Kind: captions
Language: en
so the way the bitcoin protocol is
designed
is um it gives people incentives
it's it's a little bit like the protocol
is bribing people it's basically like
giving people money that hey if you do
this work for me
i will give you money so bitcoin is
literally the protocol is printing money
in the form of bitcoin
right and it's saying that if you
it's basically giving payment to anyone
who believes in the project and is
willing to take that payment
[Music]
welcome to the show thanks thanks for
having me dude i'm very excited about
this as i was telling you before we
started rolling when i first started
researching you i knew you were
interesting but i didn't know that you
sat at this intersection of what might
be one of the most important questions
in crypto and web 3 and that is why web3
at a financial level is going to be so
important
revolutionary i think and that that was
the thing that i really i started taking
crazy notes and i was like oh my god
like this the
the idea around how this is going to be
a revolution
um you somehow sit at the nexus of that
and i've watched a lot of people in the
industry get caught up sort of in a very
similar wave
and you have remained a contrarian voice
and so i want to start at the beginning
if you don't mind
give people a very quick primer because
we're going to go super deep but give
people a quick primer on what web 3 is
and then we're going to dive into why it
matters
yes so i think for people who don't know
what web 3 is think of think of this uh
like we have kind of like the basic
internet infrastructure think of that as
the plumbing of the internet right like
you are kind of like exchanging data
uh but then
initially what you would call web one
it was kind of like read-only
meaning that you can just go online all
you can do is you can just like read on
a website or just like you're consuming
information right like you're kind of
like a passive person
and then i would say
in the early 2000s was the start of web
2 which a lot of people can relate to it
right so it was interactive it was read
plus right
so when you're posting a
a tweet or a picture on instagram you're
actually writing something like you're
and then people engage with it right so
it became more interactive so it became
like read and write
and web 3 interestingly adds like one
more
uh characteristic or dimension to that
which is own you can now actually own
things online so you can still read and
write but you can now also own things
meaning that uh you can own bitcoin like
it's it's like a strong sense of
ownership like you directly own that
thing no one can take it away from you
similarly you can own other types of
digital objects like like nfts which i
know that you're interested in
interest may be the understatement of
the year yeah i'm completely obsessed
nfts though for me
is so i i really want people by the end
of this interview to understand the
difference between ownership
nfts to me is ownership it's not a
financial instrument that's like the
drum i've been beating that i get a
little bit of flax i think people are
treating nfts like a financial vehicle i
think that's a mistake but that's a
whole other argument
but there is
another component to ownership which is
bitcoin and to me bitcoin and other
things that really do act as money
do you differentiate those two in your
mind or like no ownership is ownership
no i think i think they're different
things and it is very um
maybe it's worth it like diving into
that concept a little bit more because
people like in their daily lives they
don't really think about ownership that
much right like like you're you're let's
say you're sitting in your house and you
bought it
uh you're not you just think that you
own the place you never think about how
exactly do you own it well you own it
because there are
there's there are property laws
and they're enforced
right and you trust that let's say
here in in the united states those laws
are enforced pretty consistently
and everyone can kind of like trust the
system that if there's a conflict about
who actually owns you know this house
we can rely on our our laws and we can
actually resolve that conflict in some
other country
maybe you know i grew up in pakistan and
there would be you know in some villages
a lot of people would have conflicts
about land like who actually owns this
land right and because you know some of
either the laws are not clear or some
people are corrupt
so you can't like sometimes you can't
even like rely
on the local system for how do you
resolve those conflicts right so
whenever you're you're thinking about
what does ownership mean like if you go
a level deeper like how exactly do you
own something like
money in your bank account let's say you
know i have a bank of america you feel
like it's my money
but
you know we saw recently in when there
were protests happening in canada when
the canadian government actually started
seizing bank accounts for people who are
like giving tips to somebody to go have
a bagel or something like that right and
suddenly you realize that wait that's
not my money like it can be taken away
from me because and that's where the
concept of ownership kind of like keeps
getting deeper and when bitcoin comes to
the picture it really like baffles
people initially like because they
actually don't have any reference point
for what strong ownership actually even
means because we have never had strong
ownership ever before so the way you own
bitcoin is that you have you know your
your private key which is people should
think of that as a very very very long
password it's like a secret like you're
not supposed to tell anyone you know
what the secret is but as long as you
have it you have this really really long
password which is a secret you can
actually mathematically prove
that i own bitcoin
right this was just simply not possible
before ever right in in society and i
think there's an important part there
for people to understand so
decentralization which
from an entertainment nft standpoint i'm
actually not that bothered by whether
it's centralized i mean i'm saying this
because i'm super biased because we are
a centralized project but i
don't worry about that but when it comes
