COIN TALK is produced in partnership with Medium and hosted by Aaron Lammer and Jay Caspian Kang. Press “Listen to the story” above to play the episode or read the transcript below. (You can also subscribe on Apple Podcasts, download the MP3, or email us at hi@cointalk.show for our upcoming mailbag show.)

(Since this episode was taped last night, it was reported that Tether and Bitfinex had received a subpoena from the CFTC on December 6th.)
 — “U.S. Regulators Subpoena Crypto Exchange Bitfinex, Tether” (Matthew Leising, Bloomberg)


Robot: This episode of Coin Talk was taped Monday, January 29th at 8 PM eastern standard time. The bitcoin price index was $11,232.

Aaron Lammer: Hello, Jay!

Jay Kang: Hey, how’s it going.

Aaron Lammer: We’ve been separated. We’ve been apart.

Jay Kang: Yeah, well I’ve been traveling a bit across the tundras of Minnesota and Canada, and after a couple days, I got to say Aaron, I miss getting your constant updates through telegram about Bitcoin.

Aaron Lammer: I have been panicking in your absence. This should be fun. We don’t have a guest today, we’re just going to go over the week together. Normally I feel like we’ve talked about these things like eight times before we talk about them on the show. This time they’ll be totally fresh. Fair amount happened in between our last taping and now.

Jay Kang: Yeah. I actually feel like Bitcoin was declared dead two more times, I think, by pretty prominent people, which actually was kind of an eventful week, because I felt like we had reached this point where we didn’t have any “Bitcoin is going to take over the world” stories for a while obviously, but it also seemed like people were starting to settle into some sort of normalcy saying, maybe this is just going to be a thing that’s going to take a little bit more time to figure out than we thought it was.

Aaron Lammer: Yeah, everything has … First of all I want to thank the listeners to this show, who have very kindly sent us some great questions, and given us some feedback that at times we’re moving a little too fast, or … I feel like we’re maybe a few months ahead, and are on this obsessive journey. We’re going to make an attempt to define the basics as we go, although ironically I feel like don’t even really understand the basics myself.

Jay Kang: Yeah. It’s like at some point I think because of the functions of the conversations that you and I would have, we had to memorize little slug lines on what certain things were.

Aaron Lammer: Yeah.

Jay Kang: These were all from very, very dubious sources. I think we’ve gotten slightly past that, and so perhaps we can go back a few months.

Aaron Lammer: Yes.

Jay Kang: Because as we are trying to create this show to be an inviting place for crypto newcomers, and just sort of relearn a lot of this stuff I think, and re-explain a lot of this stuff that I think would be good for us to relearn and explain anyway.

Aaron Lammer: Yes, and this should be fun because we’re really kind of fresh, haven’t talked to each other about this stuff. Some of the stuff that I think is coming out this week is stuff that I felt like eventually we were going to hear about. Tether (USDT) has been something that’s felt like a ticking time bomb, always lingering in crypto news. That’s something I think we should definitely talk about. What do you feel like talking about?

Jay Kang: I think we should talk about Tether, and I guess we should really start by, Aaron, Tether, honestly the first time we did a basement tape, I think it was the first-

Aaron Lammer: First thing we talked about.

Jay Kang: Conversation that you and I had.

Aaron Lammer: Yes.

Jay Kang: Aaron, since that, that was about two to three months ago, can you explain to me what a Tether is?

Aaron Lammer: I think before we can really get to Tether, we have to describe why Tether needs to exist in the first place. The reason Tether needs to exist in the first place is that it’s a fiat gateway, which is to say, to get crypto currencies you need to trade US dollars or your local currency, and that’s in some ways the most difficult jump in the whole ecosystem. It’s the most regulatorily difficult, it has the most tax implications, it’s kind of the biggest question.

Jay Kang: Yeah, and it also it, I would say that in terms of discomfort-

Aaron Lammer: Yes.

Jay Kang: Nothing makes people more uncomfortable than putting their banking information online, especially if it’s something that’s not regulated that they’re not really sure they want to get into.

Aaron Lammer: You’ve got to give up your identity in order to do it, usually.

Jay Kang: Yeah. You have to confirm your identity on a lot of these crypto exchanges in ways that don’t feel entirely safe.

Aaron Lammer: You have to confirm that you are Jay’s dad.

Jay Kang: Yeah, or you have to take very, very shaky screenshots of your driver’s license and upload them like 15 times, and at some point whatever is going on at the exchange, they’re like, “This is probably the person because they sent us like 15 photos of this driver’s license.”

Aaron Lammer: It’s basically what you’d have to do to do a proof of life if you’d been kidnapped. You need to take a grainy photo on someone’s laptop camera.

Jay Kang: Yeah, exactly.

Aaron Lammer: So this is always kind of a big deal, and one of the reasons that Bitcoin has always been central to every single thing that’s happened in crypto is, Bitcoin serves generally as that fiat gateway, traditionally people have traded their currency for bitcoin. Then Tether came along. To your mind, what purpose does Tether fill?

