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. (You can also subscribe on Apple Podcasts, Google Play, download the MP3, or email us at hi@cointalk.show)

Show Notes

  • GRIN fails to raise a salary for a single dev, Yeastplume
  • 🧔Quadriga’s CEO dies with the private keys for $190mil (OR DID HE!?!??!!?!)
  • ⛏ We try to figure out how one currency could work across multiple games.


Aaron Lammer: Lots to talk about. I don’t even know where to start. Before we get going, I wanted to circle back on what we’ve been talking about the last couple of weeks, though, about GRIN. Have you been following GRIN?

Jay Kang: No.

Aaron Lammer: Is the only things you know about GRIN what I’ve shilled to you on the show?

Jay Kang: Yeah, yeah.

Aaron Lammer: Okay, great.

Jay Kang: Actually, it was the first time, I think, in the last nine months of Coin Talk where your shelling was actually quite effective.

Aaron Lammer: Well, and that’s why I feel in a way obligated to circle back because I think the final thing you said about it when I brought it up was, “This seems too good to be true.”

Jay Kang: Yeah.

Aaron Lammer: You were right.

Jay Kang: Okay, cool. I don’t know what you’re about to say, but just for the listeners and because I’m so rarely right, and I want to know if I was right for the right reasons or if I lucked into being right. I just said that like if I were to create something that was just tailor made for people like you and me who are like dumb crypto people who know a little bit now and know how to spot an obvious scam, I would just create GRIN and make a checklist of the things that people are suspicious about and say, “Hey, we’re not doing that,” and then explain nothing else about the project. That’s why it seems suspicious to me. Okay. So what’s the real story then?

Aaron Lammer: Well, it’s not a fraud, so that’s a good thing. But it speaks to the difficulties one has when someone actually tries to not heavily reward the founders, not create a big pre-mine for their foundation, which is going to lead the development. So what we knew going in was … Here, I think the biggest things we knew about GRIN, the people who were making it were like, “Don’t speculate on it. It’s going to be spendable and high emissions,” which means a lot is going to be pumped out for a long time.

Jay Kang: They also were anonymous, right?

Aaron Lammer: They were originally anonymous and they did reveal their identities. So the main guy … What Fluffypony is to Monero, Yeastplume is to GRIN.

Jay Kang: Yeastplume?

Aaron Lammer: Yeah.

Jay Kang: That sounds, that sounds like a very low level thing that you kill in World of Warcraft. Just something like that.

Aaron Lammer: Someone is going to write a very good crypto novel and they’re not going to be able to make up the answers because-

Jay Kang: Yeah, like, “Oh Man. I spent the last seven hours hoarding gold, like killing all these Yeastplumes.”

Aaron Lammer: Yeastplume in a bizarre situation is under the spotlight, he’s the face behind a coin that has seized the imagination even of Bitcoin OGs.

Jay Kang: Yeah, yeah. This is probably the most talked about OPT coin to launch since like what? Like Tezos or EOS or something like that, would you say?

Aaron Lammer: I think so. And a lot of people likened it to the Zcash launch. But there’s a notable difference, which is that Zcash launched with the Zcash foundation, which we learned later earmarked a generous, generous compensation for Zooko and the rest of-

Jay Kang: It was 40%, right?

Aaron Lammer: Yeah, it’s a lot. And we also have another competing project Beam, which has an Israeli company behind it, that is doing more or less the same thing with Mimblewimble as GRIN, but it’s doing it in a more traditional, “We’re saving a bunch of the coins for ourselves.” So you got Yeastplume, he’s under the hot lights, but he does not have a bank role to compensate for that. So he did some sort of a kickstarter for himself. I don’t think he organized it, but someone was like, “We’re going to raise money so that Yeastplume …” One person, not a team, a single person would be able to work full-time on the development of GRIN.

Aaron Lammer: And I’m a few days behind on the story, so I don’t know where it is now. But early on at a point where you could at least hope that you were over 50% I think that they had 4% funded his salary based on donations. So you have millions of dollars worth of mining interests, mining the bejesus out of GRIN. You have a new product that is less than a month old that at certain points has traded for over $14, I think it’s worth about $5 a coin now. And that whole project can’t voluntarily support a single developer, which I think speaks to why it’s harder than it looks to be fair.

Jay Kang: Well, okay. How much does he need to be supported?

Aaron Lammer: I don’t know how much it is, but let’s say it’s, between $100,000 and $200,000 a year.

Jay Kang: He can’t make that?

Aaron Lammer: He basically only raised a few … Only a few thousand dollars were donated.

Jay Kang: Good Lord. Yeah. I mean, you have like socialist podcasts that make like 400 grand a year or something like that.

Aaron Lammer: Well, I think it speaks to the ethos of the people who are interested in the GRIN project, the people were presumptively willing to invest millions of dollars in GRIN mining but aren’t willing to fund the development which could lead to great rewards for them. But the value is shared equally by the entire GRIN community. People are willing to invest in GRIN, but only if there’s a personal upside for them that other people don’t get.

Jay Kang: It’s not even just that because like you have libertarians and like VC people, and Silicon Valley here in New York, around the world who fully understand that, it benefits them to fund some of the development of some of these ideas. They’re willing to take losses for a while even. And it seems like in Crypto even that’s not possible.

Aaron Lammer: But they want a steak. Those VCs want say, “If this works, I want it to benefit me and not everyone.”

Jay Kang: If you buy a bunch of GRIN and you’re using it to speculate, which I imagine every single person who owns GRIN right now-

Aaron Lammer: Jay, I told you it’s for spending.

Jay Kang: It just like … Yeah that’s a little distressing. And maybe it’s a saturation problem. Like at the beginning of Bitcoin, when people were buying pizzas for like whatever, 14,000 Bitcoin, nobody in that community really thought they’re going to get super rich off of that idea. And so a lot of the development and the talk about it was about trying to actually create a project. Maybe crypto is corrupted to the point that this, in 2019, that people only see it as a way to speculate and that the development and the technology doesn’t really matter.