to the money side of things all of a
sudden decentralization starts to seem
very very important can you explain to
people how the
blockchain of bitcoin works
what is exactly being decentralized
and
i know you're not a big fan of the idea
of a world computer but as an analogy i
find it very helpful to understand
what's going on at a technological level
on a blockchain to distributed
blockchain so i think i think
let's build up on on this example where
you know i i have this private key and i
can prove to you that i own bitcoin
um
basically
what you can do
is you're able to sign something like
think think of it like you know normal
people would have a checkbook right and
they can they can sign something but
their their signatures are easy to forge
right like somebody else could also sign
something that looks like your signature
right so these signatures are basically
unless like someone can come up with the
exact same private key
you they're impossible to replicate
right you would need like you know some
insane amount of a super computer that
consumes the more energy than is in is
available in this like you know solar
system
dimming yeah yeah exactly like it's it's
crazy moon math type of stuff right so
um
let's say you know you understand that
concept that okay no one can forge the
signature only the person with the
private key can do it then you know the
next thing to visualize is some sort of
a global ledger
right just like bank accounts like the
bank kind of like controls the ledger
the bank says you know i have 100 bucks
this other person has like 200 bucks
something like that we need like a
global ledger
that
anyone can use
and anyone can basically verify that
this information is correct
and you're not depending on any single
party
that basically controls the ledger
how is that possible right so this is
the thing that blockchains cracked and
more specifically bitcoin was the first
one
and that was the true innovation i think
because this problem has never been
solved before where you're always
depending on some company right like
let's say uh again to make it relatable
to normal people like when you're
logging into facebook
facebook the company decides that you
know your password is right or or not
right and you can have access to your
account or you you cannot right in the
bitcoin world in the blockchain world
like there is no company
right it's fully decentralized and it's
just
kind of like you know code and
mathematics and if you have the private
key you can spend your funds if you
don't have it nothing can happen in the
world and you there's no way for you to
access access those funds right so it's
like a trustless system that just works
without having any
central point of control and that's the
key thing that you know a lot of people
get get confused about what is up my
friends i have huge news for you about
one of the most exciting and important
projects i've ever worked on in my life
as you guys know it is my mission to
help teach people about how to build a
mindset and the skills that they're
going to need to live an extraordinary
life and over the last few months i've
been working hard behind the scenes to
create a brand new tool that will help
you do exactly that it's called project
kaizen and i'm proud to announce that
i'll be bringing it to the world later
this year project kaizen is a web three
based game like experience that is a
story based world that's going to allow
you to get inside build an avatar that
is aspirational who you want to become
and then take the path of the warrior
seeking continuous improvement inside of
a story world and game experience all
right my friend i cannot tell you how
excited i am about this amazing new
project which i think ushers in a whole
new form of entertainment and i want to
meet you inside of project kaizen and
help you have fun with these ideas of
always getting better right click the
link and join me in discord and until
then my friends be legendary take care
peace
the way my simple mind can grasp
you've got timmy sally susie
bob
muneeb like a whole gaggle thousands of
people
that all have something running on their
own personal computer that keeps this
ledger
and that ledger is designed to sync up
basically with each other
and the distributed decentralized nature
of this is that anybody can put this
ledger on their computer and be a node
and join the network and now 51 i would
assume all have to agree that this
transaction this update to the ledger is
legitimate and if they do boom the
ledger is automatically updated across
all thousand ten thousand hundred
thousand whatever how many computers are
on the network and so the odds of even a
state actor being able to identify
where those computers are
simultaneously hack them and get them to
report what they wanted to report is
virtually zero so they're they're not
going to be able to do it
once i understood okay wait this is
a world computer that is
running on all these individual
computers so i can imagine the google
or facebook like super network of
servers somewhere in iceland you know
deep underground and we've all seen
those images but it's a really different
picture and i can imagine somebody you
break into one of those places or you
have the keys because you're google
facebook whatever you can go do whatever
you want like no one will ever know
right you can just manipulate the
entries in a database and you're good
whereas
with something that's truly
decentralized because it's on randos
computers the the benefit of that is
while any one of them maybe could do
something to their computer the odds of
you getting all of them to coordinate is
again effectively zero
and so once i understood that that this
is just normal people
all over the place that have decided to
join the network for reasons to be
honest i don't completely understand are
they minors i'm not sure
but they have some incentive to have
this ledger on their computer
and they all are in sync
yeah so i think i think i think um
let's take a deeper dive right so
there's a little bit more to it which
maybe we can uh jump into a little bit
more so basically now forget you know we
had the high level understanding we had
the description that you had and now