Jay Kang: I do think we should at some point just explain what a Tether is.

Aaron Lammer: Sure, what is one Tether?

Jay Kang: A Tether is a crypto currency that is pegged to the United States dollar, allegedly, so that if you put a dollar into a market that has Tether and you get a Tether back, Tether, the company that makes Tether, will tell you that that Tether that you get is representative of a dollar regardless of how you spend it, regardless of the market of Tethers, regardless of what happens to the crypto market. That one Tether is worth one dollar. It’s almost like a “Disney Buck.” That’s how we, I think, described it earlier, which is that when you go to Disneyland, you have like a dollar that’s a Disney Buck.

Aaron Lammer: Yeah. Generally reserved for Disneyland, some Caribbean resorts.

Jay Kang: Like “Sandals Dollars?”

Aaron Lammer: Yeah, those are the kind of places where you pay with drinks with their native currency. Cruise ships, I think. The idea isn’t super complicated, and the second part of the idea is that for every dollar that’s out there with a Tether, which is the net supply of Tether, this company maintains Tether will keep one US dollar in reserve, and that will guarantee and forever peg Tethers to that growing reserve of US dollar currencies.

Jay Kang: Yeah, so as part of cryptocurrency, and the idea, is a sort of railing against the idea that you can’t make money out of nothing. What Tether, the company, which is I think located in Hong Kong, and also they have an office in San Francisco I think, what they have said is that every single Tether they print is backed by one US dollar that they hold in reserve. That has been sort of a point of contention, I would say for as long as you and I have been in crypto.

Aaron Lammer: Definitely.

Jay Kang: Maybe a few months later, there was a Tether scandal —

Aaron Lammer: Almost immediately. I feel like part of the story of Tether is not the story of, “We thought this was totally legitimate and we discovered a flaw.” It’s been more like, people were immediately like, that’s very sketchy, and it continues to seem even more sketchy, and the story gets worth. At no point did someone say, “This is a great idea.”

Jay Kang: But they did use it.

Aaron Lammer: But people have very actively used it without reservations, it doesn’t seem. There’s a huge amount of tether volume on exchanges.

Jay Kang: Then it’s used in all the big exchanges right now, except for GDAX and Coinbase.

Aaron Lammer: After trading your US dollars for Tether you can use that Tether to buy Bitcoin or any variety of cryptocurrencies directly. There’s massive US dollar Tether trading pairs on tons of major exchanges, which means there’s millions and millions of Tethers sitting on many big exchanges. So why do people not believe in this Tether system?

Jay Kang: First of all, it seems very difficult to believe that when you watch the way in which they get printed, and obviously everyone can see the way that they’re printed because it is put out on a blockchain, and also because there are a lot of people tracking this right now, they come out in very strange amounts. They come out in very round numbers like 500 million or something like that, and that it’s very hard to imagine that, if there is suddenly $500 million of new US dollars entering the market at any given time, there’s a lot of conspiracy theories that come up about this, because Tether the company is pretty shadowy. We don’t know that much about it.

Aaron Lammer: I know that there’s a bunch of pretty well put together criticism of Tether, but I’m not totally clear exactly on what the story is. Can you give me the two-minute?

Jay Kang: Some time ago there was an anonymous Twitter user like @Bitfinexed, and he also had a YouTube channel called Bitfinexed, and he started telling the story, which seemed somewhat plausible to me at the time, that Tether has fake money, and the company Tether was printing hundreds of millions, even billions, of dollars in Tethers with no backing, and sending them to a variety of accounts.

Aaron Lammer: Which to say Tethers that do not have a US dollar in the reserve paired with them.

Jay Kang: Yeah, just straight up fake money, and sending them to a variety of accounts within the Bitfinex exchange, which is one of the bit exchanges in the world. What he was arguing was happening was that that fake money was being used by people within the company Bitfinex to manipulate the price of Bitcoin and other cryptocurrencies in a variety of ways. Which he would show in these completely opaque YouTube videos that would play sort of trance music in the background, and then you would see an order book filing up and a chart going up and down, and then he would draw these little lines and be like, “That’s the moment!” Unless you knew exactly what he was talking about, it’s completely incomprehensible.

Aaron Lammer: Yeah, his secondary claim, which I don’t have the background to evaluate, is that you can see the production of these Tethers when they hit the market and correlate it with these huge Bitcoin runs that led up to that peak at over $19,000. He’s basically … Am I understanding that wrong?

Jay Kang: I think that that is an extrapolation of what he was saying by a lot of other people, so I don’t think you’re wrong, and I think that’s where some of the confusion came in, is that people started wondering if we were living in sort of this matrix where we were just actually living in a world of Tether now, and that the actual Bitcoin world had been left behind. In the end I think what he was saying, and I think this is the part that’s been picked up, which is that every time Bitcoin makes a sort of tanking move, or the crypto markets start to drop, that you’ll have Tethers be printed, and that those accounts within Bitfinex will use the fake money to put in a variety of sort of market manipulation tactics, whether it’s wash trading or putting up sell walls, or all this sort of stuff, to try and make sure that Bitcoin doesn’t go down past a certain amount. The reason for that is, it’s kind of obvious, it’s good for an exchange to have a healthy currency.

