0:00

Imagine that you

0:00

doubled your population that

0:04

wants to do economic activity.

0:04

If if all these new people would

0:09

want to use money in the future,

0:09

then they they just need the

0:12

coins available to themselves.

0:12

And so if you have a limited

0:15

number of coins that are available, I think this is a problem right? Because you you

0:17

have scarcity in the coins, and

0:21

that all of a sudden creates

0:21

value to holding on having these

0:25

coins all by itself. And that's

0:25

a problem right because because

0:29

you know the act of holding

0:29

money should not be something

0:31

that is that is valuable.

0:43

If Bitcoin

0:43

cryptocurrencies and blockchain

0:46

has you feeling confused, this

0:46

podcast episode is for you.

0:51

There is a strong correlation

0:51

between Bitcoin cheerleading,

0:54

and bitcoins price. Whenever the

0:54

cryptocurrency has seen a rapid

0:58

increase in price, mainstream

0:58

media coverage rises, and social

1:02

media while it goes crazy, like

1:02

it always does. But how many

1:06

people really know what they're

1:06

talking about? Is this another

1:10

case of return chasing behavior

1:10

coupled with a little knowledge

1:14

being a dangerous thing? Well,

1:14

my guest on today's podcast is

1:18

one of the few people who can

1:18

help answer a lot of questions

1:22

about cryptocurrencies. He's a

1:22

professor at the University of

1:25

Toronto and his research and

1:25

interests have been focused on

1:29

financial market structure,

1:29

financial technology and

1:32

studying innovations in

1:32

cryptocurrency and blockchain.

1:35

And don't worry, whether you

1:35

already know a bit about

1:39

cryptocurrencies or are starting

1:39

from scratch. I think we hit a

1:43

really nice balance between

1:43

explaining the basics and diving

1:46

a bit deeper into the actual

1:46

economics to explain how you can

1:51

judge for yourself if the space

1:51

is suffering from too much hype

1:54

or not. I think you're gonna

1:54

find this episode. very

1:58

enlightening. This is mostly money and I'm

2:06

your host Preet Banerjee, joined

2:10

by Dr. And Dre is Park is going

2:10

to explain Bitcoin, blockchain

2:15

and all things crypto in a mini

2:15

Crash Course. Let me introduce

2:20

my guests with a bit of his

2:20

background. Andres Park is an

2:25

associate professor of finance

2:25

at the University of Toronto

2:28

with appointments to the Rotman

2:28

School of Management and the

2:32

Department of Management at UTM.

2:32

He currently serves as the

2:36

research director at the fin

2:36

hub, which is rotmans Financial

2:40

Innovation Lab. He's the co

2:40

founder of the ledger hub, the

2:45

University of Toronto's

2:45

blockchain research lab, a lab

2:48

economist for blockchain at the

2:48

creative destruction lab, the

2:52

economic adviser to conflux

2:52

chain and a consultant to the

2:56

Ontario Securities Commission,

2:56

and Iraq, the investment

3:00

Industry Regulatory organization

3:00

of Canada. Andres teaches

3:04

courses on FinTech and financial

3:04

market trading and His current

3:08

research focuses on the economic

3:08

impact of technological

3:12

transformation such as

3:12

blockchain technology. He

3:15

recently co authored a design

3:15

proposal for a central bank

3:20

issued digital currency

3:20

commissioned by the Bank of

3:23

Canada. And that was actually

3:23

the impetus for me reaching out

3:27

to them. And I've had the

3:27

pleasure of participating in a

3:30

number of events with Andres at

3:30

Rotman either as a speaker,

3:33

panelist or moderator. And so

3:33

when the email came in from

3:37

Rotman events about an event

3:37

where three different groups who

3:40

had authored design proposals

3:40

for the Bank of Canada for what

3:44

a central bank digital currency

3:44

might look like, and I saw the

3:48

entry This was one of the

3:48

presenters, I tuned in and it

3:51

was incredibly enlightening.

3:51

Andrei is welcome to the show.

3:55

Well, thanks for having me,

3:55

Preet. There are a lot of people

3:59

talking about various aspects of

3:59

cryptocurrency, mostly Bitcoin.

4:03

What percentage of people know

4:03

what they're actually talking

4:06

about?

4:08

Well, that's a

4:08

really small number, if you ask

4:10

me.

4:12

Yeah, you talk

4:12

to me about, you know, the

4:15

different voices, you have

4:15

people who are cheerleaders,

4:19

you've got people who really

4:19

know what they're talking about.

4:22

And you've got a whole bunch of

4:22

people in between. So tell me

4:24

what your sense is being an

4:24

expert. From when you hear

4:28

either things in the media,

4:28

you're reading blogs, looking on

4:30

Twitter, what's your sense of

4:30

how much talk is actually backed

4:35

up by people who know what they're talking about?

4:39

Well, you got to

4:39

be cautious on which part of the

4:42

area you're actually talking

4:42

about. Right. So you know, I

4:44

think people have by now

4:44

understood reasonably well what

4:48

Bitcoin is not necessarily how

4:48

it works, but you know what it

4:52

is and what it isn't is, or

4:52

that's that's a mouthful. But

4:56

then when it comes to you know,

4:56

the the part about

5:00

That has potential impact. And

5:00

that's really interesting. I

5:04

think very few people are

5:04

actually in the know,

5:06

understand, well, what is going

5:06

on, and then even even the

5:11

people that are in the

5:11

blockchain space, that there is

5:14

still, you know, a whole

5:14

spectrum of knowledge and

5:18

necessary knowledge that you

5:18

need in order to understand

5:21

that. So let's take this. So I'm

5:21

an economist by training. So I

5:25

understand, you know, some of

5:25

the economic implications and

5:28

the mechanisms that are

5:28

necessary for, you know, some of

5:32

these tools that exist. And then

5:32

there are a lot of people from

5:35

engineering, computer science,

5:35

they understand the tech really

5:37

well, but they don't understand,

5:37

you know, in the design that you

5:41

put in this economic

5:41

implications, there's design

5:44

questions that are directed to

5:44

economic incentives, and they're

5:48

not aware of them, or they don't

5:48

care about them, or they don't

5:51

understand them, like, and then

5:51

on the other end of the

5:53

spectrum, I am I don't really

5:53

understand all the technological

5:56

details of how things are done.

5:56

And I still ask them really dumb

5:59

questions all the time to some

5:59

of my colleagues. Right. So

6:03

it's, it's interesting times

6:03

there, which makes this what

6:07

makes his area so interesting is

6:07

also that it really requires a

6:10

big view of many different

6:10

thought processes to come

6:14

together. So it's not just tech.

6:16

Yeah. And and I

6:16

think, you know, a lot of the

6:20

conversation is centered around

6:20

Bitcoin. But there's so many

6:24

other implications for the

6:24

underlying blockchain

6:26

technology. There's so many

6:26

different cryptocurrencies

6:29

themselves beyond just Bitcoin.

6:29

So Bitcoin gets a disproportion

6:33

amount of attention generally

6:33

for definitely the lay audience.

6:37

But we'll get to all that let's

6:37

let's start from the beginning,

6:41

if you will, or at least we'll

6:41

pick a point in time and call

6:44

this the beginning. And that

6:44

would be 2008. With the

6:47

publication of the Bitcoin white

6:47

paper. Can you explain the

6:50

significance of that white

6:50

paper? And what it led to?

6:55

Well, yeah, no,

6:55

it's actually a pretty clever

7:00

piece, right? So what what this

7:00

person Satoshi Nakamoto did was

7:06

he took two existing pieces of

7:06

technology and put them together

7:10

in a smart way to create

7:10

Bitcoin, right to create digital

7:16

money if you want. And, and so

7:16

the genius is, and let me say

7:20

what first what the problem is

7:20

the, the problem is that there

7:22

were attempts before to have

7:22

digital money. And the problem

7:28

that people couldn't overcome is

7:28

a double spend problem, right.

7:31

So like, if I want to give you

7:31

money on the internet, I have to

7:35

give you the original if you

7:35

want, right, when I send you a

7:37

PDF, or a picture, that's really

7:37

just a copy, it's never the

7:41

original. But for money, you

7:41

need the original. And so they

7:44

could never really nobody could

7:44

really solve the problem of, you

7:48

know, making sure that you don't

7:48

spend the same dollar twice. And

7:52

what Satoshi did was he

7:52

basically combined the idea of a

7:57

blockchain, which is the linking

7:57

of pieces of information in a

8:02

cryptographic manner, so that

8:02

you could see you could detect

8:05

any manipulation with what's

8:05

called the proof of work

8:09

protocol, which is does a number

8:09

of things, it is one, it creates

8:15

the ability of a network to have

8:15

consensus about, you know, a

8:19

change in the network. And it

8:19

also makes it really hard to,

8:24

you know, to manipulate the

8:24

past. Because what it really is.

8:28

So there's a lot of talk about,

8:28

you know, the energy usage and

8:31

all of that. But really what it

8:31

is about it is a random

8:34

mechanism to give people in a

8:34

very large network, the ability

8:39

to create a new entry in the

8:39

blockchain on the accounting

8:43

statement if you want, right,

8:43

and so,

8:47

yeah, well, I

8:47

want to dive into that a little

8:49

deeper. But before we do, I want

8:49

to talk a little bit more about

8:53

the motivation behind coming up

8:53

with this idea. So I think you

8:57

you talked about part of it. And

8:57

that is solving the double spend

9:01

problem, because with physical

9:01

cash, you don't you have minor

9:05

counterfeiting, maybe it's not

9:05

minor in some circles. But

9:08

effectively, if I have a $20

9:08

bill, and I pass it to someone,

9:11

I can't spend that same $20 bill

9:11

and give it to someone else,

9:15

because someone else has that.

9:15

So there is no double spend

9:18

problem with regular cash for

9:18

the most part. And so the double

9:22

spend problem was the one of the

9:22

main motivations, but when it

9:26

comes to, you know, a trustless

9:26

network, the decentralization of

9:32

this ledger, which is maybe we

9:32

can explain the blockchain

9:36

itself for Bitcoin and the other

9:36

types of blockchains out there

9:39

is basically a big accounting

9:39

ledger.

9:41

Yes, that's right, exactly.