let's try to like dig a little bit
deeper
so what's happening is
um just like you know facebook runs
their computers in a data center as you
mentioned this network let's call the
bitcoin network
needs people to operate it right it
needs some people to kind of like run
the network and actually have the
physical computers
which are going to do the processing
that is needed for doing transactions on
this network so the way the bitcoin
protocol is designed
is um it gives people incentives
it's it's a little bit like the protocol
is bribing people it's basically like
giving people money that hey if you do
this work for me
i will give you money
so bitcoin is literally the protocol is
printing money in the form of bitcoin
right and it's saying that if you it's
basically giving payment to anyone who
believes in the project and is willing
to take that payment right and then in
terms of uh how the network works there
they're basically like two types of
actors
one is you know when you're describing
that they're all these different types
of users most of the users who are
running the bitcoin like full nodes
uh they're mostly doing it either for
themselves or they want to support the
network and they want to kind of like
have a node online a normal node doesn't
really participate in mining right so
the process of actually
writing new information to uh to the
bitcoin blockchain
miners are kind of like responsible for
that so miners are think of that as like
you know those people are more dedicated
to the network and what they're saying
is that
in addition to running a node on the
network i'm going to actively
participate in this competition so
mining is kind of like a competition
that there's money at the table every
block which is roughly 10 minutes and
people are competing over who gets to
pick up pick up the money so everyone's
trying to do work
and
the protocol has like this
basically
algorithm that that uh
almost like randomly like based on how
much like compute power
these people are willing to spend on it
picks a winner every 10 minutes so
they're solving a cryptic
cryptographic puzzle right yeah they're
they're solving these puzzles they get
harder easier depending on how many
people are competing for it so that it
always comes out to be roughly 10
minutes a block right yep okay so
then you should think of the miners as
the operators of the network
so when a normal user comes and says
here's my transaction
they just don't they don't have to like
become a miner and write to the
blockchain themselves they just
broadcast it and some miner picks it up
and writes it on their behalf right so
miners are kind of like they're the
operators and they write
uh their right to the to the blockchain
and then the other nodes are super
important right so
the normal users the normal nodes that
you were talking about
they are kind of like your independent
verification
of the network because the beauty of the
bitcoin network is that anyone can start
up a new computer install the software
start from xero
and independently verify that this
copy of the blockchain is the correct
one
and that's a very very important
property to have like because
think think of this way you're not
trusting anyone you could be like in the
middle of japan or like in some village
somewhere with a satellite connection
download the software
you're not trusting any other human
right you if somebody gives you like
three different copies of the bitcoin
blockchain you can run your software
from from the start and independently
decide this is the right one these two
copies are not correct right so that's
the beauty of like um the the the
bitcoin system where
anyone can independently do this so what
you're doing is you're decentralizing
trust you're giving more power to the
people who can run this software
themselves and who are like you know
what i i don't need to trust any other
person on the planet because i can run
my own software and this is all
happening automatically right so the
code of the bitcoin network itself does
all of that
and it's literally every time going all
the way back to block one and retracing
its steps to make sure that that block
or does it put like bookmarks and only
runs
it does it does so you could force it to
recompute but if you run a new node it
will kind of like download the blocks
and independently verify them but once
you're running a node then it just needs
to
stay in sync and then as that node
checks it it will report back to the
mother ship the main
uh would you call it netbook
so there's no mothership but it's
reporting back to the other nodes that
hey i agree this is right or no so it's
like so now we are touching the concept
of like decentralized consensus right so
now everyone's let's say there are
thousands of people around the world
everyone is running the nodes
and the miners are the only ones who are
writing right
so when the miner is right sometimes
these miners fight with each other as
well right
let's say that there were two miners one
one of them was like i won the block and
here's the right copy the other one is
like no you know what i won the block
and here's the coffee of my chain
and what happens is now your node is can
actually see that there's there are two
different copies
that are coming to me
which one is the right one so the way
bitcoin works is always the longest
chain wins
because the longest chain represents the
most amount of work being done right so
other miners
will basically because they have money
to lose right like if you're working on
a chain that will end up not being the
longest one you just lost money because
the you should have been on the correct
fork
and doing your work on the correct one
so there's a strong economic incentive
for these conflicts to very quickly get
resolved automatically so your nodes can
actually see all of that and that's why
sometimes people will tell you that if
you do a bitcoin transaction wait for at
least six six confirmations
because it's basically mathematics that
after six confirmations
the probability that you know there
might be a fork on the network basically
goes down to almost zero so if you if
you have waited for like six
confirmations on the network you're
effectively you know now now your