Aaron Lammer: To be fair, the Tether company could easily put any of these rumors to rest by simply allowing for an open audit of the company.

Jay Kang: Yes.

Aaron Lammer: So a lot of this is basically an insinuation that they’re guilty because they could very easily prove themselves innocent were they actually being transparent. I do think that it’s not like a total conspiracy theory; in some ways it’s like someone refusing something that, in any sort of a regulated market, would be a very basic request.

Jay Kang: Yeah, or actually just the law. When this theory first started coming out Aaron, I remember you and I would have talks about it, and honestly this prompted my first, “I sold everything and completely exited all crypto markets” because of this. Do you remember that?

Aaron Lammer: Yeah, this is definitely the kind of theory that you can be like, “And I decided after I researched it that it’s probably right, and I have sold everything I ever had.”

Jay Kang: It scared me. I would say this was about four months ago or something, and the reason why it scared me was because I felt like it did explain some of the irrationality of some of the markets, why money kept getting pumped in. I couldn’t see why worldwide this would be such a big idea, and also just the sort of shadiness of the Tether companyall that felt very fishy to me, but I eventually sort of came around and was like, I don’t know if that’s a big deal, which is where you were. Aaron, why did you not feel like it was a big deal?

Aaron Lammer: It’s not necessarily true that even if there’s been some funny business at Tether, that the market’s necessarily going to go a lot lower than it is now. I do think that’s a convincing argument, but I also think there’s an explanation that’s somewhere in between here, which is just that a lot of people do want to buy Tether, because they want to buy crypto and there’s a huge flood of people, or there was, particularly during the time period we’re talking about, late 2017, a huge flood of people into crypto markets. Probably Tether is both taking money and engaging in some funny business, and probably Tether and Bitfinex, if this is true, are making a lot of money off of it. I’d be most worried about holding Tether, which I would not do.

Jay Kang: Okay, so of the more strident and of the more, I guess, reputable people who have picked up this theory is Nouriel Roubini, who is a professor at the Stern School of Business at NYU, so a guy who certainly has some bona fides. He’s been tweeting up a storm for the past few days, and he keeps-

Aaron Lammer: It’s funny when people who, you can have a bunch of broad interests in economics, but then eventually you just are reduced to a dude who’s just ranting about crypto on Twitter. That’s basically our destiny, minus the academic bona fides.

Jay Kang: There’s only one way to tweet about Bitcoin right, you’ve got to go full out.

Aaron Lammer: Yeah, so he’s pumped up about taking down Tether.

Jay Kang: Honestly, even more so than Bitfinexed or some of the other big people who have been saying Bitcoin is essentially fake, he has the most apocalyptic vision of all of this of anybody. He’s been tweeting things like, “Total loss when price collapses to near zero once manipulation is over!” He’s written an op-ed about it, he’s talked about the crash, and he has come out and essentially said that he believes that, when this is exposed, that bitcoin prices will drop more than 80%. Look, I don’t think we can dismiss the guy, but what do you think about that?

Aaron Lammer: Look, there’s a lot of people, there’s a lot of economics professors, who think Bitcoin is going to zero. That’s not particularly newsworthy. I guess I wonder, we hear about manipulation in all of these markets. The Korean Ethereum market, I remember at some point in August you were telling me about how manipulated the Korean Ethereum markets are. I totally buy it …

Jay Kang: They are. They are!

Aaron Lammer: But what is Ethereum or Bitcoin supposed to be worth? They’re supposed to be worth way less money, and then there’s some sort of a magic mojo that pushes them up? I guess I think everyone wins when the price goes up, and that’s a positive pressure on all of it.

Jay Kang: Look, the problem is that when people FOMO in, and if the entire economy is fake and based off this sort of fraud, and then it all collapses and all those people are left holding the bag, that’s a very bad thing. That’s why we have financial regulations in the first place.

Aaron Lammer: IF you take the 80%, if you take the idea that it’s a house of cards and Tether takes the whole thing down, how does that scenario unfold?

Jay Kang: I think that what would probably have to happen is that the government of Hong Kong, or even in the United States, because they do have offices in California, that they come out and they basically say that you have to do an audit or we’re going to make it illegal for you to operate in these countries. (EDITOR’S NOTE: After this episode was taped it was revealed that on December 6th, 2017, Tether and Bitfinex were served with a subpoena by the CFTC.) I think that at that point that would probably stop a lot of exchanges, like Bittrex or other exchanges that might be located in places that, like Japan or the United States, that are trying to implement some sort of regulations into this. At that point Tether would go away, and it would not be as prominent, and I think at that point if it was going to collapse it would’ve collapsed then. Just to put my cards on the table, I have no idea if this is true or not, and I’m a little bit suspicious of the doom and gloom apocalyptic version of it, but that would be the point where we would know, don’t you think?