9:44

And so what this

9:44

ledger does, and the reason it's

9:47

called the blockchain is that is

9:47

a chain of blocks and this block

9:52

chain gets longer longer as more

9:52

and more blocks get added, and

9:55

each block represents the last

9:55

batch of transactions To add a

10:01

block onto the official

10:01

blockchain, you have to as a

10:06

sense of, you know, all the

10:06

nodes who are out there taking a

10:09

look at all the transactions,

10:09

they're basically solving a

10:11

cryptographic problem. And part

10:11

of solving that problem add to

10:15

that chain means it has to line

10:15

up with all the previous

10:18

transactions that have ever

10:18

done, been done in order to get

10:21

accepted by all the nodes. So

10:21

let's talk about this

10:25

decentralized idea. So when you

10:25

take a look at a regular ledger,

10:32

you know whether it is a company

10:32

that is selling things, they

10:35

have a record of accounting of

10:35

inventory, a bank has a record

10:39

of all transactions that go in

10:39

and out between their customers

10:42

and other banks with a central

10:42

bank. But they are centralized,

10:47

they are owned by in many cases,

10:47

a single entity. So what is the

10:51

idea of the blockchain in terms

10:51

of it being decentralized? And

10:54

why is that important?

10:56

So and this is a

10:56

great question, actually feet.

10:59

And I think this actually goes

10:59

exactly at the core of what the

11:03

what the benefit of a blockchain

11:03

is. Now, it's often portrayed as

11:07

you can do transactions without

11:07

needing a trusted third party,

11:11

right. So you can basically

11:11

anybody can contribute to it and

11:14

everybody is happy, but nobody

11:14

has to trust anybody for it to

11:17

work. Now, this is a pretty cool

11:17

idea. But I think the more

11:21

important idea here is, is that

11:21

you think about a common

11:26

infrastructure and a common

11:26

resource that anybody can use,

11:30

where there's no restriction of

11:30

usage. So there's no nobody or

11:33

controlled access to it. But

11:33

really, the important part is,

11:37

it's that it is common for

11:37

everybody. So you know, you

11:40

don't need you know, it's not,

11:40

it's not a siloed ledger, if you

11:46

want a siloed piece of where the

11:46

information is kept. And I think

11:51

if you think about, you know,

11:51

collaboration of firms of

11:54

individuals, when when we all

11:54

work on the same item, or the

11:59

same, you know, same problem, or

11:59

the same on the same data at any

12:04

given point in time, that

12:04

creates, what it takes a lot of

12:09

inefficiencies. So think about

12:09

you and I read, you sent me a

12:12

Google document here before,

12:12

before we talked right? Now, you

12:16

give me access to this document,

12:16

and we can edit it at the same

12:18

time. Imagine what that does to

12:18

a workflow on a phone. And the

12:23

same holds. If you think about a

12:23

blockchain network, as we all

12:26

see the ledger of entries of

12:26

where, where the money is, for

12:29

instance, and, you know, I can

12:29

trust, you know, if I trust the

12:33

ledger as it is, and I want to

12:33

make a promise statement for a

12:36

payment for you in the future, I

12:36

can get the information from

12:39

that single resource. It's

12:39

extremely powerful. You know, I

12:44

mean, it's, it's goes completely

12:44

against what, especially firms

12:48

think, right, so firms like to

12:48

think of, they have their own

12:50

piece of information, it's

12:50

theirs, and you know, nobody

12:53

else can look into it. And to

12:53

have something like data or, you

12:57

know, sensitive, sensitive

12:57

information in some form of a

12:59

common resource. That's a bit

12:59

scary. But at the same time,

13:04

it's, it could be very empowering.

13:07

Let's talk about

13:07

the the use of this blockchain

13:12

technology. And first, maybe it

13:12

should sort of separate, you

13:15

know, blockchain versus Bitcoin

13:15

as a currency. These are two

13:20

separate ideas. So I want the

13:20

listeners to think right now

13:23

we're talking about the

13:23

blockchain and the technology

13:26

that underpins a number of

13:26

different use cases, the biggest

13:29

one that gets the headlines is

13:29

currency and transactions. So

13:33

when it comes to payment

13:33

networks around the world, these

13:37

are, you know, you have big

13:37

payment processors like Visa,

13:40

MasterCard, interact. And they

13:40

are tracking all these

13:43

transactions. And they each have

13:43

their own ledger, which sort of

13:46

says, Here are all the

13:46

reconciliations between all

13:50

these different parties. And so

13:50

they have a lot of power and a

13:53

lot of ability to charge people

13:53

and merchants people a lot of

13:56

money for these transactions to

13:56

be processed on these networks.

13:59

And so by disintermediating them

13:59

and just having a ledger where

14:03

people can just interact and

14:03

make transactions directly

14:06

recorded. The promise was that

14:06

this would lead to much less

14:11

transactional costs, maybe

14:11

faster transactions. So can you

14:15

talk about what that sort of

14:15

motivation is and how that is

14:20

actually playing out in the real

14:20

world?

15:04

So maybe we

15:04

should. So this is, again, it's

15:07

a it's an interesting and

15:07

excellent question to think

15:11

about the maybe we should take a

15:11

few steps back and just the sort

15:15

of first a few things about

15:15

Bitcoin, right? Because I think

15:17

actually Bitcoin, if you think

15:17

is like blockchain one point, or

15:20

what's the first implementation

15:20

of the whole thing, and it

15:22

really has only the single

15:22

purpose of shifting money back

15:25

and forth, right. So by the way,

15:25

it's with bad structured, and

15:29

maybe it's useful if we think

15:29

about aetherium for a second,

15:32

which is the blockchain 2.0,

15:32

which is really what you're

15:35

alluding to right so that you

15:35

have a ledger and a network as

15:39

well. Robots can do a lot of

15:39

different things at the same

15:41

time. And maybe it's maybe just,

15:41

you know, I had some really cool

15:46

stories about how ethio magic

15:46

came into being. This is

15:50

secondhand information that may

15:50

be useful for your listeners

15:52

anyway. Right? So,

15:53

because literally

15:54

the story behind

15:54

it, there is and it's actually

15:57

quite cute. Right, so you've

15:57

you've heard of vitalik boo

15:59

Turin or Butera? anwers. Right.

15:59

And so the story goes like this

16:03

is he when he was a kid, and

16:03

he's still pretty close to being

16:07

a kid. But he, when he was a

16:07

kid, he was into computing. He

16:10

was into computer games, and you

16:10

know, computer games, you have

16:13

these characters that you create

16:13

over time, right? So they have

16:15

weapons and special skills and

16:15

all that. And then from one day

16:18

to the next, the gaming company

16:18

decided to kill that character

16:23

off, right, so to restrict

16:23

access to it. And, you know,

16:27

it's been months actually

16:27

creating that character, and it

16:29

was absolutely furious about it

16:29

was, you know, I actually was

16:33

not just furious, very sad, I

16:33

was crying asleep and all that

16:36

rain. And that's how his dad got

16:36

him into bitcoin. Why? Well,

16:41

because Bitcoin is what's called

16:41

censorship resistance. So no, no

16:46

higher authority can take away

16:46

your Bitcoin, which is, again, a

16:50

very powerful statement, you

16:50

know, if you think of many

16:53

countries in the world, where

16:53

you know, that you have

16:55

authoritarian governments that

16:55

can take away your money for

16:57

whatever reason they want,

16:57

right? legitimate or not. And

17:01

so, you know, Bitcoin, you can't

17:01

do any of that. So this is how

17:05

the kid got into bitcoin. And

17:05

then, you know, when you

17:09

started, he was working on

17:09

Bitcoin and he had this idea

17:12

that he worked on a problem

17:12

which is so called colored

17:15

coins, which is where you use

17:15

the Bitcoin network to create

17:19

different types of coins or

17:19

assets, such as a character and

17:23

again, right and then he

17:23

realized this was a problem was

17:26

was really hard to solve with

17:26

Bitcoin, it's just he was just

17:28

was made for that. And so then

17:28

he had this idea of because it

17:33

was also in computer science and

17:33

all one maybe we can create a

17:35

network which can, you know,

17:35

just execute code for us. So

17:41

that we all agree on, on any

17:41

change of of computing code at

17:46

any given point in time. And

17:46

that's how a theorem came into

17:49

being right. So it is really a

17:49

gigantic computing network. Now

17:53

not not to be mistaken for a

17:53

supercomputer, which can do a

17:56

lot of computations. This one

17:56

can do in a very rudimentary

17:59

computations, but it can do them

17:59

in a decentralized manner. Yes,

18:03

so now I want to because here's

18:03

where the difference comes into

18:06

the interface. Right? So if

18:06

you're an also has a

18:09

cryptocurrency, but it serves a

18:09

completely different purpose

18:12

than Bitcoin. So if theorem is

18:12

not set up to be an

18:16

infrastructure to shift digital

18:16

stickers around, the reason why

18:20

you have the cryptocurrency in

18:20

aetherium, is because when you

18:23

have a piece of code, you can

18:23

write just a corporate is just

18:27

four lines long, which goes into

18:27

an infinite circle, right? And

18:31

so if you would run something

18:31

like this on a decentralized

18:33

network, you would crash

18:33

networks. So for that reason,

18:36

you need to have a way to limit

18:36

that. So how do you do this

18:40

while you do it by paying, so

18:40

you have an economic incentive

18:43

not to run code, which goes into

18:43

infinite loops. And so the

18:49

reason therefore, for this

18:49

network to work is actually that

18:52

there is something of value,

18:52

which is, you know, the ether

18:55

that you have to pay for the

18:55

execution of code, and that

18:59

there is a limited resource for

18:59

that. So you know, it's a

19:02

philosophically, that's actually

19:02

really different from how

19:05

Bitcoin was conceived, and what

19:05

Bitcoin was doing, which is

19:09

pretty, it's, you know, using z

19:09

already how the, for me

19:12

personally, is really interesting how the economics comes into this.

19:15

Well, I was gonna ask you to, to sort of, you know, put on your economists

19:16

hat and sort of say, comparing,

19:20

you know, Bitcoin and the

19:20

Bitcoin ecosystem to aetherium.