Jay Kang: I remember we had a stock like a few weeks ago where I was just asking … And I don’t think either of us who read … Both of us, I think read like a reasonable amount on GRIN. Like none of us could really figure out what the tech angle was. We could figure out what the use case angle was, but we had no way of vetting whether or not the tech was good or bad.

Aaron Lammer: Well, I’m going to push back there and say, GRIN has gone through a couple of years of Beta development. It’s taken a long path to even get here. But I do think you’re right when you compare it to Bitcoin. I think it’s fairly plausible to get people to work on an opensource software project that has no value. I think it’s actually harder to get people to work on an opensource software project for no compensation where they see other people … Like Yeastplume’s lack of funding, didn’t come into sharp contrast until the price of GRIN was surging.

Jay Kang: Yeah, exactly.

Aaron Lammer: And so in a way it makes me think more and more that Bitcoin is a unicorn and it’s like a historical serendipitous one off that it got this long period where it was worth 14,000 coins per pizza where people were willing to work on it, not for personal gain, but because they believed in the technology and it got to incubate during that period and a lot of people became ideologically aligned with it and wanted to work on it because they believed in it. GRIN is like doing the whole Bitcoin dance and like super fast-forward and people are already like, “Wait a minute, I’m going to work on this for free? These jerk offs are getting rich mining it.”

Jay Kang: Yeah. And also these jerk offs got super rich like [inaudible 00:08:41] absolutely garbage projects that don’t make any sense.

Aaron Lammer: Now that I’ve called them jerks offs, I want to say I do have a GRIN miner who’s going to come on the show, in the next couple of weeks.

Jay Kang: It’s the same problem that everything has, which is like, “Well, why would I work when this guy is making money on fraudulent shit?”

Aaron Lammer: So I think we’ve shut historically on the Zcash foundations, the Ripples the people who’ve taken a lion’s share to support the company. And I still … I hold by that shit, but I do recognize that going at the pure route has some pretty significant downsides also. I think that GRIN is in a tricky position right now. If no one is going to pay anyone to develop GRIN, I’m unclear on how GRIN is going to happen.

Jay Kang: And that’s sad because it means that … There’s no reason why this is just like a one off. It does seem to reflect something about the crypto space right now.

Aaron Lammer: Well, we’ve gotten very used to this idea in crypto that crypto is this perfect game theory system, where everyone’s greedy incentives align and therefore the whole system is kept afloat. The hodlers holder, the miners mine, the exchanges, frictionlessly exchange and the missing ingredient in that soup has always been development. And in the case of Bitcoin, that development really did happen organically. And I think it’s like a … It’s a lesson to humanity that people can do things together without being a corporation or without being greed aligned. But just because someone did that once doesn’t mean it will just work again. If you run the same playbook.

Jay Kang: Yeah, and now there’s too much money in it. I think it is in some ways a better encapsulation rather than of a … This perfect game theory idea is probably just a good object lesson in what happens when you have like unfettered capitalism in a space and no regulation and nobody driving the ship. If you have a decentralized universe and you believe in Austrian School Economics, like there’s no way that you can get these scammers and these speculators out of the space. You just can’t do it. It doesn’t matter how good faith your project is. And look, it’s still early in GRIN’s development-

Aaron Lammer: Very early.

Jay Kang: So it could be that these guys get bored with it and then it sort of builds on itself and good people come in.

Aaron Lammer: I’m sure someone was saying this early in Bitcoin, who’s going to pay these developers?

Jay Kang: Sure. Sure.

Aaron Lammer: Yeah.

Jay Kang: And so it might work out, but man, it just like, I don’t … We’re like two years, like two and a half years after Ethereum launches, and it just seems like all the problems that we’ve been talking about, the same problems for further last year on this podcast. And I just don’t know, like what is a good faith thing that’s going to come out and work? Like I have no idea.

Aaron Lammer: So does this development make you want to buy or not buy GRIN?

Jay Kang: I mean, just completely honestly like I don’t think that I will invest in a crypto project for a long time.

Aaron Lammer: Really?

Jay Kang: Yeah, because like what’s the point? There’re other-

Aaron Lammer: Jay, you bet on like beach volleyball.

Jay Kang: Well, I’ve never bet on beach volleyball. I did bet the other week on Indiana University, Purdue University Institute versus like … I forgot [inaudible 00:12:23]. You know, that school, IUPUI? Sometimes they make the NCAA tournament.

Aaron Lammer: Not familiar with that at all.

Jay Kang: I think they were playing Sienna or something and I bet on that. But, I don’t know, it’s like … I don’t see anything but positive in the space still. Do you?

Aaron Lammer: I do. I think something like Mimblewimble is pretty interesting and I think that the level of excitement that I saw and felt around GRIN suggest me that they’re still like more excitement in crypto. I would say this particular development pushes me to be a little bit interested in Beam. Like if Beam and GRIN are different takes on the same idea and Beam is trading for less, it seems reasonable to me that Beam could succeed.

Jay Kang: I’m not saying that I’m uninterested in the crypto space. I’m just uninterested in investing any money on anything except like maybe shorted Bitcoin right now.

Aaron Lammer: Fair enough. For me, I do think that the smarter people in the space are hodling their very old crypto buys and investing new money in things like GRIN mining that are a little bit more predictable and also which they can exercise greater influence on. So I guess, I sort of agree with you. If there’s a theme for our 2019 so far it’s, ordinary buyers are suckers. There’s still money to be made in crypto. We’re not like crypto is going to zero people, we’re like retail buyers are the people … Were the people in the casino.

Jay Kang: Yeah.

Aaron Lammer: Casino operators are what I would like to invest in.

Jay Kang: We’re also in the casino.

Aaron Lammer: Are we employed by the casino or are we gambling at the casino?

Jay Kang: No, we’re like hooked up to a slot machine.