Aaron Lammer: Yeah, the weirdest claim that Tether makes is that Tether is always worth one dollar, it’s pegged to the dollar, it’s just going to be a dollar. What would probably happen in some sort of a scenario that’s slightly less apocalyptic with Tether would be that Tether would start trading for way less than a dollar. People would be like, there’s some crazy fraud happening at Tether, and Tether drops to $0.80, then it drops to $0.60, then it drops to $0.50. I would think people would be bailing either heavily to US dollars or to Bitcoin, getting out of Tether as quickly as they could. I do think that scenario could happen. What’s stopping, except market manipulation, what’s stopping Tether from becoming worth less if these questions become bigger and bigger in the press?

Jay Kang: I don’t know. I think that right now, if you did a real audit of what the value is, I don’t think it would be a dollar. It’s really basically a dollar because Tether says it’s a dollar, and I think that that has problems both logically, but it also has problems in the philosophy of crypto currency itself.

Aaron Lammer: Though it does trade with Bitcoin at a fairly stable rate… It does work. If you buy some Tether and then buy some Bitcoin with it, you’ve acquired the Bitcoin at more or less a market … If you’re just using it as a jump, it works.

Jay Kang: It does work.

Aaron Lammer: The crazy part to me is people who are holding large amounts of Tether. That seems like an extremely dangerous thing to do.

Jay Kang: I don’t know if that exists. If they are then I would agree with that.

Aaron Lammer: Where’s all the Tether then? The exchanges all have it? Someone’s got to own it?

Jay Kang: That’s another good question.

Aaron Lammer: Someone owns hundreds of millions of dollars in Tether. Maybe just the Tether company.

Jay Kang: Please call the show.

Aaron Lammer: I don’t know.

Jay Kang: Call in on the show and hopefully we are not related in any sort of way. Aaron, I think the best way for us to dispense this, and sort of get to the bottom of what we know, is to try and figure out what facts we know about this. It’s very, very hard to figure out what facts we know. One of the things that … Honestly the most repeated evidence that Bitfinexed, the Twitter account, and his acolytes point to, is that when Bitcoin starts a charge that the action on Bitfinex the charge is more, I guess, violent and a little bit more high-volume than the … Violent is a very strange word to use at that point, I agree, but that Bitfinex the exchange is leading the way. Is that fact or not?

Aaron Lammer: I don’t know. I’m sure that you can find some evidence of it. You can also find evidence that clearly there’s some very high-priced trading in Korea, we’ve talked about that. Why is the price so much higher in Korea? Everyone seems to be trying to push the market in their way. I don’t even know, is Tether totally international? Is Tether concentrated in certain companies in their exchanges?

Jay Kang: I don’t think so, because I think that it’s used on bittrex and other large exchanges that are used by people in the western world. Though the one fact that I was going to bring up was that the biggest spread I think we’ve ever had between exchanges was that day when Bitcoin spiked all the way to like 19,900.

Aaron Lammer: Yeah.

Jay Kang: That was the day that I was in Las Vegas and playing roulette, and actually stopped playing roulette because it was more fun and it felt more degenerate to actually just refresh Blockfolio. That was not a Tether exchange, that was GDAX, that was Coinbase, the one exchange that has absolutely nothing to do with Tether at all. I don’t think Brian Armstrong would let Tether in the building. That’s always been one-

Aaron Lammer: I don’t know. GDAX and Coinbase were down during huge swings of Bitcoin and Bitcoin Cash (BCH). Is that market manipulation? Is the price of that only because people couldn’t trade during those periods? The answer is yes, each of these things did influence the price. I’m a firm believer that what’s happening on exchanges and what’s happening with things that power exchanges, like Tether, is a prime driver of price overall. The exchanges, and maybe we should talk also about Coincheck, the Japanese change that was hacked this week, exchanges are in some ways the most vulnerable place in the entire chain. They’re the place that could really kick off a true panic situation.

Jay Kang: Can I ask you one question then Aaron, about all this?

Aaron Lammer: Fire away.

Jay Kang: We’ve been hearing this story for like six months how, about Bitfinex, Tether, and that we don’t seem to be getting any closer to resolution about this. Like you said earlier, Tether did, there was some sort of audit agreement, and then Tether backed out of it. Does this cool you on the crypto market at all?

Aaron Lammer: No. To me, I avoid Tether, and if Tether does start crashing, or the whole thing starts falling apart, I think it will drop the price of Bitcoin, just like I think there’s many, many outstanding factors out there that could drop the price of Bitcoin. On the other hand, if people are holding a bunch of Tether, probably that money’ll go into Bitcoin. In some ways, some of the failure of other things in the crypto market, I do believe, should tip money into Bitcoin, looking in the medium term. That is my CALL OF THE WEEK.