19:25

It looks to me like aetherium

19:25

has so much more possibility

19:29

behind it, then then Bitcoin,

19:29

like you said, 1.0 versus 2.0,

19:33

is probably a really great way

19:33

to think about it, because it

19:36

tackles maybe more head on some

19:36

of these issues, that would be a

19:39

very much interest to an

19:39

economist. And so maybe I can,

19:44

you know, if we go back to, to

19:44

Bitcoin, and in he talked about

19:49

how a lot of people pay

19:49

attention to the electricity

19:51

consumption, I do want to spend

19:51

a little bit of time talking

19:55

about the whole notion of mining

19:55

and incentives, you know, and

20:00

what is the incentive to commit

20:00

resources to verifying the next

20:06

block that gets added to the

20:06

blockchain? So can you talk to

20:09

me about the incentives in that,

20:09

and how that relates to

20:12

electricity consumption?

20:14

Yeah. So let's

20:14

talk about how this actually

20:17

works. So So the basic principle

20:17

that you need for this network

20:23

to work is that actually, let me

20:23

let me put it differently. So if

20:28

you want to steal from this

20:28

network, right, what you need is

20:32

you need to have the ability to

20:32

create multiple blocks

20:36

predictably over time. Okay, so

20:36

I mean, you If you had the

20:40

ability to do that you could

20:40

steal the money and basically

20:43

take whatever you want. Now, in

20:43

order to prevent that, what you

20:46

have to get is you have to have

20:46

a mechanism by which, you know,

20:50

the the next generator of the

20:50

block is is found at random. So

20:54

you have, you know, let's say, a

20:54

million people that all want to

20:58

be participating in this for

20:58

whatever reason. And you pick

21:03

only one of them at random to be

21:03

doing this, man. So that's,

21:06

that's basically the mechanism.

21:06

This is what this Bitcoin mining

21:10

is actually really all about.

21:10

Now, why is why is this picking

21:14

at random, this cryptographic

21:14

puzzle that you have to solve is

21:19

really nothing is on Sunday,

21:19

which you can only solve by

21:23

making random guesses. Okay, and

21:23

so, therefore, these random

21:27

guesses essentially serve as the

21:27

random mechanism to to select

21:31

somebody at random to be the

21:31

winner of this. Now, you can

21:34

temper this by committing

21:34

computing resources to it,

21:37

right, so the more guesses you

21:37

can make per second, the more

21:41

likely it is that you will win.

21:41

But it's still still a random

21:43

mechanism only for each individual.

21:46

And sorry to cut

21:46

you off. So when it comes to,

21:50

you know, the computing power.

21:50

So a couple years ago, I was

21:52

building a PC. And as I was

21:52

sorting out the different parts,

21:55

I was looking for a graphics

21:55

card. And I noticed that there

21:59

was either some anomalous sort

21:59

of premiums being set on the

22:04

regular price of these cards, or

22:04

I just could not get these

22:07

graphics cards. And then I

22:07

realized that one of the reasons

22:10

for this and maybe the main

22:10

reason was, all these miners,

22:14

were buying up bunches and

22:14

bunches of these graphic cards

22:18

and daisy chaining them

22:18

together, because that serves

22:20

the basis of a lot of the

22:20

computing power that goes into

22:25

bitcoin mining, is that correct?

22:27

That is absolutely

22:27

correct. Because so this

22:30

solution is random guessing as

22:30

it is, it's an extremely trivial

22:34

process, right? Because all that

22:34

it is, is that you take a bunch

22:38

of data, and then you add

22:38

another piece of data to it. And

22:41

then you run a piece of code,

22:41

which is roughly 200 lines long.

22:46

It's called a hashing mechanism,

22:46

developed, by the way, by, you

22:49

know, the NSA, the National

22:49

Security Agency, which is used

22:53

also encryptions. And all that,

22:53

that's all that you do. So you

22:58

know, and that's something which

22:58

graphic cards are really good

23:00

at, to do these, these really,

23:00

really small tasks, but many,

23:03

many, many times over, as it's,

23:03

it's not like a computer

23:06

processor, or, you know, quantum

23:06

computer, which has to do

23:09

something really, really

23:09

difficult. Now, this is really

23:11

trivial to do.

23:13

That's interesting, because I was gonna ask you about, you know, what,

23:14

what potential risk is a, you

23:18

know, quantum computing pose to

23:18

blockchains integrity, because,

23:22

you know, in the white paper,

23:22

the Bitcoin white paper itself,

23:25

it talks about as long as the

23:25

majority of CPU power is not

23:30

controlled by a bad actor, then

23:30

the integrity of the blockchain

23:35

is good. In fact, the blockchain

23:35

itself has never been hacked.

23:39

Right. That's how good this is.

23:39

Correct?

23:41

That is absolutely correct. Yes. There's never been down and never been hacked.

23:44

Yeah, I mean,

23:44

that in and of itself is a such

23:48

an incredible innovation,

23:48

technological innovation. But

23:52

again, as you said, that's just

23:52

1.0 there's so many other things

23:55

that can be now done. And I get

23:55

the sense that people are maybe

23:59

putting too much weight on

23:59

Bitcoin and they're kind of

24:03

tying everything together into this one thing. It's cryptocurrency. It's Bitcoin,

24:05

but there's so much more to

24:08

cryptocurrencies in the

24:08

ecosystem, as as you're

24:12

enlightening our audience with

24:12

so. Okay, so to get back to the

24:15

electricity consumption, I do

24:15

have one more question on this.

24:19

And I don't know if you saw

24:19

this, but Kevin O'Leary recently

24:24

made some headlines because he

24:24

said that he would no longer buy

24:29

bitcoin that was mined with

24:29

unethical energy sources. And

24:35

the question I have is how the

24:35

heck would you even know that?

24:39

This is ridiculous.

24:50

The conversation

24:50

with Professor Andreas Park

24:52

continues in just a minute. But

24:52

first, a few thank yous to

24:56

listeners who left comments on

24:56

Apple podcasts, as saw on br z

25:00

or B or Zed, who found the

25:00

podcast after watching some of

25:03

my YouTube videos. Thank you for

25:03

dropping bias on and smoking Joe

25:08

who left burger joint

25:08

recommendations for me the next

25:11

time I'm in Ottawa, and he

25:11

recommended the old Dubliner and

25:16

the poor house, and I'll be sure

25:16

to check those out. So thank you

25:18

for those tips. And thank you to

25:18

everyone who leaves ratings and

25:21

comments on Apple podcasts. I

25:21

appreciate them. I do read them

25:25

all. And if you have either

25:25

burger recommendations or donut

25:29

recommendations, please do feel

25:29

free to leave those in the

25:32

comments. I'm a sucker for both.

25:32

And now back to the conversation

25:36

with Professor Andres Park.

25:45

Now let's let's be

25:45

sorted. So you know, I fully

25:48

agree by the way that so this

25:48

Bitcoin energy consumption is,

25:51

is a very sad side effect of it

25:51

right. But let's, let's take one

25:57

step back. And let's think

25:57

about, you know, the energy

26:00

consumption per se, I would

26:00

argue, now there's this, there's

26:05

two things, I'm going to make a

26:05

little provision at the very end

26:07

of what I'm going to say. But

26:07

let's just think about where

26:10

electricity is produced and how.

26:10

So we have hydro electricity, we

26:14

have wind, electricity, and

26:14

nuclear power, right. So these

26:18

are major sources of

26:18

electricity, forget about coal

26:20

plants and the dirty

26:20

electricity. But these are, for

26:23

practical purposes, not co2 in

26:23

you know, harming technologies

26:29

at this point. Now, nuclear, of

26:29

course, we know that there's

26:32

issues with this. I don't want

26:32

to put that aside, but it exists

26:35

for now. Right? So let's go with

26:35

that. Now, all of these

26:39

technologies create electricity

26:39

at times when it's not needed,

26:43

right. So hydro runs at night,

26:43

nobody uses electricity at

26:46

night, windmills, mostly run at

26:46

night, nobody needs electricity

26:50

at night. And the same holds for

26:50

nuclear power, nuclear power is

26:53

always on. And it doesn't create

26:53

electricity at night, it just

26:57

creates electricity at nights

26:57

when it's not needed. So you

26:59

know, Belgium had nuclear power

26:59

stations very early on, and they

27:04

have all their highways, they

27:04

have lamps, street lamps, on all

27:08

their highways, forgetting about

27:08

the, you know, the damage that

27:12

you create by light, you know,

27:12

to the environment. But the

27:15

reason why they built them is because they had all this excess electricity, and they didn't

27:17

know where to put it in, it's

27:19

actually a problem, right? for

27:19

nuclear power plants. So you

27:23

have to have batteries of some

27:23

form, which now we can have an

27:26

entire discussion about how you

27:26

know how great electric cars

27:29

actually are, because they're charged at night, and they can use all of this excess

27:31

electricity. But you can but

27:34

when you look at where these

27:34

Bitcoin mining farms are, so

27:37

where people put their server

27:37

farms in order to do the Bitcoin

27:40

mining, they put them where you

27:40

have hydro electricity, they put

27:44

them No, I would not go with

27:44

wind farms, but they've really

27:47

put them in areas where

27:47

electricity is cheap. And and

27:50

usually in abundance available

27:50

in abundance. So I would argue

27:53

if you if you run a Bitcoin mine

27:53

at a hydro dam at night, right?

28:00

You know, I you cannot go out

28:00

and say that this is a waste of

28:05

electricity as such, to the same

28:05

degree as it would be if you run

28:09

it during the day at a coal

28:09

factory. So the same holds for

28:15

nuclear power. So if you use

28:15

excess electricity for that

28:18

purpose, maybe it's not so bad.

28:18

Having said that, these farms

28:22

also create a lot of heat. So

28:22

that, you know, contributes to

28:25

global warming. So right. Now,

28:25

all I wanted to say here is that

28:29

it is not a it's not entirely

28:29

accurate. If you just look at

28:33

the overall energy consumption

28:33

say, Well, this is all terrible

28:36

if you have to build new coal

28:36

mine coal plants in order to to

28:39

use this. That is not the right

28:39

view on this one. But over time,

28:44

we want to get rid of this proof

28:44

of work protocol, for sure.

28:48

Right. So let's

28:48

tie this back to the incentives

28:50

that we talked about from miners

28:50

to why would they commit all

28:53

these resources to doing this?