Aaron Lammer: I feel like we’re more like entertainment that has a residency at the casino. We’re Liberace.

Jay Kang: Like we’re like Penn and Teller.

Aaron Lammer: Yeah. We’re like slightly off the strip casino. We’re a little washed, not totally washed.

Jay Kang: Yeah, like the palm, for example. We had our heyday in the late 90s when the real world was there.

Aaron Lammer: We do the early show at the palm. Later on you can see real stars. We get [inaudible 00:14:52].

Jay Kang: We’re like the four o’clock entertainment. Yeah.

Aaron Lammer: Got the early bird dinner. Come see our show.

Jay Kang: You can get like a 5.99 prime rib, you can see Coin Talk and then you can hook yourself up to a slot machine. That’s us. Okay.

Aaron Lammer: What do you make of this whole Quadriga mess.

Jay Kang: All right. Finally, this is what I wanted to talk about.

Aaron Lammer: If you had asked me just straight off the bat, is Quadriga, a low budget video game system from the 90s there was canceled and [inaudible 00:15:20] absolutely. [crosstalk 00:15:21] Quadriga.

Jay Kang: It does sound like Amiga, remember that? The Amiga system.

Aaron Lammer: Yeah.

Jay Kang: For those who don’t know, Quadriga was, I think Canada’s biggest crypto exchange. Right?

Aaron Lammer: Our own editor, James Nicholson, did a little business for Quadriga, he’s told me.

Jay Kang: And what happened was that the founder and the president of Quadriga died suddenly. And the explanation was that he died from complications from Crohn’s disease, which I did not know is fatal or potentially fatal.

Aaron Lammer: I have close friend who suffers from Crohn’s disease and it can be very dangerous, but my understanding was, no one in the orbit of this person thought that he was in any danger, including himself.

Jay Kang: So he dies and it turns out that he has one password for all the Bitcoin and also all of the money that’s stored on this. Right?

Aaron Lammer: There’s a lot of fishy elements of this story.

Jay Kang: Yeah. In total, it’s something like what? Like $190 million.

Aaron Lammer: $190 million, which is like, to be fair, that makes you like the … You’re not in the top 100 exchanges, I don’t think if you’re only holding $190 million.

Jay Kang: Okay, but you still have a $190 million that is protected by like one password?

Aaron Lammer: There’s so many ways this could have gone awry. I mean, he died in India and nobody …

Jay Kang: Oh, and the last part of the story for people who don’t know is that nobody knows this password so nobody can unlock any of this money and return it to any of the people who had it.

Aaron Lammer: There’s all kinds of rumors floating around Reddit, which I wasted way too much time reading.

Jay Kang: Tell me, like three best ones.

Aaron Lammer: The thing about GRIN was not investment advice, and this is not journalism. In fact, Jay, as you know, within the first day of something happening, Reddit is a cesspool of false information.

Jay Kang: Yes.

Aaron Lammer: But I did read on Reddit that in one of the cold wallets, I believe it was the Litecoin cold wallet, coins moved after he died.

Jay Kang: Okay. I don’t believe that. All right.

Aaron Lammer: So whether we-

Jay Kang: What’s the implication?

Aaron Lammer: Well, the implication would be that someone does have access to those wallets and moved coins out of them after his death? So the fact that they don’t have access to them is some sort of an elaborate exit scam, not simply a horrific mishap.

Jay Kang: Oh, okay. So that theory basically says he is dead, but somebody has the password.

Aaron Lammer: That’s correct.

Jay Kang: Okay, that’s not a theory that I’m looking for here, there’s a much more obvious theory.

Aaron Lammer: If we’re treating the actual death of this man as a law and order episode, which I believe we are right now. My apologies to his family and anyone else. But people lost millions of dollars, so I think it’s okay for us to speculate on this.

Jay Kang: $190 million.

Aaron Lammer: $190 million. The most out there, conspiracy theory is that he’s not dead. He faked his death.

Jay Kang: Thank you for bringing this up.

Aaron Lammer: He faked his death.

Jay Kang: Yep.

Aaron Lammer: Which is why it took place in India because it’s much more difficult to confirm that someone died in India.

Jay Kang: Yeah, this is like the Tupac thing where they’re like, “In Las Vegas you can pay off anyone.”

Aaron Lammer: I did not know that, but I currently agree with it.

Jay Kang: Las Vegas is like a big part of the Tupac is alive [inaudible 00:18:56].

Aaron Lammer: Okay. So hear like the most out there conspiracy. He faked his death … One would be he faked his death and is going to reemerge somewhere else with the funds from the exchange, which he like leeched out. And there’s various ways … It’s funny, we think of crypto as so transparent, but people don’t know the address of all these cold storage wallets. So not only do people know that they can’t get their money out of those cold storage wallets, additionally, we don’t really know how much is in those cold storage wallets.

Jay Kang: Yes.

Aaron Lammer: So another explanation, and I think this conspiracy would be influenced by the Mt. Gox meltdown, would be that he faked his death to cover up for the fact that he had already gotten hacked and lost a lot of this money.

Jay Kang: Wait, wait, wait. So there’s a, the money isn’t there and then he faked his death.

Aaron Lammer: I don’t think that this is a lighthearted topic, but another explanation could be that he committed suicide to hide the loss of these funds and intentionally … Basically that he intentionally kept these keys out of the public eye.

Jay Kang: Okay. I have a question-

Aaron Lammer: I just want to say it again. I don’t believe any of these conspiracy theories. I think the most likely explanation is human error.

Jay Kang: I agree with that. But if the exchange had been hacked, isn’t there at least a couple of wallet addresses that people know about that they can see whether or not things are moving out of it?

Aaron Lammer: I think the people know about the hot addresses which are used for transfers, but those have small sums in them. The lion’s share of the money was in cold storage wallets and the hot wallet people within the company do have access to. The other fishing part here is just how was this whole $190 million business belt with a single point of failure that all went to one person?