transaction will
be safe basically okay so now hopefully
people and i'll recap quickly but people
now understand what this is
so a technology was created bitcoin
by a mystery entity known as satoshi
and
what they gave us was this distributed
ledger that anybody can spin up only so
many people can write but all these
other people are going to be able to
verify whether that's accurate or not
there are financial incentives all
around to make sure that people aren't
lying
to make sure that there's plenty of
people that to use your words have been
bribed to you know confirm that this is
all working
and so now we have a consensus that
effectively can't be hacked that's the
right way to think about it and so now
we can take something that's digital and
for anybody that's hearing this for the
first time hear this well
you take a digital object and you have
now been able to give it the same sort
of
scarcity properties of a physical object
so that
i mean to be honest it's better if i'm
quite frank because i don't know how
many of these mugs exist whereas with an
nft just to put it back in my language
because that's where i deal i know
exactly how many of that item were
created and anybody that spins up in the
case of working on the ethereum
blockchain which is where we do our nfts
it's like anybody that puts up a
marketplace that can read what's on the
blockchain can tell you exactly how many
that are they will all agree so
it's you can find out how many of
something exists so now you know exactly
how rare it is you know which one you
have what one somebody else has so
all of the
the sort of latent
economic energy that was
leaking out of the system in digital
goods because you you couldn't a you
couldn't make it more complex
so what i always tell people is an nft
is not a picture it's a picture with
matrix code hidden inside of it once you
understand the power of that matrix code
then you really understand
nfts and so
now it
isn't just an image anymore a and b now
i can track who owns that image and if
people care enough to be one of the
owners and they can guarantee that now i
have it now whether humans should care
about ownership or not is irrelevant
they do and so this technology allowed
us to track that into the digital world
okay so that's like the the big
innovation that
depending on where you draw the lines of
what web 3 is to me it is web 3 is the
ability to own a digital item in a
provable way
and all of the consequences therein and
there are huge ramifications once you
understand what you can build on top of
that and that's where this conversation
i think is about to get really
interesting now i think of it from an
entertainment perspective but today what
i really want to talk about is
i heard you in an interview
running through a hypothetical situation
that stopped me in my tracks about
the way like interest works on your
money
you were talking specifically about
bitcoin
and you said imagine a day where there's
a marketplace where
people can lend money
review lenders
review people that review borrowers i
was like oh my god like this gets crazy
so
if you don't mind walk us through that
hypothetical situation
and
for context how does money work today
and how is this going to open up a level
of creativity that i think will shock
people awesome yeah let me let me dive
into it and then i'll come back to some
of the ownership and the nft stuff as
well
um so
interestingly you know so far we have
discussed bitcoin bitcoin is you know
this new type of money that nobody
controls
right so it's like um
in some ways it's like open source
technology that created money that is
not controlled by anyone and that that
that type of thing has never existed in
in our society in our history uh ever
right so why do you think that it
created money because that's a really
interesting way to phrase it
think of like
humans
even when you know we used to live in in
tribes
will always find ways to trade with each
other
right and they will always find ways to
ascribe certain meaning
to certain objects
for those
for the trading to take place
right so that's why we had gold that's
why we had those sea shells that's why
we had those like other types of
physical objects
that would represent some value because
humans like by nature they wanna they
wanna trade they wanna you know i i i'm
a farmer i'm growing something and i
will sell it to you and i want something
else back right this is how human
civilizations like come together
independently in different kind of like
geographic regions over and over again
and whenever
people are agreeing on like some sort of
of a
of a medium of trade
right like you're describing some
certain value to it and then that's
that's how money started right like
people were like hey instead of using
gold i will start using paper and then
you know paper and gold were linked and
and then you know we
have evolved over the years so to think
of money as basically kind of like you
know both a
store of value
and something with which we can we can
trade with uh with other people and
interestingly
um again double clicking on these
systems you would find out that gold was
a good proxy for something being scarce
because we
we aren't certain that you know somebody
can find a really big gold mine right
and suddenly you know there's a lot more
gold in the world now than there there
there used to be right but bitcoin
there's only 21 million
right so it's crystal clear
that what the supply is how scarce this
asset is no one can change it right so
it's not like the government can decide
that hey we're going to have nine
percent inflation and suddenly your your
your money is worth less sitting sitting
in your bank account right so i think
it's worth the laboring this point just
for a second so stars explode they emit
gold gold crashes into the earth gets
embedded in their crust as it crumbles
and moves around and it gets buried and
it's hard to extract
so
it also
is very resilient so it doesn't mold it
doesn't rot
you can melt it down and it remains pure
like there's a lot of
properties that led a lot of different
civilizations to ultimately coalesce
around gold but they tried all kinds of
things i think you said seashells
earlier so they try all this different