Jay Kang: The people who are holding hundreds of billions of dollar in Tether won’t say, so I’m just going to buy-

Aaron Lammer: I have no idea, honestly. I really don’t know. I just kind of feel like everyone’s like, this Tether shit’s about to happen, and it hasn’t happened. At a certain point there’s a cry wolf factor also, that if the situation doesn’t budge … Because look, they’re launching Stablecoin, which is another US dollar pegged iteration that’s supposedly, I think, more transparent, but is also attempting to do something that Tether does. It’s not like people are stopping with these ventures. It’s sort of like when people are like, are scammy ICO’s going to take the whole thing down? I don’t know, but they’re going to keep doing them.

Jay Kang: Yeah, but I guess, is there a level of proof of market manipulation and fake money that would make you feel like all this maybe is worth like 40% of what it’s even at right now, and that that would scare you.

Aaron Lammer: I just have trouble pegging that to a specific number. I feel like there’s just so many outstanding threads of the narrative, and it’s very clear that there’s shady stuff going on. How much it changes the overall situation still seems like an open question to me.

Jay Kang: Yeah, I think that that’s fair. I don’t think that we know exactly what’s happened with this. I think the fact that more prominent people are tweeting about it, and that the newspapers have started to pay attention to it, I don’t know if that’s evidence of anything except the fact that more prominent people have watched a Bitfinexed video. The amount of wash trading and market manipulation that goes on I Korean exchanges, I think, is probably way worse than this Tether scam. I think in other countries large, large parts of all the trading is fraudulent or market manipulation. I think we’re almost looking in the wrong place here.

Aaron Lammer: I also just think for your average American crypto buyer who has a few Bitcoin they bought on Coinbase, you almost feel walled off from this issue. You’ve never held Tether. It’s something that’s happening on these more exotic exchanges. To me what’s happened at Coincheck this week, the Japanese exchange that was hacked, is actually a more scary possibility then, that there’s going to be some grand revelation of market fraud, which I do believe exists. I think just outright hacks continue to pose … Considering how much money people still have just sitting on exchanges, the possibility that this whole thing starts falling apart because there’s just hacks all the time seems real.

Jay Kang: What you’re alluding to is, I think it was $500 million of one alt coin called NEM in Japan on one exchange called Coincheck just going missing. It was stolen.

Aaron Lammer: Yeah. It was crazy to me that there was $500 million of one alt coin on one exchange.

Jay Kang: Yeah, that was the part I didn’t quite get. That was incredible, but if you remember Aaron, when we did our segment about the “Cryptocurrency Girls”, the J-pop band, and we were listing off the girls that were in the band-

Aaron Lammer: There was the NEM girl.

Jay Kang: There was the NEM girl apparently, that’s a big thing.

Aaron Lammer: It’s going to be a difficult week for her. I feel like the PR team is going to want to get her messaging on point there. It’s also crazy, it’s like so you steal $500 million of NEM, , and it’s on the blockchain. As far as I know NEM is not like a Monero or (XMR) Ccash (ZEC) kind of privacy coin, so you’ve transferred it to some address. What can you then do with $500 million worth of NEM? There seems to be all sorts of stolen, dead coins. What becomes of that in our opinion?

Jay Kang: I guess some people would say that you could Shapeshift it, but that seems like a lot of Shapeshift. I don’t know, maybe you just hold onto it or something, and you try and figure out what-

Aaron Lammer: In the case of the Mt. Gox hack, they basically ended up partnering with and establishing another exchange in order to launder out all the Bitcoin that had been stolen from Mt. Gox. The part of the Tether story that I find convincing is the idea that an exchange is like a giant conduit for not totally legitimate transactions. I don’t know if Tethers are just being printed or what. I wonder if this is all part of some grander scheme that, as we’ve talked about in other episodes, may have a lot of money laundering implications.

Jay Kang: Yeah, honestly the whole thing has been confounding to me, and I can’t tell if my lack of panic this time, when it’s sort of blown up, is because I have basically stopped feeling pain in crypto, or if I’ve sort of degen-ed to a point where I just can’t ever sell, but it’s one of the two. Or maybe I’m more rational and less prone to panic. That would be the good option.

Aaron Lammer: I’m not quite as panicked as you, but as Bitcoin has basically been sideways for a bit, and alts are sort of timidly losing value on Bitcoin, which is sideways, it does feel increasingly like there’s a price to just lingering in the market. Even just being stable in Bitcoin value and US dollar value, you’re still kind of like, I’m always running the risk of an exchange getting hacked and me losing all this stuff, slash Tether being revealed as a fraud and Bitcoin suffering a massive crash. It does feel like, as long as it’s not going up, it feels a little unsettling having money just sitting there in this kind of unsettled market.

Jay Kang: Yes. Look, and this is not particularly relevant, but especially when the S&P 500 index is outperforming Bitcoin, you just put it in there. Or like somebody that was on Twitter today talking about how much he had made, he had made something crazy like 40,000% increase in a month, or I guess 400x on an investment, I think on Robin Hood, and all he was doing was shorting crypto related companies that ballooned up. Then he would just short them and he made a bunch of money that way. I think that the sideways nature of it right now, and this sort of funk that we’re in, I guess some people will probably start wondering why they even have the money in the market. I don’t think that’s true of you and me, but I think some people will.