Jay Kang: It reminds me of like when you open your computer, and you have to put in the password to log into your computer, and it’s like if you lost your password for that and everything that you ever … had ever written or ever typed, all your documents are on that laptop and you’re like, “Well I forgot this password. So I can’t get to any of it and there’s nothing I can do about it.”

Aaron Lammer: I feel like I hear more and more talk about self sovereign in Bitcoin circles and like no one has really dealt with the issue of password hygiene [inaudible 00:21:27]. We can all be like, “Oh well hold your own keys.” Like. “Do it right.” Like, “If you lost money, you were doing it wrong. You were keeping it on the exchange.” But what about the person who ultimately has to keep the password?

Jay Kang: Okay. I think we can both agree though that creating a single point of failure password is bad everything.

Aaron Lammer: Okay. That’s certainly true from an exchange level, but for an individual level, let’s say a business, $100 million is the same as a personal $1.9 million. There’s plenty of individual hodlers out there who have a couple million dollars in Bitcoin. Even people who bought 10 or $20,000 very earlier, sitting on more than a million dollars in Bitcoin assets. What are you supposed to do? You’re supposed to have like some sort of like an estate plan?

Jay Kang: Yeah, yeah.

Aaron Lammer: How? How would you do that?

Jay Kang: You can print out paper wallets and put them in different places.

Aaron Lammer: That’s terrible OPSEC.

Jay Kang: It’s really not that terrible. You can go print out like a paper wallet address and give it to your lawyer and say, “If I die then give this to my kids.” Like none of that is terrible OPSEC.

Aaron Lammer: That is all good OPSEC.

Jay Kang: If I had $2 million of Bitcoin, which I don’t, I would definitely do that.

Aaron Lammer: I would do that too. But I do keep money on exchanges. I do reuse passwords. Not for crypto, but for other things. I do, do-

Jay Kang: [inaudible 00:22:52], get hacked again.

Aaron Lammer: [inaudible 00:22:55]. If anyone can hack crypto, if can get back my sumo coin. I’ll give you half of my sumo coin.

Jay Kang: Is that still gone?

Aaron Lammer: It’s just got like a front page. It’s like [inaudible 00:23:09].

Jay Kang: We’re sorry.

Aaron Lammer: And that’s another exchange hack that people were like, “What’s this an exit scam or was this a way to cover up for an older hack?”

Jay Kang: Okay. Like we’ve already sourced something to Reddit. So I’m going to do even worse and source something to a tweet I read and it said that like the hundred $190 million combined was like 0.25% of all the Bitcoin in the world, it was on Quadriga. Now it’s just gone.

Aaron Lammer: Yeah. So 0.25%. That’s like one four thousandths of the overall supply.

Jay Kang: Yeah, I think so. Yeah.

Aaron Lammer: That’s a lot.

Jay Kang: Yeah. Either way it’s a shitload, right?

Aaron Lammer: Put it this way. If one four thousandths of the world-

Jay Kang: No, it’s one four hundredths.

Aaron Lammer: No one four hundredths would be 0.25.

Jay Kang: Yeah, that’s what it is, .25.

Aaron Lammer: Oh, [crosstalk 00:24:04]. If that much of the world’s money you supply were to like go up in flames? There’d be like rioting in the streets.

Jay Kang: I don’t know if that is true or not but we can both agree that $190 million is a lot in an ecosystem that doesn’t have hundreds of billions of dollars in it.

Aaron Lammer: Absolutely. And this is not a case like that Japanese exchange where I think there was 500 million was taken, but it was like in that coin NEM, where it’s kind of like did it ever really exist?

Jay Kang: Yeah. So here’s my question to you, Aaron, which is like, we talk about failures on the show quite a bit and I think we can classify them in three categories. The one are hilarious failures that don’t really matter, which I think is the bulk of our show. The other one is like failures that we don’t really notice, but we sort of flagging our heads as being potentially bad and then there’s like, “Oh no, maybe the whole ecosystem is fucked and why am I doing this?” Type of failures. So for you, the idea that one person can die of Crohn’s disease in India, and 0.25% allegedly or some large percentage of the Bitcoin of the world just vanishes. I mean, where does that fall for you in those three categories?

Aaron Lammer: I think it’s pretty irrelevant.

Jay Kang: You think it’s irrelevant?

Aaron Lammer: In the long run, yeah.

Jay Kang: So like instead of there being 21 million Bitcoin, now there is like-

Aaron Lammer: Bitcoin is a piece of code, Bitcoin is infinitely sub-dividable. Why does it matter whether the … Let’s say right now that there’s … with the existing losses already priorly going to be what, 17 or 18 million coins out there. Does it really change the functionality or power of Bitcoin at all if there’s 17 million or 10 million coins out there?

Jay Kang: Yes, because there’s gigantic concentrations of Bitcoin wealth. And so if this keeps happening, and individual retail investors who bought into these types of places have their wealth taken away, then the people who do like put their large amounts of Bitcoin and stuff like Zappos have even more money.

Aaron Lammer: I’m sorry, are you saying, does it matter for people who had deposits at Quadriga? Yes.

Jay Kang: No, no, no, no. I’m just saying for the future of Bitcoin.

Aaron Lammer: It’s theoretically good for everyone who has Bitcoin, the people in this-

Jay Kang: No, it’s really not.

Aaron Lammer: No, except for the people who are quadriga customers.

Jay Kang: Yeah. And all of the people are like, “This is such a scam. I’m pulling all my money out of it. This exchange right now before they, before they go down.”

Aaron Lammer: It should push you to want to work with the most reputable exchanges you can.

Jay Kang: Okay.

Aaron Lammer: Because I do think right now-

Jay Kang: But I don’t think quadrangle was a particularly unreputable exchange.

Aaron Lammer: No, but it’s smaller, like Gemini and Coinbase, I believe if they totally fuck up, are going to try to cover their loss. Look at screenshots of Quadriga that James posted. It’s not a top tier exchange.

