work our way down the list.” Okay, but in the process of doing that, you’re destroying American innovation and in the process of doing that, you’re putting unusual, and in some cases, cruel burdens upon innovative projects that are just trying to do interesting things, and at the end of the day, you’re not really in the spirit of what you’re trying to do, improving the situation. Is giving traffic tickets to people going 75 miles an hour on a five-lane highway, really an efficient use of your time, or is looking for drunk drivers or these types of things an efficient use of your time? If you had to pick one, which one are you gonna go for? So the prior administration chose to focus a lot more on fraud. So they looked at the big connects of the world and these types of things. This one seems to be a lot more focused, for some reason, on the speeders in their view. But nobody seems to be questioning the judgment of why was the speed limit set at 55 miles an hour to begin with, maybe this highway can support 75, these people actually aren’t violating the law. There’s no protection, motorist protection or policy consideration that you’re doing, and all you’re doing is inconveniencing everybody in this fact and hurting American competitiveness. And frankly, I think it’s above the SEC’s pay grade to make unilaterally, these types of decisions. I think the issue is that the Treasury Department at the moment, is not because of its leadership, well equipped to fully appreciate and understand our industry. Part of that is age, part of that is philosophy, and part of that is just the nature of how things are working politically in Washington right now. Right now, they got other things they’re worried about. This recession from COVID is traumatic. $9 trillion of value has been lost in the stock market, there’s a war in Ukraine, the commodity markets are very shaky right now, supply chains were devastated from COVID because of the response to lockdowns and as a result, inflation has creeped its way in alongside the monetary policy that exacerbated it, and now you have a situation where dollar’s inflating 8%, 10% per year. And the problem is you have all these inflation index things and that basically means America’s could be permanently running a horrific deficit, and if we’re not careful, the dollar could collapse, if we move in the other direction, we could be knocked into a depression. The Treasury Department is right now dealing with that, and as important as crypto is to us, we have to remember that we’re also in that same conversation of potential nuclear war in the next 90 to 180 days with Putin, to mass inflation, to an economy that’s in a very bad state, there’s also a political reality where things have gone from disagreements to personal. The last 20 years, it’s gone from, “I disagree with you,” to, “You are Hitler, I hate you, and you have to be thrown in jail.” Politics is starting to increasingly get criminalized. Now it’s regular that the FBI apparently thinks it’s okay to seize congressmen’s phones and senators’ phones and apparently there’s tons of criminal investigations into various people, and the problem is, that’s not gonna stop with the left to the right, when the right gets back to power, it’ll go right to left. I guarantee you, if the Republicans retake the House and Senate, there’ll be aggressive criminal investigations into Hunter Biden. So when you look at that type of politics, how do you get legislation passed, how do you get clarity when the people on the other side of the aisle are actually trying to put you in jail? That’s an unprecedented situation that we have and it is something that I think is gonna create a lot of long-term issues for us and the problem is that regulation is downstream of that. Whether you’re the CFTC, by the way, it’s not just our industry that’s complaining about the SEC, there’s a lot of people that are complaining right now about the EPAs involvement in SEC policy and people weaponizing the Securities and Exchange Commission to push an environmentalist policy and the Green Policy and so forth, is that constitutional? Who knows, it’ll probably go before the Supreme Court at some point, and that’s just one of dozens. There’s also questions maybe using SEC to enforce equity requirements, where if your board is not certainly diversified in a particular direction, maybe you’re not in compliance with regulations or something like that, or you can’t do your IPO or these types of things. And there’s also soft power as well. So a ton of regulation in the financial industry is done through self-regulatory organizations and customs and standards like FINRA and so forth. So it could be the case that technically the policy lets you do it, but then the silent policy is you’ll never get a bank account, you’ll never be able to get correspondent relationships, you’ll never be able to actually do regulated business, you just simply don’t get the license unless you comply with these user standards that exist. You see, and we’ve seen this a lot with this type of administration. There was like the “Fast and Furious” program, we saw that with the crackdown of the Obama administration with preventing people who sell guns and who do pornography and other things from being able to get bank accounts, and so they exert soft influence of pressure, so it wouldn’t surprise me if there’s a crypto provision in that respects in certain contexts. So we as an industry have to work our way through it, we’re not immune to the macropolitics of things, we’d like to believe that we’re our own thing, but we’re beholden to that and we just have to work our way through it.
• Charles, I know we’re up on time, so I’m gonna end it with some two fun questions from the community, what does your phone home screen look like? You can share that?
• Never, that’s like, hey, what’s your password?
• I figured I’d ask if… And finally, when are you gonna ride horses with Sean Ford from Algorand?
• Sean, I’ve known for a while, he’s also a resident of Wyoming and I think he’s got a ranch somewhere out here, I don’t know exactly where it’s at, but I’ll definitely see him. And actually we’re trying to set up a standards institute over at the University of Wyoming and it’d be a lot of fun to see if we get Algorand involved in that ’cause they think about a lot of things the same way we do and being Wyoming and Wyoming, I think it’s a slam dunk. So whatever Sean’s up for it, if he happens to be in the Wheatland area, we certainly can go and ride some horses, although I just got a bunch of mini horses out here right now, so you can’t really ride Mr. Tegus or these other things. You can try, it’s not gonna work out for you but maybe I could grab a gypsy van or two and we can have some fun.
• For sure, Charles, always a pleasure chatting with you, always insightful information, thank you so much for joining me.
• Thank you so much, this was a lot of fun, cheers.