stuff they need a universal medium of
exchange because maybe i'm good at
basket weaving maybe you're really good
at harvesting corn i i don't want to
have to know how many baskets equal how
much corn and so we all come up with
this medium of exchange we all because
of its properties come to gold the
problem with gold is [ __ ] heavy and
so carrying that around and being afraid
that somebody's going to jack me for it
we start coming up with proxies the
products that we come up with today is
well entries in a database but people
think of it as paper money
pretty lame properties though when you
really think about it becomes fiat
because we break the relationship
between that money and the gold it was
supposed to stand for so now to your
point governments can inflate the life
out of it i won't derail this
conversation with that but people should
look into inflation it's terrifying it's
eating all of your money uh so yeah it's
like a whole thing which i didn't
understand and once i did i became very
paranoid um okay so now that we
understand that civilization because we
specialize in things
our time is finite so we can't get great
at everything we have this universal
medium of exchange
and along comes bitcoin and it has
properties that make it better than gold
that was like these are all the pieces
that probably seem self-evident to you
i've had to cobble those together to be
like why are people so excited about
this how did this open source thing
create money why did people care
right so i think you you got it exactly
right right so you you get bitcoin and
then honestly like i'm i'm a computer
scientist right like i when i discovered
bitcoin i was more interested in the
network and how it's working right like
the money thing actually even for me
came much later when i started realizing
when i started seeing so many community
members getting so excited about the
fact that they finally have sound money
like money where supply cannot be
changed you're not trusting any
government any it's not just about
governments i'm not an anti-government
right like it's just that you don't have
to trust anyone and that is
a lot better than trusting any
type of you know organized you know
uh institution that can just decide to
change things right like the the fed is
basically in the recent years they just
decided to print a lot more money and
some people are
getting hit really hard because of that
right if
people who are listening to this podcast
if you're feeling that prices are going
up
like you know gas is getting expensive
your groceries are getting expensive
prices are not going up
your money is becoming
less valuable
so how you feel it on a day-to-day basis
it feels like things are getting more
expensive right and the reason that the
money is becoming less valuable
single biggest reason regardless of what
you know the narrative on the media
might be or they're trying to spin it
the single biggest reason is they're
just printing a ton of money so if
they're printing a lot more obviously
it's going to devalue right it's it's
it's something that's obvious for a lot
of people it wasn't for me it took me a
long time to wrap my head around wait
what why here's here's a very
interesting example
imagine that you know
the government decided that this year
they're going to automatically withdraw
money from
every
u.s nationals bank account boom one day
they come in you had 100k in your
account now you have 90k right single
day they took the money i think there
will be riots on the streets
right people will be like what the hell
happened like you can't just take money
out of my account
percent like how how do you do that they
did that in cyprus that [ __ ] is crazy
right
that is literally the effect of
inflation over over the year
if there's 10 inflation
your 100k is now worth 90k but because
it happens slowly
it's like you're you're and it's got way
better pr right you didn't take anything
for me you should take anything you just
made it less valuable you just made it
that's so brutal
okay so
we don't want our money inflated away so
bitcoin has this cap 21 million that's
all it's ever going to be we can prove
it by looking at this distributed ledger
we've already talked about why that's
way better
so
people can buy into it it's sound money
cool rad i get you know why that matters
so
now
that we have this sound money
why does this become a revolution how
does this open up this creativity in you
know the future where you're painting
this picture of these marketplaces
so
one i think people have to
get an understanding so right now if i
have money in savings i get bump kiss
for it i may even at this point be
negative right because of inflation so
just holding it means i'm actually
losing buying power over time the number
of dollars stays the same but what it
buys is less so it's effectively going
down
so i don't think right now people are
very excited to save
but bitcoin
may
offer a solution yep so i think this is
this is the beauty of uh technology and
especially like open source technologies
right um i think a classic example would
be
the when the intro started and you know
web 2.0 and you could interact right
and wikipedia came online so wikipedia
is like literally normal people ordinary
people around the world
they're like hey i know something about
this topic and i'm going to like try and
write write it in in the wikipedia and
then other people will try to
collaborate and people people are kind
of like
they're collaborating around learning
right so if somebody puts wrong
information they would argue about it
they will figure it out and if you look
at that time wikipedia looked like a
joke right
compared to actual encyclopedias
and fast forward 10 years
your your your classic encyclopedias are
going out of business
and wikipedia is now the best source of
information on the planet right because
ordinary humans these citizens of the
internet came together and they started
figuring things out themselves right
like oh this is how you write
encyclopedia and we can collaborate and
do it now apply that analogy to bitcoin
once you know they got bitcoin they're
like oh this is how money works and i
now understand it that there's only 21
million no one can change it uh now