28:55

Well, there's two things that they get right. So first, they get fees from users,

28:57

that is in a theorem is now a

29:00

major source of income, it's on

29:00

the order of several million

29:03

dollars a day, right. And the

29:03

second thing is, is that every

29:08

time you create a block, you get

29:08

to give yourself a reward for

29:12

it. And that reward is coming in

29:12

for Bitcoin and your bitcoins in

29:16

ether, it comes in New eath it's

29:16

sometimes referred to as the

29:19

Coinbase. reward. Right? So and

29:19

that all that means is you

29:23

basically create or you mint,

29:23

new cryptocurrency at that

29:27

point.

29:28

And so let's

29:28

talk about parallels to

29:31

traditional mining industries

29:31

such as, let's say gold. So,

29:36

with gold, if you take a look at

29:36

all the gold that has ever been

30:16

extracted from the earth,

30:16

compared to the rate of

30:19

extraction today, you have stock

30:19

versus flow, and that ratio is

30:23

about 50 to one. And it's

30:23

getting harder and harder to

30:28

find more gold, right? Yeah, to

30:28

expend more energy and resources

30:31

to to find the next, you know,

30:31

tonne or whatever. And with

30:36

Bitcoin, part of the thinking

30:36

behind building it, use some of

30:40

those principles and so that

30:40

there is a finite number of

30:43

coins that could ever be mined.

30:43

And the reward decreases over

30:47

time. I think. So, can you

30:47

explain how that works and how

30:51

they build scarcity into the

30:51

system?

30:55

Well, you know,

30:55

this is essentially okay. So, so

30:58

first let me let me just say one

30:58

thing quickly, e theorem

31:01

actually has no limit to it,

31:01

right? And many blockchain

31:03

networks that are built now I

31:03

don't have that limit. This is

31:06

really something unique to

31:06

Bitcoin. Okay. And it was a bit

31:10

of a so this is where technology

31:10

sort of get mixed with

31:12

philosophy right of what they

31:12

thought was right and wrong. So,

31:17

you know, the so part of this

31:17

white paper of satoshis was that

31:22

you have a limited supply of

31:22

Bitcoin. And it sort of came at

31:25

the time, the financial crisis

31:25

when, you know, there was, you

31:29

know, this whole talk about

31:29

flooding of markets with extra

31:32

money, and so on and so forth. I

31:32

think there was a lot of

31:34

misconceptions about what that

31:34

actually meant and how it works.

31:36

But let's just take that aside,

31:36

right. So the way the Scarlet is

31:41

recreated, it's essentially it's

31:41

an automated process. You know,

31:46

there's a Bitcoin runs on a

31:46

protocol, which is agreed upon

31:49

by anybody who does the mining.

31:49

And so according to this

31:56

protocol, the amount of Bitcoin

31:56

that you can give yourself and

31:59

the block shrinks. Every I

31:59

forgot about this. Now, I don't

32:05

know the numbers that contract

32:05

them, but it's, I think it's

32:08

about every half year or so, or

32:08

every year, and here is is not

32:12

in terms of time, but it's in

32:12

terms of the number of boxes

32:14

that being created, the reward

32:14

rings, and eventually goes to

32:19

zero. Now, if you think about

32:19

money, this is not a great way

32:25

to think about money, right?

32:25

Because just imagine that you

32:30

doubled your population that

32:30

wants to do economic activity.

32:35

If if all these new people would

32:35

want to use money in the future,

32:39

then they they just need the

32:39

coins available to themselves.

32:43

And so if you have a limited

32:43

number of coins that are

32:45

available, I think this is a

32:45

problem, right? Because you you

32:47

have scarcity in the coins, and

32:47

that all of a sudden creates

32:51

value to holding on having these

32:51

coins all by itself. And that's

32:56

a problem, right? Because

32:56

Because you know, the act of

32:58

holding money should not be

32:58

something that is that is

33:02

valuable. So that's let's go to

33:02

history for one second to

33:06

Canada. So in Canada, when we

33:06

were still a colony, we got our

33:12

money from from the UK, right,

33:12

it had to be shipped over with

33:16

ships. And you know, Canada was

33:16

a growing economy as a growing

33:20

country. And we had shortage of

33:20

money. So there was just not

33:24

enough money coming into the

33:24

country for people to have it in

33:27

circulation. And for that

33:27

reason, people had to find other

33:30

ways how to pay. So then if you

33:30

go to the Bank of Canada Museum,

33:33

they actually had playing cards

33:33

that they use, you know, like

33:35

your poker cards, the or the

33:35

equivalent of it, they use that

33:40

as a way how to create money as

33:40

an IOU so that you could

33:44

actually have enough money flows

33:44

going on, even though there was

33:48

no physical money available to

33:48

you. And so, but that tells you

33:52

is that there was so this

33:52

essentially is like printing new

33:54

money, right? And so with

33:54

Bitcoin, if you really wanted to

33:57

run Bitcoin as money as real

33:57

digital money, for people in a

34:03

world economy, in particular, in

34:03

a growing world economy, that's

34:06

never going to work. Right? This

34:06

is conceptually wrong. Right?

34:10

Yeah. And I

34:10

think that, that has been one of

34:14

the one of the issues, a lot of

34:14

people saying this is the reason

34:17

why it has value. But I think

34:17

that has also led to why as you

34:21

said, there's so many people are

34:21

willing to just sit on coins and

34:25

think of them more as

34:25

investments as a mean, instead

34:28

of as a means of exchange of

34:28

value. And so this presents an

34:33

economic problem in the long

34:33

run, because ever, as you said,

34:35

growing number of people, and a

34:35

finite number of coins, at some

34:39

point, it could be an issue. So

34:39

let's let's

34:42

not, let's just

34:42

one thing, just think about this

34:45

through to For instance, if you

34:45

had a network, like aetherium,

34:48

which started in a crowdfunding

34:48

campaign, so what you do in a

34:51

crowdfunding campaign, you can

34:51

say, basically, say the network

34:54

as a whole is worth, I think it

34:54

was $150 million. And let's

34:58

assume that this number is

34:58

constant, right? When you give

35:03

people the miners a block

35:03

reward, what you do is you

35:06

create essentially dilution of

35:06

the existing coins. And what you

35:10

therefore do is you pass in

35:10

value on from everybody else in

35:16

the network, to the miners, for

35:16

the service of maintaining and

35:19

securing the network. That

35:19

sounds actually it's pretty cool

35:22

idea, right? So it's important

35:22

to think that if each eath, for

35:26

instance, will be worth $1, and

35:26

you create a new issue new ease,

35:31

it doesn't mean that you give

35:31

people $1 worth of an IP,

35:34

because that will be creating an

35:34

out of thin air, what you do is

35:37

you create basically, you know,

35:37

if you say over a year, you

35:40

create an extra 100 50 million,

35:40

then each eath would be worth

35:44

half $1 at the end of this year.

35:44

And so all that you've done is

35:48

you shifted value from those who

35:48

have the coins to those who

35:52

maintain the network, which is

35:52

so this is actually the economic

35:56

mechanism that underlies that

35:56

idea. Now, you know, obviously,

36:00

there's questions of what the

36:00

value of the network of a hold

36:03

is right? But conceptually, this

36:03

is actually pretty clever.

36:06

They're Bitcoin on the other

36:06

hand, Bitcoin, on the other

36:09

hand, was basically created out of thin air.

36:12

Right. And so my

36:12

last question on the incentives

36:15

for the Bitcoin blockchain is

36:15

Once because there's a finite

36:18

number of coins. At some point,

36:18

you will not get rewarded with a

36:21

new coin being minted by adding

36:21

to the blockchain. So once that

36:25

point has been reached, what

36:25

would be the incentive for all

36:29

the nodes, the mining nodes to

36:29

ensure the integrity of new

36:33

transactions on on the

36:33

blockchain.

36:36

So twofold. Number

36:36

one, they get fees from the

36:39

miners and up on the miner from

36:39

the users right now. But if you

36:42

can, if you think about the

36:42

amount of fees that are

36:45

currently paid, compared to what

36:45

the what the value of the coin

36:50

base reward is, ignoring the

36:50

dilution effect, it's about the

36:55

fees make up only about 5% of

36:55

the mining rewards currently. So

37:00

that would have to be in some

37:00

form, you know, be switched to

37:05

fees, that would make Bitcoin

37:05

transactions really expensive.

37:09

But keep in mind that the miners

37:09

are usually long term players,

37:12

so they actually also owners of

37:12

the network. So in that sense,

37:16

they actually have a fixed stake

37:16

in it. And so they will have an

37:19

incentive to continue operating

37:19

this network.

37:22

So my my gut

37:22

take on it so far is that you

37:26

seem much more enthusiastic

37:26

about Ethereum than you are

37:30

about Bitcoin. Is that fair?

37:32

Yeah, absolutely.

37:32

Because I think Bitcoin has no

37:34

functionality with aetherium or

37:34

related networks have a lot of

37:38

things functionality, they, they

37:38

actually have some really cool

37:42

ideas, so that you want to talk

37:42

about those, because I can get

37:45

very excited about that.

37:47

They absolutely

37:47

do give me give me an example of

37:50

an application that that makes

37:50

you so excited about, you know,

37:54

aetherium versus Bitcoin.

37:56

So I am a I've

37:56

come from the, from a trading

38:02

background, that's what my what

38:02

my research was on. And this is

38:04

why I got interested in, in

38:04

crypto currencies. And I did not

38:08

get excited about the, the

38:08

currencies as an as a new

38:13

trading tool, or as a new asset

38:13

to trade. What I thought is

38:17

actually really cool is the way

38:17

how you can trade them on this

38:20

decentralized network. So let me

38:20

give you just a big round of of

38:25

how a trade works in a normal

38:25

equity market. So if you and I

38:29

want to trade say, AB x, right,

38:29

so Barrick Gold, right? So let's

38:33

say I want to sell it to you and

38:33

you want to buy it, by law, we

38:36

cannot actually agree mutually

38:36

on exchange in Israel, right, we

38:40

have to actually go through the

38:40

normal channels, which means I

38:42

have to go to my broker, my

38:42

broker sends an order to a stock

38:45

exchange, right. And so you have

38:45

to do the same thing, you have

38:48

to go through a broker enter a

38:48

stock exchange. And it's

38:51

entirely possible that between

38:51

you, within your broker and the

38:54

stock exchanges, actually other

38:54

intermediaries, could be tech

38:57

intermediaries could be also

38:57

that, you know, your broker uses

39:00

another broker to, you know, get

39:00

the trade down. So then, if we

39:05

happen to agree on a price, the

39:05

stock exchange really just

39:08

collects information, it doesn't

39:08

really do anything other than,

39:10

you know, matching us, then they

39:10

send that information to the

39:14

clearing and settlement agency

39:14

that then arranges for the

39:17

clearing and settlement, which

39:17

involves custodian banks that

39:20

hold our stock certificates. And

39:20

there has to be a change in the

39:25

beneficiary ownership of who

39:25

owns the stock. And, you know,

39:30

critically actually, nobody, we

39:30

call it actually you and I, per

39:34

se, but it's actually the owner

39:34

is essentially technically the

39:36

brokerage because they have, you

39:36

know, hold your assets. And then

39:40

we have to also do, and this is

39:40

only for the stocks for the

39:43

stocks itself, we still have to

39:43

change the money, which involves

39:46

the entire payments network,

39:46

going via the Bank of Canada

39:49

ledger. And so all of this takes

39:49

three days or two, two days to

39:53

come to an end right.