Jay Kang: Was it better or worse than Kucoin?

Aaron Lammer: It’s nice for Canada.

Jay Kang: Was it better than Kucoin?

Aaron Lammer: It’s very Canadian. So overall as the supply shrinks or the possible supply shrinks, I think that’s generally virtuous cycle for everyone other than it should make you paranoid about your own holdings.

Jay Kang: I don’t know. I mean like that … I think that there is some form of economics that probably checks out with.

Aaron Lammer: Can I pitch a dystopian future to you? And you’re welcome to turn it into a movie.

Jay Kang: Yes.

Aaron Lammer: What the primary accusation against Quadriga, other than someone faked their own death, which I don’t think happened, is that they were potentially running a fractional reserve, which is to say, they said they had 190 million deposits, but through some alchemy of either, hacks or fraud or losing keys, they stopped actually having $100 million worth of crypto assets. If they still had say, half, $85 million in assets for a long period of time, you’d be able to cover withdrawals particularly because people are putting new deposits in. And so until something catastrophic happened, either a run on withdrawals or a death, that fractional reserve would never be revealed and there would be able to continue to do crypto business using their $85 million crypto stash indefinitely.

Jay Kang: Yeah.

Aaron Lammer: Isn’t this just a parable for the whole world? Like if the whole world-

Jay Kang: You’re saying the world is a Ponzi scheme?

Aaron Lammer: Well, the existing world is a Ponzi scheme and the new world is just going to be an even more opaque Ponzi scheme because you’re going to have all of these financial institutions doing business using the collateral, using the anchor of a Bitcoin or crypto reserve that no one can verify whether it exists, much like tether seems to be unable to prove that it has the funds to cover its own reserve. So even though we look at this a Bitcoin maximalist future as like the perfect Austrian ideal of an inflation list system, it also seems like there’s a possibility that we’re going to have a $1 billion moving around that’s actually only backed by $100 million worth of crypto assets that people just keep claiming is more, which ends up sort of resembling our existing financial system where the government keeps printing more money.

Jay Kang: Do you remember when Jim Sir Wiki wrote that piece for the MIT review that we’ve talked about on the show? And it was about like the wild west and the type of currencies that they had.

Aaron Lammer: Yes.

Jay Kang: There are all types of different types of bank notes and weird issuances of coins and things like that, and there’s like 40 different currencies.

Aaron Lammer: Yes.

Jay Kang: I think about that quite a bit now because I think that like a year … We [inaudible 00:30:26] about a year ago I would say. And I think that goes to what you’re saying, which is in a system of full chaos where everybody is saying, “This is backed by something,” but nobody actually has to prove that it’s backed by anything. Then nobody is going to back anything by anything. Quadriga, I agree with you in that it is not a … I don’t think it is emblematic of anything. Like not every founder of an exchange is going to die and everything is going to be locked up. But I do think that the suspicion around it and the intense suspicion around it is emblematic of something.

Aaron Lammer: But shit is going to happen if people don’t die, someone else is going to steal the keys or embezzle them or extort them, all of the like human ways … Banks aren’t flawed, but there’re still bank robbers and there still bank losses and software errors, et cetera. So I think we started off this show saying that exchanges were the biggest threat to the crypto ecosystem and exchange failure. I think, I want to amend that now that we know a little bit. I like to ring our little bell every time we learned something on this show, which is the danger of an exchange isn’t just a literal hack.

Aaron Lammer: That’s the kind of like old school, wild West bank robbery version. It’s the whole nature of a fractional reserve and a whole nature of you operating a business that’s built upon the idea that you have a bunch of other people’s money, but you don’t really have to show that you have a bunch of other people’s money. And that means that every time that someone fails to present money in a situation like this, you have to look at every single custodial horde and be like, “What are the single points of failure of this??

Jay Kang: Okay. You say that banks can be robbed and that there can be embezzlement or a software failures. Right?

Aaron Lammer: Sure.

Jay Kang: But that doesn’t really happen. And the reason why it doesn’t happen and the reason why you and I probably feel relatively secure about having our money in a savings account at some large bank is because there’s regulation, there’s the FDIC, there’s all sorts of safeguards, right. Even if these things happen.

Aaron Lammer: well, and there’s one more layer which is, there’s no replay protection in banks. So if they do screw something up or the software screws something up, they just correct the error.

Jay Kang: Yeah.

Aaron Lammer: Like if I have a transfer gets stuck and broken, there’s a gentleman’s agreement among the banks and it’s, “Hey, make this right.”

Jay Kang: Yeah. Like if somebody walks in, for example, with a gun to our local bank and [inaudible 00:33:06] use for Coin Talk and they take out like all the money in the fault. Like it’s not like we’re worried that our money got taken out of that vault. Right?

Aaron Lammer: Yes.

Jay Kang: Okay. And that’s all due to the fact that there’s great financial regulation by all these different institutions on that bank.

Aaron Lammer: And because those banks are using funny money, not real money, they’re doing electronic transfers and just settling them. So it’s much harder to actually electronic money in a banking setting.

Jay Kang: All that stuff, that we are talking about that makes you and I confident in our bank for Coin Talk is anathema to a crypto.

Aaron Lammer: Correct.

Jay Kang: I think that there’s two logical conclusions to draw from that. And I think both of them you would probably disagree with. The first is that everyone should just hold their own keys. Like you shouldn’t introduce points of failure. You shouldn’t use exchanges. You should just hold off forever.

Aaron Lammer: I think holding your own … Like he did hold his own keys, that’s the problem.

Jay Kang: No, but for everybody else, you know.

Aaron Lammer: I know but there’s all these rippling problems with holding your own key. Am I just like a terrible cipher punk. I just don’t think people are going to hold their key. Telling people to hold their keys is the exact same as telling people to set a different password for every site they visit on the internet. No one does that.

Jay Kang: No, I know. Okay. But, you can do it.