let's see how the banking system works
right so usually on a day-to-day basis i
think people weren't even thinking about
these things right they're like yes the
only way money works is like you know i
get a paycheck and i put it in my bank
account here are the rates you know they
publish new rates once in a while and
this is how the system works but now you
have the tooling the open source tooling
to start playing around with these
things that
okay i have my bitcoin do i want to
self-custody yet do i want to give it to
somebody else
if i put it to some productive use
how much are people willing to pay me
for that right and it turns out a market
emerges like you know entrepreneurs come
in they're like if you want to lend me
your bitcoin i'll actually give you a
six percent yield
and they're like what six percent you're
willing to do that
uh because for my bank i actually don't
get very high yields at all right so
it's a little bit like now
these normal average citizens are kind
of like tinkering with things themselves
and are figuring out how the financial
system sort of works and then they
realize that what what has been
happening so far is
in the banking industry and no offense
to you know my friends who work in this
industry it's literally you're kind of
scamming
people like you take their money
they put all the money in the in the
bank the bank goes off and makes a lot
of money on that
and they give nothing back
to the actual owners who deposited the
money they basically get pennies like
barely even pennies right there's always
a joke a tax time when you look at your
you know savings account statement and
where's the money going the banks are
keeping it they're keeping all the
profits right that's that's how the
system is working and suddenly you
decentralize it and people go like wait
a minute if let's say for this example
that six to seven percent was the actual
yield
when you're lending out money to
somebody and they can put it to
productive use
um
why shouldn't i get all of them
maybe i should pay some fees so some
parties in the middle and then these
systems are very efficient right so
banks are also inefficient
on on top of kind of like this model of
where we're not going to give anything
back to the users they're also
inefficient so they lose a lot of money
because there are so many parties
involved and they have inefficient
systems and these younger entrepreneurs
with open source technologies are
building much more efficient markets
right so that leads us to things like
smart contracts where people can now
program
a lending protocol
so instead of like a bank and you know a
bank working with another bank and
they're they're kind of like
coordinating to figure out how to do
lending it's just a computer program
because now money is programmable right
bitcoin is programmable or other other
forms of digital currencies they're
programmable so you can actually
literally deposit money in a smart
contract it's like a computer program
that now owns the money
and these developers and engineers who
are far more talented i think
than than you know the the the type of
talent that the banking industry is able
to attract and now they're innovating
like at a massive rapid speed and that
is leading to almost like a new type of
a financial system which is which is
based around these cryptocurrencies and
bitcoin and so on
okay so are you going to wrap all that
inside of the label of defy
sort of i think i think i think of that
as
even broader than d5 but d5
is is certainly part of it well give me
the edges of defy and then
help me understand because d5 is
something i don't consider myself super
knowledgeable about i've always been
really gun shy
it just seems too good to be true like
hearing 10
apy is like
what like that's that's insane so and
then you have people it's fifteen
thousand percent ap1mi uh-huh so
what is defy where are the edges of defy
and how is what you just described going
beyond that yeah so i think the way i
think about the system is
that the
current way that wall street works is
pretty much like a black box to most
most people like we have no idea how
these markets work funny enough even
people who work at wall street sometimes
they have no idea how these things work
and so imagine
that it's these old systems that are
kind of like held together by
relationships if you know let's say
you know the markets go down
someone is trying to bail out you know
um a company like they're literally
making phone calls right like they they
don't know like what's the actual risk
probability of of something happening or
how much money like this is what
happened in 2008 like if you've seen any
of the of the documentaries like these
banks couldn't even figure out how much
money they would need to even stay
you know above water like they
themselves didn't know
right
and now you compare that to this world
of open source
transparent systems where it's like
engineers and developers who are coming
in or writing computer software which is
transparent meaning that anyone
can analyze what the software is doing
anyone can analyze like what the risk in
the system is right this is sometimes
how i describe d5 to wall street people
i would
talk to them and i'll say you know what
if
i can improve
your visibility
into the risk in the markets
and which wall street person doesn't
want that they're like yes yes
absolutely like i would want to know
i would like to have better visibility
into the risk in the markets because
then i can i can make smarter decisions
if i know what the risk in the market is
defy
has a hundred percent visibility
into what risk exists in the market and
how it's going to work how's that
possible because because everything's
transparent right but the individual um
like contracts are transparent but how
do you contextualize them
to industry-wide risk so you can you can
model that out right so imagine that
wall street black box no one has
any access to data they don't know how
these systems are interlinked they don't
know that if trigger a happens
what else is going to get triggered over
here
because all the data is public
all the contracts are are are
transparent you could actually model it
out right like it will take work but