39:55

Now, this is why

39:55

we get the settlement of you

39:58

know, time of trade Plus, you

39:58

know, two days, three days

40:01

getting shorter, but still days.

40:03

days. Exactly.

40:03

Right. And you go you know, it's

40:07

2021. Why? Right? I mean, you

40:07

know, if computers can do this

40:12

directly, and this is precisely

40:12

what blockchain does. In a

40:15

blockchain, here's what you do

40:15

is you create a contract, think

40:19

about this. It's almost like an

40:19

escrow, right. So you basically,

40:22

what you do is you create an a

40:22

contract into send this way I

40:25

want to sell it to you. So I

40:25

take my shares, I put them to

40:28

that contract. And it's a conditional contract, which says, if somebody else sends

40:30

money to that contract, the

40:34

amount that I want, then I give

40:34

that person my share in exchange

40:39

for the money. And so now all

40:39

that you have to do is you have

40:42

to you see this contract, you

40:42

sent the money there. And the

40:45

contract does what's referred to

40:45

as an atomic swap. So, you know,

40:49

the shifts, gives you the share,

40:49

and gives me the money all in

40:52

one go.

40:53

And so is this

40:53

what is called a smart contract.

40:56

That is essentially what a smart contract is. It's just a piece

40:57

of code. Really, right,

41:00

right. You know,

41:00

if you were to create a diagram

41:04

of all the participants required

41:04

to facilitate the exchange of

41:07

shares between one person and

41:07

another, there are, you know,

41:11

six, seven, maybe eight

41:11

different intermediaries

41:14

involved in that just with the

41:14

exchange and then Of course,

41:17

then there's also the payment

41:17

networks, as you said, and all

41:20

of that could be replaced with

41:20

this, you know, smart contract

41:25

that could execute it in seconds.

41:28

Exactly. It's

41:28

phenomenal. And now in here,

41:32

yeah, so this is, I mean, this

41:32

is just a single contract, and

41:35

we still have the problem of

41:35

having to find one another.

41:37

Right. So if you think of

41:37

trading alone, you don't solve

41:41

the solve the use of the tech

41:41

problem, but you don't solve the

41:43

liquidity problem, which is

41:43

actually quite critical, right?

41:46

Because, you know, two people

41:46

finding one another on the

41:49

market is actually pretty hard.

41:49

And here's where, you know, the

41:53

blockchain network has created

41:53

an even better solution. And

41:57

what that is, essentially is

41:57

referred to as automated market

42:00

makers. And so now, here's how

42:00

that works. Imagine you have

42:06

cryptocurrencies or and some

42:06

other token that you you know,

42:10

both hold, what you can do is

42:10

you can deposit them into a

42:14

smart contract, which collects

42:14

the same pairs of, of

42:19

cryptocurrencies or of a digital

42:19

items, you know, you can imagine

42:23

the same thing with stock

42:23

certificates, of course, and you

42:25

put this all into a smart

42:25

contract. And then individuals

42:29

can trade against that smart

42:29

contract at any given point in

42:32

time and buy or sell any of

42:32

these items that are in this

42:36

smart contract, add in automated

42:36

Lee created price, which

42:41

reflects the liquidity of the

42:41

entire contract. So the system

42:47

that I'm referring to here is

42:47

something called uniswap. This

42:50

is like the, you know, automated

42:50

market making 1.0. There's

42:54

actually clever mechanisms

42:54

already out there. But, but the

42:58

genius of this is, essentially

42:58

what you create is the

43:01

equivalent, if you want of a

43:01

bank, right, because what the

43:04

bank really is, is a is a is a

43:04

gigantic liquidity generator, it

43:08

takes deposits from people, and

43:08

it takes, you know, and then

43:11

gives out loans, which, you

43:11

know, it's sometimes it

43:15

facilitates interactions and

43:15

financial interactions in that,

43:20

too, is now being put into a

43:20

smart contract, which is, you

43:26

know, really a very, very cool

43:26

idea and, and, and development.

43:31

So it's, it

43:31

seems like the the applications

43:35

of this technology, we're just

43:35

starting to scratch the surface.

43:40

But before we get to that point,

43:40

I want to talk about regulation.

43:45

And, again, I think there's a

43:45

lot of people who look at the

43:50

underlying technology, and the

43:50

impact that will have on society

43:53

is being tremendous. And there

43:53

are other people who look at,

43:57

for example, Bitcoin, and other

43:57

coins, as investment vehicles,

44:03

right, this is a way to grow

44:03

their money right now with their

44:05

speculative. And there's a

44:05

question as to how do you

44:09

regulate? Who is in charge of

44:09

regulating? What is it a money

44:12

services business? Is it you

44:12

know, just currency exchange? Is

44:16

it something else? And then, you

44:16

know, we're going to talk about

44:21

central bank, digital loonies or

44:21

digital currencies, and what

44:25

your proposal was for what

44:25

things could look like. And so

44:28

my overarching question really

44:28

about regulation? The existence

44:34

and proliferation of Bitcoin is

44:34

this. If there are central banks

44:39

around the world who are looking

44:39

at creating their own digital

44:43

currencies, because there are

44:43

many who are exploring this

44:45

right now, what does that mean

44:45

for Bitcoin and the adoption?

44:53

And lifespan of Bitcoin going

44:53

forward? Does that this debt

44:57

displace these unregulated?

44:57

cryptocurrencies, when you have

45:03

central banks taking this

45:03

technology and saying, No, we're

45:06

going to take all the things that are great about this technology, plus government

45:07

oversight and regulation that we

45:11

can see. And because that's what

45:11

we're going to accept and

45:14

transact on and except for

45:14

paying taxes. That's all there

45:17

is going to be. What do you see

45:17

happening in the future when it

45:20

comes to Central Bank digital

45:20

currencies versus the current

45:24

swath of cryptocurrencies that are out there?

45:26

So what you're

45:26

really asking is, Do I have time

45:30

to talk to until 2022?

45:33

Yeah.

45:36

Because there's a lot of questions. There's a lot of things. Yeah. And very

45:37

interesting ones. So let's so

45:43

let's start.

45:44

That was probably the worst question I've ever asked in the history of

45:45

this podcast. There's so many

45:49

different parts going on. But do

45:49

your best you're you know,

45:53

you're the smart one here.

45:54

Well, you know, what, if you had been a student of mine, I would just say, can

45:56

you ask so I don't understand

45:59

your question. Can you formulate

45:59

it again? Just just frustrated

46:04

with

46:05

your teaching

46:05

pedagogies. I see. Interesting.

46:08

Yeah, it's it's

46:08

always a battle when people

46:11

challenge you with a question

46:11

you usually ask a question back,

46:13

but in a very subtle way to

46:13

flatter the other side.

46:16

All right, well

46:16

do the best with what you can

46:19

with that dog's breakfast have a

46:19

question I asked you?

46:22

Well, let's start

46:22

with a regulation as a first

46:24

step, right. So, if you if you

46:24

take a step back and just think

46:30

about what the what the founders

46:30

of aetherium wanted to do is

46:32

that they had no intention of,

46:32

you know, creating money and,

46:38

and, you know, whatever, money

46:38

laundering machine or anything,

46:42

all that the one has to do is

46:42

create some technology, right?

46:45

And, and, you know, people do

46:45

this all the time, right? People

46:48

create any number of pieces of

46:48

code. And there's actually some,

46:52

you know, when you create a piece of code, there's actually a protection that you have about

46:53

it. Right. So, you know, it's,

46:57

there's, there's the I think

46:57

it's called, what does it did a

47:01

gmu license or whatever it's

47:01

called, right? So you basically

47:04

take if you want to use this code, use it, but I'm not responsible for anything that

47:06

could go wrong, right? That's

47:08

kind of the approach to people

47:08

talk, except that becomes a

47:12

little iffy when you are both an

47:12

operator and somebody who

47:16

develop this code, right. And

47:16

this is how they basically try

47:18

to grab people in terms of, you

47:18

know, whatever the activity is.

47:24

But here's where this gets

47:24

difficult. In the following

47:28

sensors, you because you touch

47:28

about trade value transfers, and

47:32

therefore you touch what is

47:32

inherent to the financial

47:36

system. Right? And that is a

47:36

very, very heavily regulated

47:39

market. But the regulations all

47:39

have developed over time

47:44

organically, right? I would

47:44

argue, so in the sense of that,

47:48

okay, so we have banks, banks,

47:48

you know, get established, banks

47:52

use that banks have used to

47:52

issue their own money, we

47:55

realize that created a number of

47:55

problems, then we have a new

47:58

regulator, which regulates what

47:58

money can be there, then you

48:01

regulate what kind of conditions

48:01

you can put on loans, and so on,

48:05

and so forth. So this is like,

48:05

one piece builds on the next

48:07

piece, both on the next piece

48:07

built on the next piece, and

48:10

then you tried to take this

48:10

regulation, which has

48:12

essentially developed, let's

48:12

say, since the late 1800s, at

48:16

least, and you try to put that

48:16

on top something which is

48:20

conceptually very different,

48:20

right, because the concept of a

48:24

bank is, you know, it's an it's,

48:24

it is a entity of power between

48:31

that sits between borrowers and

48:31

lenders, essentially, right,

48:34

because if your deposit is a few

48:34

100, as a deposit, I'm

48:37

implicitly a lender. And as you

48:37

know, and then you are the

48:40

borrower, right. And so you kind

48:40

of have to regulate how this is

48:44

done, you have a fractional

48:44

banking system, which, you know,

48:48

which means that you need to

48:48

make sure that if you, you

48:50

always lend out more money than

48:50

what you have in your coffers.