Aaron Lammer: You can do it, yes.

Jay Kang: It’s possible. The second thing is-

Aaron Lammer: And you’ll be much less likely to get hacked personally if you did use a different password but hackers are relying on you not doing that.

Jay Kang: Yeah. Second thing would be crypto should just be regulated like the bank business and then what’s the point of crypto? Which is something we talk about all the time, which is like at the point where you have FDIC protections on crypto holdings, then it’s not crypto anymore. Right?

Aaron Lammer: Yeah.

Jay Kang: Maybe I’m wrong, but I guess like … And this is something we come back to time and time again on the show, which is just that, I think that people should hold their own keys.

Aaron Lammer: I disagree. So we’ve found a point of disagreement, which is always our goal on this show. I think, it’s unrealistic for people to hold their own keys.

Jay Kang: Why is it unrealistic though?

Aaron Lammer: It’s just as unrealistic as sending a different password for every internet site [crosstalk 00:35:18]. I’ll tell you what, if people hold their own keys, they’re going to lose those keys at a higher rate than exchanges are going to lose their keys. I think holding your keys is more dangerous than holding your stuff on an exchange.

Jay Kang: I don’t know. I mean, when I had crypto, which I don’t anymore, but when I had like some small amount of it-

Aaron Lammer: I thought you bought the [inaudible 00:35:37].

Jay Kang: No, I lost it gambling. But if you [crosstalk 00:35:40]-

Aaron Lammer: All these stories end the same way. And also it does not count as you getting out of crypto if you just gamble all your crypto.

Jay Kang: Yeah. No, I disagree with that.

Aaron Lammer: [crosstalk 00:35:55].

Jay Kang: I also didn’t buy much at the [inaudible 00:35:59], which you scolded me about, but the …

Aaron Lammer: I think we’re going to see the [inaudible 00:36:02] again, so you’ll have another chance.

Jay Kang: Yeah, like $200 [crosstalk 00:36:05] something. I don’t know. When I did have small amount of Bitcoin, I put it on a hardware wallet, and I made a copy of the seed keys, and I gave it to somebody else, and I had my copy. They had a copy of the seed words. It’s very similar to holding your own keys, and it wasn’t that hard. It wasn’t hard at all. And actually it made a lot of things easier because like Coinbase won’t let you deposit into gambling sites. And so I just didn’t use Coinbase because it was like, “Well, I don’t want Coinbase telling me what to do with my crypto. What the fuck is that?” And so I just used a hardware wallet, and it was totally fine. It wasn’t that hard.

Aaron Lammer: I think that’s realistic, A, when you have like a modest investment, and it’s also realistic when you’re not really planning to do very much with the crypto. But I think that if you’re actually interacting consistently-

Jay Kang: Like doing what? Buying coffee with Bitcoin? Nobody does that.

Aaron Lammer: No, like banking with Bitcoin.

Jay Kang: Banking how?

Aaron Lammer: Banking, like what if Bitcoin becomes the world reserve, our bank accounts will be in Bitcoin.

Jay Kang: Okay. But we’re talking about a much different future, like [crosstalk 00:37:20].

Aaron Lammer: Okay, look-

Jay Kang: I’m just saying right now it’s not that hard to hold your own private keys.

Aaron Lammer: I take your point. Let me give you a counterpoint. So we talk about, for people listening, when we say custodial access, what that means is when you buy on Coinbase, and you buy one Bitcoin, you don’t actually have the private keys for that Bitcoin, you just have a Bitcoin wallet that has that one Bitcoin in it and Coinbase manages … Okay, so that’s what custodial access means. It means you’re not actually holding your Bitcoin. You have account with a company that says it has your Bitcoin. And we just described how a fractional reserve could be used in the context of a custodial account to deceive customers. So Fidelity is adding custodial accounts soon for Bitcoin.

Aaron Lammer: We look at the track record of Fidelity for like holding onto people’s money versus say this Quadriga CEO, they have this like great long track record of not fucking up of across many different products. They hold people’s Roth IRAs, they hold people’s stocks, they hold all kinds financial instruments. My guess is, and I’m not saying this is better, but it’s where I see things going, that extremely reputable financial institutions, not reputable in their ethics but reputable in their ability to hold on to money are going to step in and provide such a flawless custodial experience that it’s superior to holding your own keys. I know that there’s many cipher punks who are cursing my name right now, but I believe in that more than the, everyone sets a different password on every website future.

Jay Kang: Yeah, I guess, I mean, I don’t want to belabor the point where we argue about a lot and just say then what’s the point of crypto?

Aaron Lammer: I think that’s a valid question. I think if many of the outcomes for crypto make crypto irrelevant. My guess is if you’re Fidelity you’d just love to make crypto irrelevant, like large financial institutions both want to profit from crypto and defang crypto. I do think that we’re going to see new entrance and probably like Coinbase and Gemini are the first that are these like hybrids that are from that … are competing with Fidelity and potentially are going to retain some element of … Like what if you could keep your money in a Coinbase account that also had some kind of like a private key layer on?

Jay Kang: Why would I do that? Why would I just keep it with my own private? I guess my argument Aaron would be that for anyone who doesn’t … that Crypto is pointless at the point where you can’t even keep your own private keys.

Aaron Lammer: But I don’t like keeping my private keys.

Jay Kang: I know then you shouldn’t be in crypto then.

Aaron Lammer: No it does all these other things that are … I don’t think that everything just falls apart instantly in crypto with custodial access.

Jay Kang: I think it does. I honestly think it’s like saying like, it’d be like, “I’m a fan of the Warriors, but I don’t like three point shooting.” Like it’s such an integral part of-

Aaron Lammer: I’m a fan of the Warriors, and I don’t let Kevin Durant.