Aaron Lammer: On the other hand, you alluded to Robinhood, Robinhood has announced they’re going to be doing crypto buys now, it’s definitely coming to the Square Cash app, so a lot of people are like, it turned on in their app this week. It does feel like the vital fiat gateway is about to get a lot wider, and there’s going to be much easier, much more competitive ways to buy Bitcoin. It’s kind of crazy the fees that people have been paying with Coinbase considering how much money has been flowing in. Robinhood is now saying they’re going to do completely 0% no-fee Bitcoin transactions, which would, I would think, push the price up if you just cut that out of the equation.

Jay Kang: Yeah, I’ll be completely honest, and maybe this is too broad and philosophical of a discussion to have on this, but I’ve started to think a lot about Nassim Taleb’s book, and also Walter Benjamin, when it comes to these narratives about whether Bitcoin is going to go up or going to go down, where I feel like I’m constantly fooled by randomness and my desire to create a linear narrative as to why this thing is going up or going down. At this point I think I’ve just thrown it all in, I’m just like, I have no idea. Like last week, I felt like there’s all this good news, like Korea doesn’t seem like it’s going to ban Bitcoin trading. I thought that was going to be amazing news. The Robinhood announcement came out, and nothing happened. Then at the same time on the other end you have this sort of spreading Bitfinex thing, you have a lot of more prominent people calling for the end of it, and nothing seems to matter. At this point I’ve just given up trying to predict, based on narrative and based on news, what’s going to happen.

Aaron Lammer: It reminds me a little bit of the evolution of the news cycle itself, where news just became, there became so much news, and it became so overwhelming, and there was so real time that people were unable to differentiate what was a big story and what wasn’t a big story, and everyone just becomes this sort of blurred news addiction. I feel like a little bit with crypto there’s constantly something happening that’s so bad, and also things that seem so good, and overall you’re kind of like … It comes back to the basic HODL philosophy. If you’re actually sitting there trying to read the direction of the wind, you’re probably seeing patterns in the stars.

Jay Kang: Yeah, and so you should just sort of ride it out. All right, so talking about exchanges, I wanted to put a tweet by you to just get you to respond to it. It has to do with the way in which an ideal exchange would be run. I think that you and I belong to a lot of exchanges, and that we exchange a lot of jokes about how bad some of the exchanges are.

Aaron Lammer: I’m not sure I belong to them, but I do have accounts on them.

Jay Kang: Is that too strong of a word? Okay. You and I have put in burner email addresses in exchanges for a lot of accounts, how about that.

Aaron Lammer: I’ve used real email addresses, but good times.

Jay Kang: So this is Peter Brandt, who is a sort of divisive figure, I think, in crypto. He’s one of the more … I would say that he’s one of the godfathers or grandfathers of technical analysis, candle-watching is what we called it, I think, in general, and he’s had a lot of thoughts about Bitcoin. He put out some recommendations for an exchange. He said that it must be, one, US-based; two, no Tethers, only fiat; three, registered in some state as a trust company; four, offer at least 10 coins; five, low fees; then he puts as a parenthetical, that leaves Coinbase off the list; and six, responds to inquiries quickly. What do you think about Peter Brandt’s sort of pie in the sky idea about what an exchange should be?

Aaron Lammer: In some ways I do identify with the idea of, if you believe this Tether thing is a bad thing, don’t do business with Tether. If you think that markets in some country are manipulated, don’t go on exchanges on them. Use the system that you yourself believe in. On the other hand, I don’t know why people think that American exchanges or exchanges that have these various qualities are necessarily so reputable. What do you think?

Jay Kang: Yeah, I agree. I would agree-

Aaron Lammer: There’s plenty of scammers in this country.

Jay Kang: There’s a little bit of jingoism. Yeah, it’s basically saying, “Wall Street during the 80s, at least it was in America.” It just seems like there’s probably as much history of economic fraud here than anywhere else. I would say that … Look, it sounds like a great idea, but I just have a hard time … Why is this not possible? I think that’s probably what he’s saying, like why can’t we have this.

Aaron Lammer: Maybe we will down the line. If you read crypto as being really early right now, who knows what exchanges will look like in a couple years. Doesn’t seem to look like this. This doesn’t seem like it’s going to be the situation forever.

Jay Kang: Yeah.

Aaron Lammer: And you already see companies that are much more consumer minded, that are already much deeper intertwined with financial systems, moving into crypto. In some ways the Bitfinex change may be something of the past in five years.

Jay Kang: What would your wishlist of what an exchange should look like look like? What would you list? Would you add anything to his list?

Aaron Lammer: I think improving the user experience and the consumer experience is important as any of the sort of transparency safeguard effects. To me, none of this stuff is real until it’s a product that’s competitive with the best stuff that’s happening on phones. I don’t know, is that frivolous?