48:53

So you want to make sure that at

48:53

any given point in time, you

48:55

have enough solvency so that

48:55

when you know, when when people

48:59

want to have their money back that, you know, you're not going to falter. Because we know what

49:01

if that happens, we have riots

49:04

on the street, all of those

49:04

things, right? There's a lot of

49:06

concerns around this. This is

49:06

why we have regulations. Now the

49:10

first question you have to ask

49:10

is, should that really apply to,

49:15

you know, to to this new world?

49:15

And why would it apply? It's

49:19

not. So just because there's

49:19

items of value doesn't mean that

49:22

the concerns that lead to a

49:22

particular type of regulation

49:25

apply in the same sense, right?

49:25

So if you have a smart contract,

49:28

for instance, which effectively

49:28

is a loan contract, all the

49:33

conditions are objectively

49:33

visible, there is nothing hidden

49:37

in it, right? So you can see

49:37

everything that you get into it,

49:42

which is different from when you

49:42

go and have a contract in you

49:46

sign a contract with annoying

49:46

entities such as such as a bank,

49:49

they may actually know something

49:49

that you don't know, this is the

49:51

real big problem. And this is

49:51

where you get regulation to

49:54

solve the imbalance of power.

49:54

That is not the case when you

49:58

interact with with a piece of

49:58

code, I would argue, right? So

50:02

should we apply the same rules

50:02

for that? I'm not sure, I think

50:05

we should really reconsider some

50:05

many of the rules that we have

50:08

in place. Now at the same time.

50:08

You can also say what somebody

50:14

from the OSC said to me is just

50:14

because you sit, you know, in

50:17

your pajamas in your basement

50:17

and say, Oh, I'm so innovative

50:19

doesn't mean that the rules

50:19

don't apply to you. Right, yeah.

50:23

So, you know, you got to be

50:23

really cautious about but I

50:26

think you and I think the right

50:26

way to think about this is to be

50:30

a little hands off and just see

50:30

how it pans out. And not to slap

50:34

people right away with

50:34

regulation. But I can tell you,

50:38

you know, so just imagine, for

50:38

instance, this uniswap contract

50:42

that I talked to you about this,

50:42

this this trading contract

50:45

effectively, what this contract

50:45

does is it takes custody of

50:48

assets, right? And then it has a

50:48

particular rule that is assigned

50:51

to the running of these of these

50:51

interactions. And when you take

50:56

the custody of the assets, the

50:56

question is, Are you already a

50:59

bank? Does the bank regulation

50:59

apply to you? Do you have what

51:03

regulatory compliance Do you

51:03

have to follow? This is a really

51:07

tricky question. That people who

51:07

want to just create a particular

51:11

tool cannot answer cannot

51:11

possibly answer. And to get a

51:14

legal opinion, I probably have

51:14

to spend several months dollars

51:17

and they may still not get an

51:17

answer from from anybody. Right?

51:20

So in that sense, I am, what I is what I think.

51:23

And what I really worry about is

51:27

that people use regulation not

51:27

in the sense of Oh, we have to

51:30

protect people, which is really

51:30

what regulation is, therefore,

51:34

it's used as a way oh, we have

51:34

to, we have to protect the

51:36

incumbents, because God forbid,

51:36

they may lose some income by,

51:40

you know, people trying to build

51:40

technology, which could replace

51:43

them. Right. So, because so last

51:43

thing I'm gonna say. So this is

51:47

the there's a very famous

51:47

economist Stigler, who said,

51:52

this, he was, you know, he was

51:52

basically the godfather of

51:56

economic analysis of

51:56

regulations, if you want. And he

51:59

said, regulation is made for

51:59

industry, by industry. And

52:05

that's all regulation that you

52:05

see that is in place has been

52:09

created by industry players.

52:09

It's not like there's a bunch of

52:13

lawyers that sit together from a

52:13

regulatory office and say,

52:15

here's what we come up with.

52:15

There's always a consultation

52:17

process. And the consultation

52:17

process is always by interested

52:21

parties, usually made by, you

52:21

know, the incumbents. So, I

52:27

could go on on a rant forever,

52:27

for instance, about open banking

52:31

regulation in Canada, but let's

52:31

just let's just say this, right,

52:34

so what incumbents would like to

52:34

do is unless they see an upside

52:39

for them a definite guaranteed

52:39

upside and guaranteed one,

52:42

right, not a possible one, they

52:42

they will try whatever they can

52:45

to kill new, you know, agree

52:45

with which would, which would

52:49

impede on their on their

52:49

playground? So

52:51

yeah, of course,

52:51

of course. Okay, the last thing

52:54

that I want to leave off with,

52:54

although it sounds like you

52:57

wanted to say something else, so

52:57

I will not

52:59

want to do now you

52:59

wanted to talk about the cbdcs.

53:01

Right. So you kind of did from

53:01

go went from regulation to

53:04

cbdcs?

53:05

Yes, yeah. So

53:07

let's talk about that a little bit. I mean, we set up some time. I mean, you

53:09

can always cut me out, right?

53:13

No, I look

53:13

forward to hearing your thoughts

53:15

on this. Because again, that's

53:15

that that was the impetus for

53:18

for bringing you on because I

53:18

wanted to learn more about where

53:21

central banks stand on their

53:21

thoughts on on central bank

53:26

issued digital currencies, and

53:26

what your contributions were to

53:30

those proposals to the Bank of Canada.

53:33

So, so there,

53:33

again, this, this is a broad

53:36

area with many different

53:36

components that one should think

53:38

about, and I think I think it's

53:38

fair to say that the central

53:43

banks were actually not getting

53:43

into cbdcs thinking so much

53:47

because of Bitcoin or the like,

53:47

but it's more, you know, General

53:53

developments that happen in

53:53

other parts of the of the

53:55

financial world. So I think,

53:55

seeing what friends and payments

54:00

are have done in India and in in

54:00

China is much more interesting

54:06

for a cbdc on developments of

54:06

cbdcs, then thinking about

54:10

Bitcoin or aetherium, even

54:10

though there's a certain common

54:13

thread. And so let me just say

54:13

the first thing, and that's

54:16

important, I think it is what's

54:16

not gonna happen, what was very

54:21

unlikely to happen is that a

54:21

cbdc, as such as the

54:26

alternative, not alternative as

54:26

a substitute to cash is issued

54:30

on something like aetherium

54:30

model, this is not gonna happen,

54:35

right? And the reason is, is

54:35

it's going to be a systemically

54:39

important technology, right, or

54:39

infrastructure, which has to be

54:44

under the control of a

54:44

government. And a cryptocurrency

54:48

and a decentralized network

54:48

simply is not. Now I think

54:52

there's there is merit to

54:52

central banks issuing digital

54:58

cash on aetherium, but not as

54:58

their cbdc, their single thing

55:01

that the one they have, they

55:01

could do it in order to enable

55:05

commerce. But it doesn't even

55:05

have to be a central bank doing

55:07

that you could actually have,

55:07

you know, a province could issue

55:11

you know, mine alone. But what's

55:11

called like the T bill, right?

55:14

So you could do a $1 denominated

55:14

t bills and issue those on the

55:18

blockchain, and then they will

55:18

be essentially the same as

55:20

money. Right? They could do that

55:20

if they wanted to. So but what

55:25

I'm saying with that is cbdcs,

55:25

will always run on a network,

55:27

which is controlled by, you

55:27

know, at least in large part,

55:32

where are these supersede overs

55:32

overseen by a central bank,

55:35

where they have the ability to

55:35

know exactly who is what actor?

55:38

That's, that's the bottom line

55:38

of that, right. So, but that

55:42

does not mean that this new

55:42

system cannot interact, for

55:45

instance, with the likes of an

55:45

Ethereum blockchain is very much

55:48

to the contrary, I think,

55:48

actually, if we had a cbdc this

55:52

would actually make the use of

55:52

something like aetherium or, or

55:57

these decentralized blockchains,

55:57

generally speaking, even more

56:00

powerful, and even more interesting.

56:03

Let me let me

56:03

give you a very hypothetical

56:05

scenario. Let me know how far

56:05

off the mark this is. Let's take

56:10

a look at taxpayers in Canada.

56:10

And let's say government wanted

56:18

to enact a program similar to

56:18

serve where they wanted to give

56:21

cash directly to certain people

56:21

who qualified for it. Is there a

56:25

possibility with technology like

56:25

this, that you would be able to

56:28

say things like, Listen, we know

56:28

that there are government

56:33

benefits for people who have

56:33

kids who don't contribute to an

56:38

RSP, but their incomes below a

56:38

certain level. And so they have

56:41

access to what's called the

56:41

Canada learning bond, you don't

56:44

need to make a contribution to

56:44

get the benefit. It's designed

56:47

for lower income households. But

56:47

so many people don't get it

56:50

because they don't know to apply

56:50

for it. But the government

56:53

could, if they had, you know,

56:53

this super blockchain that takes

56:57

into account everything they

56:57

know about taxpayers, they could

57:00

file tax returns for them, they

57:00

could say, this person has a

57:04

child, there's a cin number been

57:04

registered, they would get this

57:07

Canada learning bond payment, we

57:07

want to give people serve

57:10

because they've lost their

57:10

income, we can see when their

57:12

income stops, and we could give

57:12

them money. Is that something

57:15

that could be done with

57:15

technology like this? And how

57:18

many centuries would that take?

57:21

But of course, you can do that. There's no question about it, you you, I mean, you

57:22

want to be slightly cautious in

57:26

separating knowledge, right? So

57:26

because I think you need to

57:30

maintain to have the ability to

57:30

maintain people's privacy, but

57:32

that even without even with what

57:32

you said, it could be done,

57:35

right, so you can, you know,

57:35

keep people's financial

57:38

activities with cbdcs entirely

57:38

private and at the same time,

57:42

you can still give them the

57:42

benefit of everything that you

57:45

described. Now, what you

57:45

described sounds very, to you

57:49

may sound like utopia. utopia is

57:49

the word. But so as part of this

57:56

is already a reality in say

57:56

Scandinavia, right. So when you

58:00

are self A fun fact, I spent a

58:00

year in Denmark, you don't

58:05

really file your tax return as

58:05

such, like as you have to do

58:07

here, we have to enter all the

58:07

information is the other way

58:11

around. Basically, they tell you

58:11

look, this is what we have for

58:13

you, do you have anything to

58:13

add? Right? So so because they

58:17

know all the pieces of

58:17

information they're already

58:20

collected, simply because

58:20

effectively they have a digital

58:24

system with digital identifiers.