Jay Kang: No, that’s different. It’s like saying, the thing that is built on, one of the main facets of it, I’m going to ignore and that the entire … like the theory and the ideology behind it, which I find fascinating, like “I’m not going to do even the first thing to do it.” I mean, I think a more [inaudible 00:41:04] thing would be like somebody who says they’re like a socialist and believes in like labor unionization and breaking up large corporate monopolies in the United States but still orders everything from Amazon. Like you can, “I don’t want to go to the store,” but at some point, the things that you actually do to try and make the world that you want, and the philosophy that you want, exists.

Jay Kang: You have to take a first step at some point. I don’t know, I just think that like, if you don’t believe in holding your own accounts, and you want to give power to centralized companies like Coinbase to do all of that and that they become the gatekeepers of every single thing that happens in crypto because of you don’t want to hold your own keys, then you shouldn’t be crypto.

Aaron Lammer: I feel like you’re a crypto purest, whose purism has made you not hold any crypto. Whereas I’m a crypto moderate who’s like, “Just make it super easy for me because I like it.”

Jay Kang: Yeah. No, I don’t disagree with that. I think that the difference is, and this is a meaningful difference, which is that the reason why you keep your Bitcoin on exchange is because you want it to be there in case you need to trade it or to further speculated on it.

Aaron Lammer: There’s a panic element.

Jay Kang: Yeah.

Aaron Lammer: I mean, look, I’ve committed to selling the bottom as much as possible.

Jay Kang: Yeah, exactly. You can’t sell the bottom if it’s on [inaudible 00:42:30].

Aaron Lammer: I don’t want any friction between me and panic selling.

Jay Kang: I guess my point is just that I don’t actually think that if you’re just hodling, that there’s any real difference between keeping it on a paper wallet or a hardware wallet and keeping it on Coinbase.

Aaron Lammer: Let me ask you another question. So you’re saying you would print it out and give it to your wife, your private keys. What if you’re a lonely solitary gentlemen with no friends, like more than half of the crypto audience.

Jay Kang: If you have like $2 million in crypto, which is the type of thing that we’re talking about, like you can just hire a lawyer to keep it for you.

Aaron Lammer: But why? If you’re dead, you’re dead.

Jay Kang: Yeah. Well you can figure out where to give it to.

Aaron Lammer: For all the people who aren’t organized enough to get a lawyer to donate their life savings to the Mises institute, there’s going to be a lot of people-

Jay Kang: That’ll be real tragedy by the way.

Aaron Lammer: A lot of people are going to go to the grave with their bags.

Jay Kang: I agree with that. And that’s, and I don’t think that’s a good thing.

Aaron Lammer: I think that the crypto religion should embrace going to the grave [inaudible 00:43:35], because for the overall benefit of crypto and Sitoshi.

Jay Kang: So like in a 100, there’s only 0.025 Bitcoin left in the world.

Aaron Lammer: It is true, dying with your bags is anti-inflationary.

Jay Kang: It is. Yeah. Yeah. If you want, if you basically want, like whoever gets like blood transfusions from a 15 year old every week and trying to live to 140 to have all the Bitcoin in the world then that’s what everyone should do.

Aaron Lammer: And also if it annoys you that you can’t celebrate the distraction of those bags during your lifetime, I think like big spectacles in which people like burn 100,000 Bitcoin are in order. This is that God’s demand. Okay. I feel like if we set off … go to your grave with your bags as a result of this episode-

Jay Kang: We won. We won.

Aaron Lammer: … We’ll have succeeded. Anything else on your mind?

Jay Kang: Oh, I did want to talk about one other, which is that there is a new video game that came out yesterday that is a sort of a … It’s called Apex Legends and it’s a mix of Fortnite and Overwatch basically. And, it’s free and it’s really good.

Aaron Lammer: Are you going to cut me in on the sponsorship that you secretly sold for this game?

Jay Kang: No. It’s an interesting game because we always talk about the idea of crypto driven games. And so this was interesting to me because I thought about it in our context and I was like … Basically everything is locked up because the game is free. And so, like you have to really grind out experience points or gold to like … I don’t know what the currency is called, but to unlock parts of the game that are pretty fundamental.

Aaron Lammer: Yeah.

Jay Kang: And one thing I realized was that if you could somehow lock the crypto into the money that you grind out, like World of Warcraft gold for example, I think that would actually be interesting. Like that would … So if all the currency was exactly the same, because right now you basically have two types of currency. You have the currency, you grind out and then you have currency that you buy with actual like Fiat currency and if there is a way to like sort of make that all one and the same, I think that would be interesting.

Jay Kang: And if you put it on the blockchain, then you can figure out what was happening, then you could have all these like secondary markets in which it can be spent to buy skins and stuff like that. But, I think it’s only interesting in a sense that, when a game just starts, you can actually see sort of the potential of what the marketplace is going to be like and it hasn’t been all corrupted out and like have all sorts of weird things that make that visualization difficult. So I still think that, that can happen. But the game has to also function.

Aaron Lammer: I’ve heard this said by a number of people recently that like whatever the first crypto gaming experience is going to be, it needs to be built from the ground up. It’s not going to work [inaudible 00:46:35] on Fortnite. And it feels to me like the first hurdle is what you just described, which is blending the pool of in game money and the pool of purchased money. Just having that be a simple pool. And I think as you said, that’s necessary for a real economy. There can’t be two classes of money, that can’t trade with each other. And to me, the second big hurdle, and this is the one that I think you’ll know where in the crypto future when it happens is when not only are those money pools fused together, but it starting to jump across games. So the money you earn and what is it called Apex Legend?

Jay Kang: Yeah.

Aaron Lammer: Can be transferred to some new game that’s launching and that there’s actually an inter-game economy amongst them. And the reason I think that’s going to be massive is basically like the PS4 and the Xbox are each going to have dozens of on ramps that people can buy cryptocurrencies with Fiat and move them around across games, across wallets, what have you. We’ve talked about this before, that user base is enormous. Like that user base is the world.