Jay Kang: No, but do you not think that Coinbase is really sort of attractive and easy to use? Because I have huge problems with Coinbase in terms of their fee prices, in terms of what seemed to me at least like a pretty shady way to handle the release of Bitcoin cash, and also I think Bryan Armstrong’s general sort of weird Ethereum serf maximalism, but I don’t know, I think it’s really easy to use. I think that’s why people sort of gravitated towards it. It’s hard to do swing trades on.

Aaron Lammer: Yeah, I think they’re the market leader in that, but I do think that you will see better and easier. I also think if you consider it as a user experience challenge, having it go down during crucial periods is a massive user experience problem. It’s probably the biggest one.

Jay Kang: Yeah.

Aaron Lammer: The most serious problem would be if you cannot buy or sell during certain moments.

Jay Kang: Or like when something goes wrong and you have tens of thousands of dollars, or thousands or even hundreds of dollars at stake. They don’t get back to you.

Aaron Lammer: Yeah. I’m not just talking about the graphic design, I’m not talking about the user interface design, I’m talking about, how does this operate if it’s your primary, you rely on it, kind of service? Twitter operated in a specific way, and it was down a lot, and then eventually they got it together and it’s able to maintain uptime during crucial periods. It feels like if Coinbase can’t maintain perfect uptime, and you can really buy and sell at any moment, yeah, that’s something that gives you pause.

Jay Kang: Yeah. I agree with you, and I think that the one thing that I would add would be that anyone who can … There is an exchange where people in Japan who are starting to do some of this, I think. Anyone who could sort of give you some security about the fact that you probably won’t get hacked, or even if you forget certain passkeys, that you’re not going to lose it all, I think they’ll have a huge advantage as well, and so whoever ends up wing this exchange war in the United States, and it might be Coinbase … I don’t think fees are as important honestly, because I don’t think the average user makes that many transactions.

Aaron Lammer: Here’s my bullshit tech critic prediction. I predict that venture capitalists are going to burn huge sums of money trying to build businesses that make it easier and easier, and own that market. I think there’s going to be a huge, huge number of people vying for that business, and as a result I think the experience should get pretty good. I think that it’s ultimately bullish if Silicon Valley wants to spend hundreds of millions of dollars developing the consumer infrastructure for crypto, which I think it probably does.

Jay Kang: Yeah. I think that that money is starting to be spent already in a lot of places. One final question Aaron, before we go, and this is something … Again, this is a broader philosophical question. I think my time ice fishing over the past week has put me in a philosophical mindset.

Aaron Lammer: Yeah, I understand you’re in a reflective mood.

Jay Kang: Not catching any fish.

Aaron Lammer: You’re considering what the real nature of the blockchain really is.

Jay Kang: All right. Would you rather have a well-regulated user experience, friendly, completely secure, and more stable ecosystem around Bitcoin and cryptocurrencies? Or is part of the fun for you the sort of chaos of it, the fact that there are all these shady characters around the world, and at any point you could have all of it gone? Do you actually think you want the better version?

Aaron Lammer: It’s a great question. I think back, I’m a hoarder of many things. I’m a hoarder, I’m a collector of digital music. I remember the period, there was a torrent site called Oink.

Jay Kang: Oh yeah!

Aaron Lammer: Do you remember Oink?

Jay Kang: Yeah, that was one of my proudest moments as a digital human, was when I got an invite to Oink Pink’s Palace.

Aaron Lammer: Yeah, so it was scarce, and you felt like you had something of a secret knowledge. It was incredibly useful, it was incredibly exciting, and it was probably the peak of crazy rare stuff being online, and just really vibrant, really completionist community. Then it ended, and then it’s been replaced by things like Spotify, that are in some ways much easier to use, and have a lot of stuff on them, and you can’t really complain about it, but in some ways it was kind of more fun when it was a little more rogue, I feel like. That’s sort of my feelings about crypto.

Jay Kang: Yeah, for sure.

Aaron Lammer: I don’t think it’s sustainable for it to stay exactly like it is now, so I predict it will feel more sanitized. On the other hand, I think that’ll be kind of fascinating in its own right. I think that the super duper mainstream stuff is going to be like a wild ride also, and the money may just get really, really, really crazy.

Jay Kang: Yeah. I don’t know, I think that’s actually a very apt example. It was much more fun for me to try and figure out how to get FLAC files of every single song that the Silver Jews recorded.

Aaron Lammer: Absolutely.

Jay Kang: Than it is to go on Spotify and get the recommended songs and be too lazy to look for the albums that I want to listen to. I don’t even think the Silver Jews are on Spotify, but whatever band you want to replace.

Aaron Lammer: I don’t think Drag City Records is on Spotify, but yeah, I guess I also think though, think about how much broader swath of business becomes available when something is a true iPhone product that can live on your home page and sit next to your banking icon. I do think that when your Bitcoin account starts competing with your bank account as a place where you just have money on your phone, that’s kind of like when I think this will really have reached whatever its peak is.