58:24

So they actually know an awful

58:27

lot about what you do, then. So

58:27

if you go to a bank, you have a

58:29

bank account, you have a, you

58:29

know, you have a savings account

58:32

or whatever, you have a

58:32

brokerage account, and you do

58:35

your stock trades, they would

58:35

know what you have done. I mean,

58:38

not not in all details, but

58:38

basically the bank, would we

58:41

make a report and say, here's

58:41

how much interest his person

58:43

earned, and so on and so forth.

58:43

Now we have this technically to,

58:47

it's just that the pieces are

58:47

not put together. You know,

58:51

which which could be right.

58:53

And of course,

58:53

if you did sort of enact the

58:58

technology and the linking piece

58:58

databases to do this, you would

59:02

then cost industry a lot of

59:02

money who get paid, you know,

59:06

fees to prepare these things and

59:06

whatnot, which is a huge

59:09

impediment, as we've talked about.

59:11

Yes, it is,

59:11

actually. So I think this is a I

59:13

think there's almost I heard, I

59:13

may be wrong on this, it is

59:17

almost a deal that the CRA made

59:17

with, you know, tax accountants,

59:22

ha ha block and service, or

59:22

whatever the software service

59:25

providers have not actually do

59:25

do, you know, provide their own

59:29

mask for enter all in entering

59:29

all the tax information? Which

59:32

is ridiculous, right? If you ask

59:32

me. Yeah. But well, you know,

59:38

why do we have to Why do I have

59:38

to pay an external service

59:40

provider to do my taxes? It's

59:40

just ridiculous. Right? And this

59:43

is, this isn't between me and my

59:43

government, there should be no

59:46

intermediate, no interested

59:46

third party in between.

59:49

And I think

59:49

there are other current my

59:51

partner lives in the UK. And she

59:51

says, it's basically your taxes

59:55

are done for you. And you only

59:55

file if you disagree, or you

59:59

want to disagree and say, Hey,

59:59

no, I've got extra credits to

1:00:02

apply. But for the most part,

1:00:02

it's just sort of done.

1:00:06

That is great. Actually, the UK I was there too. Obviously, as a student, I

1:00:07

thought that was the best experience ever alive. Yeah,

1:00:09

because it was just like, it was

1:00:13

a one piece one, like three

1:00:13

numbers Enter to me, obviously,

1:00:16

because I was, you know, low

1:00:16

income student and all that, but

1:00:18

I was just like, wow, this is

1:00:18

how this could work. This is

1:00:21

amazing. Now, having said that,

1:00:21

I think one has to I think we

1:00:25

want to be slightly cautious

1:00:25

though, right? Because there's

1:00:28

this huge temptation, especially

1:00:28

for governments to collect all

1:00:32

kinds of data and to know a lot

1:00:32

about you I feel very

1:00:34

uncomfortable with that. And I

1:00:34

think everybody should feel

1:00:37

uncomfortable with that. You

1:00:37

know, not to put too fine a

1:00:42

point to it, but when I get my

1:00:42

census form, and they asked me

1:00:44

about my religion, I actually

1:00:44

you know, it just makes my head

1:00:49

set up right because it's what

1:00:49

What business do they have to

1:00:52

know my religion and you know,

1:00:52

is there a possibility that at

1:00:55

some point we get a government

1:00:55

which you know, misuse abuses

1:00:59

the data and then you know,

1:00:59

rounds me up because I I say I'm

1:01:03

I believe in the force and Majid

1:01:03

Mr. saw something

1:01:08

you know, if that's an option, I'm going to put that on there for sure. And

1:01:09

I don't know can you hear all

1:01:12

these horns in the background

1:01:12

like i think it's it's trucks

1:01:15

and cars. No, this is

1:01:17

the suburban life

1:01:17

to you. This is a lawn mower.

1:01:21

There it is. I

1:01:21

don't know what's going on

1:01:24

outside, but it

1:01:25

Oh, you have the

1:01:25

horns. Okay, so I have I have a

1:01:28

lawn mower, which is very loud.

1:01:29

I don't I don't

1:01:29

hear that at all. So, in any

1:01:32

case, I think I'll start

1:01:32

wrapping up only because I've

1:01:36

had you here for an hour. And I think no

1:01:38

one I want to say I want to say something more now. So absolutely, yeah,

1:01:39

because that's actually also

1:01:43

critical. So let me just say a

1:01:43

few things. Because we wanted to

1:01:46

talk about CBD C's. And then

1:01:46

there's things to say about

1:01:49

that, I think that that are

1:01:49

relevant also where this is

1:01:51

coming from. So first, I want to

1:01:51

say a few things. Let's talk

1:01:55

about China for a moment and

1:01:55

WeChat. Right. So I'm not sure

1:01:58

if you've been to China

1:01:58

recently. there if you go there,

1:02:02

you usually have to use either

1:02:02

alipay or WeChat. Pay to make

1:02:05

any payments. Most stores don't

1:02:05

accept credit cards or actually

1:02:08

not even cash, right. So you go

1:02:08

into a restaurant, you sit down

1:02:12

at the table, you take out your

1:02:12

app, you order on your app,

1:02:16

right, the the food arrives at

1:02:16

some point, and then you just

1:02:19

leave, because they have

1:02:19

basically solved so many they

1:02:23

have been able to integrate

1:02:23

payments with a lot of services.

1:02:28

And essentially WeChat as a as a

1:02:28

chat software. And they have

1:02:31

they created the ability to use

1:02:31

that self chat software to do

1:02:35

make to make payments. And what

1:02:35

that allowed China as a whole

1:02:38

was to basically leapfrog over

1:02:38

several development cycles that

1:02:42

we have in the Western world. So

1:02:42

they don't need credit cards,

1:02:44

they don't need debit cards,

1:02:44

they don't need this whole

1:02:47

separate system of you know of a

1:02:47

network where you have lots of

1:02:50

different parties that benefit

1:02:50

of you tapping your cards, and

1:02:53

so on and so forth of a visa

1:02:53

system, none of that everything

1:02:56

goes with his one app. And what

1:02:56

this app is effectively it

1:03:00

creates a common resource which

1:03:00

can be used by multiple service

1:03:05

providers. And many of the

1:03:05

services that are provided on

1:03:08

WeChat pay actually are provided

1:03:08

by we reach our pay, but by

1:03:11

external server service

1:03:11

providers. So that as a vision

1:03:16

of thinking of a financial

1:03:16

infrastructure, as a common

1:03:19

resource is the same as what

1:03:19

blockchain really tries to do.

1:03:22

Except, you know, it's it's open

1:03:22

to anybody. And you know, it's

1:03:25

it's much more decentralized,

1:03:25

right? And then now, and now

1:03:29

let's talk about the different

1:03:29

development, which is also

1:03:31

coming our way, which is the so

1:03:31

called dm network, or

1:03:35

infrastructure or whatever it is

1:03:35

Association. It's something

1:03:40

which was founded by Facebook,

1:03:40

or initiated by Facebook, it was

1:03:44

earlier called Libra. It changed

1:03:44

its name to dm

1:03:47

o vision like

1:03:47

QRP dmdm.

1:03:53

I think the maybe

1:03:53

Yeah, maybe like the data,

1:03:55

sees the data sees the day. What's the difference? Yeah.

1:04:00

Well, but it's

1:04:00

also, to be fair, by the way,

1:04:02

Facebook actually disassociated

1:04:02

itself with it. So it's

1:04:06

basically runs by itself. Okay.

1:04:06

But, I mean, they're still

1:04:09

supporting it, I think

1:04:09

financially, but the important

1:04:13

part is, the judge will stay

1:04:13

away from it, because I think

1:04:16

they themselves realize that

1:04:16

their presence harmed actually

1:04:19

this network. But you know, that

1:04:19

again, it's the same ideas, what

1:04:26

they tried to build is a blockchain, but there would be a permissioned blockchain, where

1:04:28

service providers and so on and

1:04:32

so forth, create an entire

1:04:32

network of a new financial

1:04:35

infrastructure. So for instance,

1:04:35

Shopify as part of this over as

1:04:38

part of this Coinbase, the

1:04:38

crypto exchange as part of this,

1:04:42

our creative destruction lab at

1:04:42

U of T is part of it. And so the

1:04:46

idea is also that you create

1:04:46

this financial infrastructure as

1:04:49

a common resource that people

1:04:49

can use in order to shift money

1:04:52

around and to access particular

1:04:52

services, not just financial

1:04:56

services, but basically use this

1:04:56

network for payments as a

1:05:00

payment system. And as a digital

1:05:00

payment system. Again, you know,

1:05:04

one, which is not siloed or

1:05:04

siloed, with, you know, a

1:05:08

central entity for clearing as

1:05:08

what Currently our central banks

1:05:12

have as a role. But it is

1:05:12

something which is run, you

1:05:16

know, by many different

1:05:16

entities, collectively. And I

1:05:20

think that in particular, that

1:05:20

latter development is what

1:05:24

really supercharge the

1:05:24

development and the thinking of

1:05:27

cbdcs why people say, okay,

1:05:27

maybe there's actually maybe

1:05:30

these guys are onto something,

1:05:30

maybe this is something that we

1:05:33

should actually enable to do it.

1:05:33

Maybe our financial sector such

1:05:37

as it is, you know, wouldn't do

1:05:37

it by itself, either because

1:05:41

nobody has an incentive to do it

1:05:41

by themselves and can do it by

1:05:44

themselves, or because they're

1:05:44

just making so much money. They

1:05:47

just don't want to do it. Right.