Jay Kang: Yeah. It would basically though have to have some incentive for all of the separate game companies to buy into the same currency system, which right now they probably make all of their money on these transactions by actually selling the thing, they don’t make any money off of like a currency inflation, or currency bump. And I think that’s probably pretty hard because obviously they’re going to all see it as a winner take all type of thing. And why would they share, if they think they’re going to have the biggest game? So for example, like Fortnite right now, why wouldn’t it just be like, “We’re just going to make Fortnite coin and you can make Apex Legends coin and good luck to you. We’re not going to share any of these potential currency profits with you because you’re our competitor.”

Aaron Lammer: 100%. I mean, I don’t expect this to come out of Fortnite, because Fortnite is such a force unto itself, it’s probably more … It’s probably-

Jay Kang: Or the next Fortnite too.

Aaron Lammer: … Bigger than all of crypto and combined. What I would expect is that the success of games like Fortnite means everyone else may need to band together to even compete with Fortnite. I would think that this probably will happen at a more indie distributed level with games banding together to build some sort of a behemoth that competes with the biggest incumbents. My question there is, and you know a lot more about gaming than I do. So you’re saying in this game, you can like grind and build up-

Jay Kang: Yeah, yeah.

Aaron Lammer: … The game currency, like this is Warcraft and you go around like fighting [crosstalk 00:49:28]-

Jay Kang: … Or you like win three games to get 10 gold.

Aaron Lammer: So there’s no true monetary policy and those games. Like you can kill an infinite number of goblins and get that like tiny reward. The supply is elastic. And everything that is orthodoxy in crypto involves this idea of fixed supply and anti-inflationary.

Jay Kang: No, there is a limit because there’s a return on time. Like there’s return on investment for time put in that is locked. Like you can’t … So, for example, in Hearthstone you in three games and you get 10 gold, and then you can finish quest, but you only get like one new quest a day and then you get like 50 gold. So there is a very fixed limit on … Even if you win every single game, there’s a fixed limit on the amount you can make a day.

Aaron Lammer: But you don’t know how many people are playing Hearthstone at a given time. So there’s no fixed amount that the whole Hearthstone network can give out over a day. As more people play Hearthstone, more of [crosstalk 00:50:31].

Jay Kang: Oh sure, yeah. If you had like 5,000 people playing that level and winning every single game as opposed to one, they will pay out all those people.

Aaron Lammer: So by that token, I don’t know if you would say that’s inflationary, but it’s certainly an elastic growing supply. So it seems like the real difficulty to having a currency across games is that everyone would need to set a similar difficulty threshold to getting the currency and everyone would need to fix their supply in some way, so that my really easy game doesn’t just become a mining operation.

Jay Kang: Oh yeah, of course. Yeah.

Aaron Lammer: And so it starts getting complicated and I think at a certain point-

Jay Kang: No, that’s a good point. Yeah, I didn’t think about that.

Aaron Lammer: … You would have to fix … Yeah. I mean that’s what would inevitably happen. I’d be like, “I’m making errands farm. All you got to do is coming farm for most payouts.”

Jay Kang: Yeah, exactly. Oh my God.

Aaron Lammer: I mean like it’s always [inaudible 00:51:23].

Jay Kang: But you would have so much action on that farm.

Aaron Lammer: I think the name of this episode is definitely going to be Aaron’s Farm.

Jay Kang: Aaron’s Farm [inaudible 00:51:33].

Aaron Lammer: For most gold.

Jay Kang: Yeah, exactly. “All you have to do is plant turnips. It doesn’t matter where.”

Aaron Lammer: I mean economics are complicated. We just like spit balled this idea of inner game currency, which sounds cool. And then it’s like Bitcoin actually had to solve a lot of things to make that work. So you’d have to have a fixed supply, which I think would mean like the gold just couldn’t be something you could just farm by like whacking goblins. You’d have to say-

Jay Kang: But then it doesn’t work, it really doesn’t work then.

Aaron Lammer: … There’s like one million charms are hidden in the game and that’s the whole of supply of charms and you have to go find them, and then you can trade et cetera.

Jay Kang: Oh my God, there’d be so many dead teenagers if that was true. Like just dying from trying to find [inaudible 00:52:16]. Like dying in some PC cafe outside of Shanghai would be a tragedy.

Aaron Lammer: I never said that mashing up gaming and Austrian,,, school economics was going to be pretty. As you said for a Bitcoin maximalist future, a few billion people are going to have to die for a fixed supply gaming currency, half of the population of the earth has to die.

Jay Kang: Yeah, or more. And also like the world would not … Like no one would want to inhabit that world.

Aaron Lammer: I just remember this … I’m friendly with this VC named Hunter Walk who was working for, I want to say Second Life when it first started having an emerging economy. Everything I learned from him is basically that like the minute any form of money appears in a game, instantly you have to manage the economy. Like all sorts of crazy things that you didn’t imagine. People start doing weird, underhanded things that you can imagine and all of the perfect, frictionless ideas you had go out the window.

Jay Kang: My main support of this type of stuff is just out of curiosity. Like I just want to know what happens. For example, if like … I mean you can’t do this, but like … I mean you can in some ways, but you can sell your accounts in these things, but you can’t sell individual cards in Hearthstone. But if you could, I’ll be really-

Aaron Lammer: Well, in Aaron’s Farm, you can sell your farm.

Jay Kang: Can you sell like individual plants?

Aaron Lammer: You can sell anything on Aaron’s Farm.

Jay Kang: It’s a totally open …

Aaron Lammer: Aaron’s farm is actually basically just like the flea market in LA. It’s just a giant open field for you to come farm and trade.

Jay Kang: Got a lot of crap. Got a lot of sub woofers.

Aaron Lammer: Exactly.

Jay Kang: Selling a lot of furniture that’s labeled mid century modern.

Aaron Lammer: And some used magazines available.

Jay Kang: National Geographic’s Galore.

Aaron Lammer: Okay. Good talking, I’ll see you next week.

Jay Kang: Yep.

Aaron Lammer: All right.

Jay Kang: All right.