it's entirely possible and and these
systems have actually
uh like recently like a year ago when
there was a crash in the markets
it was amazing how systematic
the d5 system was and how it held up
like if you are if you're getting liquid
at it
the code will liquidate you right can
you explain liquidation i think i know
what it is
but you hear that term a lot
and
yeah i wouldn't want to be on national
television trying to explain to people
what liquidation is yeah i think i think
a simple type of liquidation could be
that let's say
you are providing liquidity to a
decentralized exchange
uh let's say you know
it's a
trading pair between bitcoin and a
stable coin right you have bitcoin it's
just sitting there in your wallet
and you're like you know what i'm going
to provide liquidity to the exchange
and
that means that i'm helping with trading
like my bitcoin is actually not being
used and whenever some of the trades
happen i will get some percent of it so
i'm trying to put my money to be like
active use and i'm making money
and the way that works is i put in let's
say 100 bitcoin and maybe they sell 10
of them but they owe me the 10 plus some
fee
and how do i know i'm gonna get my 10
back yeah exactly so the way you provide
liquidity is that you you don't want to
sell your bitcoin like you want to
eventually get your bitcoin back plus
some of the fees that were being offered
right so what you're doing is you're
kind of like
putting your money in at some sort of a
price pair
with some risk boundaries
that let's say because bitcoin is
volatile let's say a bitcoin kind of
like goes down a lot
then at some point
you know
i i made the wrong bet and i'll take
some loss there right so it's basically
like p like imagine when someone says
that someone is getting liquidated it's
like they had their loss parameters
defined but
you reached the parameters and now
someone's coming in and actually
liquidating you so there do they get
your bitcoin
like depends on how how it was uh
structured so you will basically take
some sort of a loss in in this
particular example that okay i came in
let's try to have a simple example let's
say bitcoin was forty thousand and i'm
like i'm willing to provide liquidity at
bitcoin forty thousand if it keeps
trading plus minus five thousand
that's within the range of this
particular liquidity pool and nothing's
gonna happen to me right they can
tolerate that but if bitcoin suddenly
drops like 25 000
now
i'm gonna
i'm gonna take a loss i'm gonna take
some loss and they're just what gonna
cash you out
so it depends like usually the protocols
sometimes they would have uh liquidation
mechanisms so they would
um
it's pretty fascinating like they would
actually
uh give incentives for somebody to come
in and liquidate a vault like come in
and buy it
when somebody is liquidated what happens
i have a hundred in i've loaned out 10
and then the the price drops beyond my
my risk tolerance that i have set
what happens to my ten what happens to
all so i've got 90 still sitting on the
books i've got 10 that are loaned out
essentially do i lose the 10. yeah it's
like it's like
it's like a forced price that you have
to take at that point
okay
so would i take it at the price it
dropped to or i take it at the the
threshold i set
yeah it it it depends on how it was
configured but the worst case scenario
would be that you are you would take the
lower the lower amount so you'll be
forced to sell at at the lower price on
all 100 or just the 10 that are loaned
out
uh so in this example you weren't
learning anything out whatever you're
putting into the pool would be would be
at risk okay so if i say
if if i say my threshold i have it in at
forty thousand meaning one btc equals
forty thousand dollars u.s
uh so i have that in there i've got a
five thousand usd threshold dropped so
it could go down to thirty five thousand
but it drops down to twenty five
thousand now i'm getting my
btc back
at
their what
that's what i don't understand are do
they get to keep some of the btc let me
let me
let me try a different example let's say
so this is a different example
in this example
you were
giving out btc as collateral yep and
you're taking a usd loan against it
right okay so now slightly modified
example
40 000 let's say the collateral ratio
had to be double or something right
because bitcoin volatile uh so you had
like 80 000
worth of collateral and let's say you
took like 50 000
loan against it
and then markets start crashing bitcoin
is going down
right at some point the protocol has
this rule
that if your cl collateral kind of like
falls below a certain amount you could
lose
you could lose your collateral just like
the internet changed the world forever
web 3 is going to change the world
forever as well and if you're interested
in learning about the blockchain
cryptocurrency nfts and what all of this
actually means and how it's going to
make for a brighter future i have
created web3 university to teach you
exactly what's going on and make sure
that you aren't left behind registration
is free everything is laid out in
sequential order so even if you aren't
fully sure what a blockchain does or why
people are so excited about all of this
then you can go through step by step and
you'll be well prepared to get started
you can go to
web3u.io to register it's completely
free and we'll be updating the content
there regularly as things change i'll
see you guys inside take care and be
legendary peace
you you took 50 000 from us in a loan
we're getting 50 000 back your
collateral just went down in value so
now i'm clawing it may take all of your
collateral to equal the 50 000 in fact
i'm sure that's where they liquidate
yeah so that's a different type of
liquidation but maybe it's like simpler
that's way easier for me to understand
but so now i feel like i get that part
but the first example why did we abandon
that and now admittedly i still don't
understand it uh
but is there is what's the key thing
that i'm missing on that one over there
um i think it was basically you weren't
drawing a loan out but you are still
putting money in a vault
and a liquidity pool
at certain parameters that i am fine
with the prices going up and down in
this range
but if the range