1:05:47

But if you are government and

1:05:51

you say so in particular Canada,

1:05:51

right. So dm has its own money

1:05:55

denominated in US dollar,

1:05:55

there's also probably a coin,

1:05:58

which would be the RMB, the

1:05:58

sterling and the Euro, maybe the

1:06:02

yen, right? Not a Canadian

1:06:02

dollar. So but what you will see

1:06:07

is that people use this network

1:06:07

and say, Hey, this is really

1:06:09

this works. For me. This is

1:06:09

really useful, right? I can now

1:06:12

shift my money around fast. I

1:06:12

can make faster payments. I get

1:06:15

my refunds right away. Whatever.

1:06:15

It is right. So there's extra

1:06:18

functionality is going to come

1:06:18

your way. And at some point, the

1:06:22

the usage and the, you know, the

1:06:22

helpfulness becomes a necessity.

1:06:25

So if you want to access certain

1:06:25

services, you need to be part of

1:06:28

it. At that point, the Canadian

1:06:28

dollar becomes irrelevant.

1:06:31

Right.

1:06:31

Interesting. So, so, a number of

1:06:35

questions here, and now I'm

1:06:35

going to take you for like an

1:06:37

extra half hour. First question,

1:06:37

a Bank of Canada, central bank,

1:06:45

digital currency, five years, 10

1:06:45

years, do you think that it will

1:06:49

happen? Yes. What is the

1:06:49

timeframe? Do you think? So I

1:06:53

have no

1:06:53

inside information, I want to be very clear that whatever they say

1:06:55

publicly is also what they say

1:06:59

privately.

1:07:01

Okay, they're very

1:07:02

early about this.

1:07:02

So they say we have no plans on

1:07:04

it. You know, but we're just

1:07:04

still exploring, and we're

1:07:07

trying to prepare ourselves for

1:07:07

it. That's what everybody says.

1:07:11

Now, Brazil, put up a it's not

1:07:11

entirely a CVD system. But the

1:07:17

Bank of Brazil, the central

1:07:17

bank, put out a real time

1:07:21

payment system, which is akin

1:07:21

to, you know, at least the first

1:07:25

stage of a cbdc. And they

1:07:25

created that within nine months.

1:07:29

Okay, so it's not a

1:07:29

technologically hard problem,

1:07:32

right. And Brazil is our is a

1:07:32

much bigger country than Canada.

1:07:38

Right? I mean, you know,

1:07:38

landmass wise, obviously Canada

1:07:41

is bigger, but Brazil is, is

1:07:41

much more dispersed in terms of

1:07:44

where people live. And it's

1:07:44

probably much more complicated,

1:07:48

because most likely, we could

1:07:48

argue it's not as

1:07:50

technologically advanced as us,

1:07:50

I hope at least we can say that.

1:07:53

Right? Great. Yeah. So they can

1:07:53

pull it off. Clearly, Canada can

1:07:57

pull it off clearly. Right.

1:08:00

And when it

1:08:00

comes to, let's say, different

1:08:03

central banks launched their own

1:08:03

digital currencies, certainly

1:08:06

some of the smaller countries,

1:08:06

maybe less developed countries

1:08:09

would say, well, we're not going

1:08:09

to do it. But we could use your

1:08:12

infrastructure, is that correct?

1:08:14

Well, I would

1:08:14

argue, so if you are a small

1:08:17

country, for getting more

1:08:17

technologically advanced or not,

1:08:21

because that's actually, that's

1:08:21

not so clear what that means

1:08:25

these days anymore, right. But

1:08:25

as a small country, and you want

1:08:29

if you want to maintain power

1:08:29

over your monetary system, you

1:08:34

definitely need a cbdc you need

1:08:34

more than the US, right? The US

1:08:38

is probably good for now, right?

1:08:38

But if the US comes up with a

1:08:42

cbdc, before your small country,

1:08:42

it's entirely possible that

1:08:45

people go well, we're just going

1:08:45

to use us etc, the end, right.

1:08:49

And particularly, if you have

1:08:49

any trade with the US, as a

1:08:52

small country, money will come

1:08:52

into your country because

1:08:55

Americans buy your product,

1:08:55

right? And then so then you have

1:08:57

US dollars in the country, and

1:08:57

then all of a sudden you can

1:09:00

already have that money in

1:09:00

circulation. This is actually

1:09:02

different from even the current

1:09:02

monetary flows, right? Because

1:09:05

currently, if you have a trade

1:09:05

within with a foreign country,

1:09:09

yes, there's money, US dollar

1:09:09

essentially coming into the

1:09:12

country, but it stays with the

1:09:12

banks. When you have a cbdc

1:09:15

payment actually going on a

1:09:15

digital ledger, it's entirely

1:09:18

possible that you have the real

1:09:18

dollars available in that small

1:09:21

country. For the general

1:09:21

consumption of the population.

1:09:24

That's very different, right?

1:09:24

It's a little bit like if you if

1:09:27

you make a cash payment for

1:09:27

trade, which not not doesn't

1:09:30

happen much anymore, right. So

1:09:30

this would be a game changer for

1:09:35

small countries, but not

1:09:35

necessarily. I mean, sometimes I

1:09:38

would say, in a good way for the

1:09:38

people of the country, but for

1:09:42

governments that want to

1:09:42

maintain monetary policy power,

1:09:45

not a good thing.

1:09:46

Yeah, I was

1:09:46

gonna ask, you know, and this is

1:09:49

tying in a bunch of different

1:09:49

areas all into one. But if you

1:09:51

take a look at me, let's say the

1:09:51

introduction of the euro, and

1:09:55

all these different countries

1:09:55

and their currencies, they used

1:09:58

a common currency wasn't one of

1:09:58

the criticisms that, you know,

1:10:02

if your economy as itself is

1:10:02

doing poorly, then if your

1:10:06

currency goes down in value

1:10:06

makes it more attractive to buy

1:10:08

your stuff. And it's sort of a

1:10:08

sort of a self leveling

1:10:12

mechanism to a certain extent,

1:10:12

would you lose that if you know,

1:10:15

other countries adopted a single

1:10:15

central bank digital currency?

1:10:19

Yeah, that's exactly the problem that would arise. Right. So so in the

1:10:20

European Union, that they

1:10:25

obviously the getting the Euro

1:10:25

has many dimensions, including a

1:10:28

political one. So you kind of

1:10:28

create a little bit the thinking

1:10:31

was to create more unity. But

1:10:31

you absolutely right, if you

1:10:35

have no free movement of people

1:10:35

and have resources available,

1:10:40

and which is the case, right?

1:10:40

You even in Europe, you can you

1:10:43

can move but you actually can't

1:10:43

easily right, because language

1:10:45

because of pension systems and

1:10:45

healthcare and all of that, then

1:10:50

you know, you by losing monetary

1:10:50

power over your monetary policy,

1:10:55

you potentially when when say

1:10:55

Germany is doing well, and

1:10:59

you're not doing well, there's

1:10:59

no way we can use you know, the

1:11:03

value of your currency to

1:11:03

continue to compete with them.

1:11:07

And so you're absolutely right.

1:11:07

So that is a problem. Can I just

1:11:11

say want to say one more thing

1:11:11

about the digital advancements

1:11:14

of current country? Absolutely.

1:11:14

So if you look at our Africa,

1:11:18

not in terms of cbdc, but in

1:11:18

terms of, you know, the

1:11:21

development of, of money. So you

1:11:21

may have heard about m pesa,

1:11:27

which is, which is not digital

1:11:27

money, but is mobile money. So

1:11:31

it's money that you can transmit

1:11:31

with even the most basic cell

1:11:34

phones, that has been a game

1:11:34

changer for the development in

1:11:37

countries like, like Kenya. So

1:11:37

it increased financial

1:11:42

inclusion, and so on and so

1:11:42

forth, even though really all

1:11:45

that this country has, I mean,

1:11:45

they have a cell network, of

1:11:47

course, right. And so that

1:11:47

alone, if you think of

1:11:50

technological advances is enough

1:11:50

to create a great deal of

1:11:54

financial inclusion. And the DM

1:11:54

network actually tries to go

1:11:58

into exactly the same direction

1:11:58

and say, Look, all that you need

1:12:02

is a is a is a cell phone these

1:12:02

days or a smartphone these days

1:12:05

and and you know, with dm now

1:12:05

you actually have access to an

1:12:08

entire financial infrastructure

1:12:08

that otherwise you do not have.

1:12:12

So for development of weaker

1:12:12

countries, in that sense, this

1:12:17

could be a huge game changer. So

1:12:17

I'm extremely, I find this

1:12:22

extremely exciting from that

1:12:22

perspective, if it turns out to

1:12:25

be actually used for the common

1:12:25

good. Okay,

1:12:28

we'll leave it

1:12:28

there, Andres. Thank you so

1:12:30

much. I'm going to compile a

1:12:30

list of links to some of the

1:12:34

things that we've talked about

1:12:34

for people who want to learn a

1:12:36

little bit more, including links

1:12:36

to your website. If you want to

1:12:39

follow more of Andres, his work,

1:12:39

his YouTube channel, has some

1:12:42

great videos explaining

1:12:42

blockchain cryptocurrency, a lot

1:12:47

of things that will help bring

1:12:47

you up to speed. And he doesn't

1:12:50

have, I would say, a vested

1:12:50

interest, not a promoter, he is

1:12:54

just trying to get towards

1:12:54

truth, which I think is so hard

1:12:57

to find these days, because

1:12:57

there are so many commercial

1:13:00

interests in all these

1:13:00

technologies. And sometimes,

1:13:03

they embellish the good things

1:13:03

and they don't tell you about

1:13:06

the downsides. And I feel like

1:13:06

injuries is a real straight

1:13:09

shooting resource on this. So

1:13:09

Andres, thank you so much for

1:13:12

coming on the show, though. Thanks

1:13:13

for having me. It's great fun.

1:13:32

If you want more

1:13:32

personal finance content, or you

1:13:34

have questions for me or topic

1:13:34

suggestions for the podcast, you

1:13:38

can follow me on Twitter or

1:13:38

Instagram and ask away it's the

1:13:42

same handle in both cases at

1:13:42

Crete bannerjee. spelled just

1:13:47

like it sounds. Good luck with

1:13:47

that. I also have two YouTube

1:13:51

channels, you can subscribe to

1:13:51

my main channel which covers

1:13:53

personal finance and investing

1:13:53

topics that are global in scope,

1:13:57

and a Canadian specific channel

1:13:57

as well. That is it for this

1:14:01

episode. Thank you for listening.