Jay Kang: Yeah. I don’t know, I don’t mean to answer my own question here, but I actually think that that’s when I’ll probably be completely uninterested in it. For me it is kind of the thrill of and the shadiness of it, and the fact that … In the same way that we felt, when we were on Oink’s Pink Palace, that we were sort of scamming, that we were doing something that we weren’t quite supposed to do, but we were benefitting from it.

Aaron Lammer: It was also a bit utopian, because it was like wow, if you just let a group of people assemble this it’ll be greater than any thing that’s ever been put together as an official store, or anything like that. I still feel that utopian feeling in Bitcoin, even for all of it’s absolute silliness. It is a grand experiment that I’m pretty surprised made it this far.

Jay Kang: Yeah, and there’s a whole social element to it as well. Right now I think we’re still in the space where you and I can meet somebody like @LedgerStatus, or we can talk to somebody like Doug Kim, or when we go out and we hear somebody talking about Bitcoin that we feel like there’s some sort of slightly sketchy conversation that we’re about to have which is exciting. I think once that’s gone, for me at least, as somebody who, the money is obviously important, but it’s not as important as my sort of degenerate interest in it, I think at that point I’ll be less interested in it. I guess the conclusion that I came to all of this is that I don’t really care if Bitfinex is making it all a fraud, and if we really are going to zero. I’m just not going to do it.

Aaron Lammer: Yeah, it’s a little bit of the, you’re worried about something that’s happening in seven years, but we all may get nuked by a North Korean volley against Trump. It’s like yeah, we’ll cross that street when we come to it. Cool, all right, well we have some guests coming up this week, so we’ll check back in then. Jay’s back in town. We’ll be back on regular schedules, and we also totally appreciate people who’ve sent in stuff to the mailbag.

New Speaker: Oh hey, I put on Twitter right before we started recording that people should tweet us some questions. Shall I see if anyone did it? Let’s see. We’ve got, let’s see, first Hollywood crypto movie is following which narrative? That’s a tough one. What do you think? I think I’ve got my answer.

Jay Kang: Okay. I don’t think it’s Bitfinexed. If I had to guess, it would definitely be some 19-year-old who got super rich and then things went really bad, then he got kidnapped.

Aaron Lammer: Okay, I was going to go more specific. I think we’re like two years from a Vitalik Buterin biopic. Like an indie movie that plays at Sundance about Vitalik.

Jay Kang: Okay, followup question to you, Aaron. Would you finance that? Would you help finance a Vitalik biopic?

Aaron Lammer: I think we could probably issue a token that gives you future profits from the Vitalik biopic Kickstarter kind of campaign, and get this thing off the ground like no problem.

Jay Kang: I would imagine that some of the people who got Ethereum rich might need someplace to put their money, so maybe they will put it into a Vitalik movie.

Aaron Lammer: I just want to point out that that is my idea, and anyone who makes that movie now has to pay me. Let’s see if we’ve got any other questions here. We’ve got a question from Adrian Chen, friend of the show Adrian Chen. He says, “Who is Satoshi?” That’s an easy one. Clearly the person that’s asking is the person who’s trying to hide that he is Satoshi.

Jay Kang: We’re going to have Adrian on the podcast once he returns from his sort of wanderings in Los Angeles, and I think that we should both ask him if he is Satoshi, because that theory is certainly out there.

Aaron Lammer: Put it this way, he’s among people I know who’s definitely the most likely to be Satoshi. Yes, it’s unlikely that I know Satoshi, but he’s definitely the betting favorite of people I know. We’ve got one more question here from Cal O’Boyle. He says, “I know nothing about cryptography. Will mining become easier and currency less scarce with the potential increased computing power of future mining rigs?”

Jay Kang: No, because then the difficulty would just [crosstalk 00:51:35].

Aaron Lammer: Yeah, I feel like mining is one of those things that, maybe there’s some people who think they have some secret edge, and I don’t know, if you have an entire factory full of mining rigs in a certain country where you can get almost free electricity maybe you can make money, but on a personal basis it just kind of seems like the system adjusts itself, and your rewards should be fairly consistent, which are subsistence level. You can farm a little.

Jay Kang: Yeah, and I think that’s one of the … We’ve been talking about some of the more alarming and bad things about crypto, but that certainly is one of the more elegant and proven parts of crypto.

Aaron Lammer: Yeah. I feel like if you’re going to mine, mine, but all the get rich quick mining schemes, someone before you has thought of that get rich quick mining scheme, so it won’t work. You’re going to do about as well as everyone else, which is like, okay, if your dorm doesn’t charge you for electricity you can probably make a few hundred bucks this semester. Go to town.

Jay Kang: Yeah.

Aaron Lammer: I think that about covers things. We’ll be back later this week. Very nice talking to you Jay.

Jay Kang: Nice talking to you, Aaron.

Aaron Lammer: Talk to you soon.

Jay Kang: This episode of Coin Talk was taped Monday, January 29th, at 8 PM Eastern standard time. The Bitcoin price index was $11,232.