kind of like if the volatility is more
than the range
then
some of your
btc will get converted to
usd
at the prices that you wouldn't have
liked them to be converted right because
it forced me to sell
at a price where hey if i could have
held on to it and the price went back up
then i would be in much better shape
okay i don't understand what would
prompt somebody to do that i guess other
than they're hoping that it pays out at
a premium and that the price doesn't go
down but every time i hear liquidation
i'm just like why do people take out
debt like this is crazy
so but that's admittedly me just not
understanding like i do not understand
defy even now while i can wrap my head
around the part that you're explaining
about i used collateral i took out a
loan they're going to get that paid back
one way or the other and as my
collateral drops to that value they're
going to snatch it just to make sure
that part i totally get
but the
so when i originally heard you describe
that marketplace that will ultimately be
born and efficiencies will be found
you've got these coders and people being
incredibly creative with how you do this
what my mind can understand is like
micro loans right so i remember i
learned about micro loans maybe five or
six years ago for the first time i was
like whoa that's dope like you loan a
hundred dollars to somebody uh you know
in a third world country
and they can
use that like for them that's a lot of
money they can start a business whatever
they can get back up off their feet they
could pay you back whatever is a
reasonable amount i just thought man
that's a cool way to do something
amazing and make money off it word i
love that and so
when i heard you describe like this will
be sort of like the uber of lenders and
borrowers where both lenders and
borrowers will get a rating and so you
can decide to do something with somebody
and somebody who's paid back you know
100 or a thousand bitcoins like oh my
god like that would be insane like that
person's obviously doing something right
you could
be more comfortable engaging with them
and then i just thought oh my god like
what are all the creative things that
people could do along those lines but
getting into the more extreme apy
we go back to the fundamental problem of
and i'll speak for myself
i don't understand like i think i
understand how wall street works
i don't understand puts calls stuff like
that no matter how many times i try to
wrap my head around it it just seems
like gambling and if we can all agree
that it's gambling then cool i
understand wall street the moment
somebody tries to tell me that it's not
gambling to say
hey i'm going to guarantee i'll buy that
stock should it fall to this price but
if it doesn't fall to that price you're
going to pay me a pmia you're going to
pay me a premium for having guaranteed
you that i would buy it if it did fall
to that price uh which
that is how it works right like i don't
remember that to put her a call but
like
that's what you're doing you're you're
guaranteeing to buy or sell something at
a certain price
right so i think i think the the the
difference i want to point out is
wall street still remains a
closed system black box
box you don't know what so you're all
for all of that stuff you just want it
all to be completely true those are
those are the way i view the world is
those are different types of financial
instruments
just like you can't stop you know a
developer from writing a certain type of
code you can't stop like financial
engineers to coming up with new types of
financial products they are going to do
it right and if anything you can't stop
them i mean i mean regularly there's
regulations sure but like that's that's
another thing but with the uh the crypto
and bitcoin world because global
you don't know which countries
regulations are are applying right like
sure maybe you can geofence a product in
the us
that doesn't stop people from who are
non-us from using that product right so
it's a little bit like
these people are gonna build these
financial instruments
it's already happening this market is
like very transparent and
a lot of really intelligent people are
coming in and experimenting together in
a very open way
uh to build new types of financial
markets and i think that's that's that
that is something i can support like
that is that to me is way better than
wall street right because
uh it is it's a little bit like it said
wall street to me feels like an
insider's game
uh if they do something wrong sometimes
they get pilled out
like in in in d5 who's gonna bail you
out right like it's it's a little bit
like when markets crash in d5 it's a
very orderly crash at times you know
that when when this uh vault is going to
get liquidated this will happen and then
you know if this happens then that code
path is going to get triggered and and
this thing says it's an orderly crash
just that everybody knows what everybody
should end up with it was all entirely
predictable it was all programmed and
you could have run a simulation through
it and you could have you could have and
the simulation would give you the same
result right and that's that's a lot
that's a lot more transparent system and
over time that system is going to become
much more resilient because there's so
much open experimentation happening in
when you say resilient resilient against
what like
resilient against like you know
mistakes that could have been avoided
like uh if you know
i
let's take a simple example that people
learn through
different modeling and experimentation
and just like messing around that oh you
should always have like 150 collateral
and not less than that because
you know people learned because that
system just had a lot more information
available to average normal people
around the world like anyone can can
participate in in the system anyone can
basically start learning like you don't
have to be in the us you don't have to
work on wall street you don't you all
you need an internet connection
and
the intellectual curiosity to come in
and start learning about these things
and contributing back to these protocols
right and and some of the api stuff like
usually
i know it turns off a lot of people and
there are good reas