Transcript

Aaron Lammer: Brady, I’ve been wanting to have you back on show for a while. Actually before I get to what I really want to talk to you about, do you guys would you be up to talking a small amount of breaking news?

Jay Kang: Sure.

Aaron Lammer: Daily news as it were.

Jay Kang: Which is it?

Aaron Lammer: The ETFs are dead now.

Brady Dale: All of them?

Aaron Lammer: All of them were nixed all at once, is that right?

Jay Kang: Nine of them. I don’t-

Aaron Lammer: Yeah, I think or at least this batch.

Brady Dale: So it’s not just the Winklevoss one?

Aaron Lammer: This generation is dead. In fact, I believe that they expedited¬†‚Ķ Like, they could‚Äôve waited a week or two. Like, rolling college admissions. And they were like, ‚ÄúYou didn‚Äôt get in. And also, none of you got in. You‚Äôre all rejected.‚ÄĚ

Jay Kang: Yeah in fact … Remember the year they had no Pulitzer prize for literature?

Aaron Lammer: Wasn’t that this year?

Jay Kang: No, I think it was a few years ago. I think it‚Äôs very similar. They‚Äôre like, ‚ÄúNot only did you not win. In fact, none of you have won.‚ÄĚ

Aaron Lammer: This is the year there’s no Nobel prizes at all.

Jay Kang: Really? Why?

Aaron Lammer: Because of sexual misconduct scandals in the Nobel organization.

Jay Kang: Huh. I don’t know how I feel about that. Is that really fair to the people that might win?

Aaron Lammer: Did you think you were maybe like a … This might be your year and now you’re finally got that they’re not giving one.

Jay Kang: Well, when I die, I’ll just kind of blame it on-

Aaron Lammer: Look, you understand if they have to take a year of ineligibility because of misconduct, but not during your playing prime.

Jay Kang: Yeah, exactly. I mean, like oh man, if it wasn’t for the 2008 canceled season, I wouldn’t want to-

Aaron Lammer: Wait till Jay stops writing before we stop issuing the Nobels. Okay.

Jay Kang: Look, as I’ve said before, I have divested from writing and journalism, so it wouldn’t be for that.

Brady Dale: But Dylangot it for literature so they could expand eventually.

Aaron Lammer: And I do think of you as a Dylan type.

Brady Dale: Yeah.

Jay Kang: Thank you.

Brady Dale: Wait, so I don’t understand what the breaking news is, Aaron.

Aaron Lammer: The breaking news is the ETFs are … This whole like, the last optimistic thing people were waiting for is now-

Jay Kang: Yeah.

Aaron Lammer: Gone from like lively to injured to dead.

Brady Dale: The Bitcoin community is so hungry for ETF to happen. They just want it super bad.

Aaron Lammer: They’re hungry for any good news.

Jay Kang: Yeah, price didn’t go down very much.

Aaron Lammer: No, I mean the market’s already taken a hit from the last failed ETF.

Brady Dale: I think people largely, I think a lot of people expected it.

Jay Kang: Alright. I’m going to chalk this up as points for my general theory that the price of Bitcoin has nothing to do with news.

Aaron Lammer: I’m going to agree with you in so far as we probably overrate almost all news. Like, the idea that this is news-

Jay Kang: That’s a better way to put it.

Aaron Lammer: Is we’re scraping the bottom of the local crime blotter to fill a few pages on a lazy summer Friday.

Jay Kang: No, no, no. I think the ETF was big news though, right? I mean, it was the hopes and dreams of people like … Oh, I don’t know who is the … Like the guy from Shark Tank. Remember we read that article, Aaron?

Aaron Lammer: It was big news if it happened. What I’m saying is, it’s not big news if it doesn’t happen.

Brady Dale: Yeah, I think the-

Aaron Lammer: We remain in the state of no ETF.

Brady Dale: I think they had priced in no ETF and so that’s when there wasn’t a big change. It would have been crazy if there’d been an ETF.

Jay Kang: When you say ‚Äúthey,‚ÄĚ I‚Äôm curious about this, Brady, who do you mean¬†‚Ķ Who is they when-

Aaron Lammer: The new world order.

Brady Dale: The Illuminati.

Jay Kang: That’s right.

Aaron Lammer: The anti-bankers.

Brady Dale: The Clintons.

Aaron Lammer: I think I agree with you because it seemed like a dip to about here during the whole thing and then it just went down for a little bit right when this was announced. Then just popped back up and I have to say, I don‚Äôt think anyone I‚Äôve talked to has been like, ‚ÄúThe ETF is gonna happen.‚ÄĚ I‚Äôve heard mostly like sad face about it.

Jay Kang: No, what do you … People that you and I have talked to though … Am I misremembering this? I feel like-

Aaron Lammer: I think if people really thought the ETF was happening, they would’ve run the price up in advance of it.

Jay Kang: Okay.

Aaron Lammer: So I think the fact that the market‚Äôs flat was probably insider information. People basically¬†‚Ķ Like the more knowledgeable the people, most of them seem to be like, ‚ÄúDon‚Äôt get you too excited here.‚ÄĚ

Jay Kang: I’m sticking with my …

Aaron Lammer: Yeah, no news is matters.

Jay Kang: No news about the ETF mattered to the price because no news really matters to the price.

Brady Dale: Well, the real price movement, it tends to happen before the news, right? It’s the rumor time where the real price movement happens.

Aaron Lammer: Yeah, right. And-

Jay Kang: But I also think that rumors have no effect on the … Like, I don’t think any piece of information is correlated to the price of Bitcoin in any way.

Brady Dale: Huh.

Jay Kang: Except like, coin base has been hacked.

Aaron Lammer: Wait a minute, when a big piece of news happens and there’s a big spike, like right then you don’t see correlation there?

Jay Kang: When has that happened?

Aaron Lammer: I’ll give the most embarrassing version of this. When the information-

Aaron Lammer: No, on Coinbase when they were going to add a BCH and it shot up right before then.

Jay Kang: The price of BCH shot up. But the price of Bitcoin was the same.

Aaron Lammer: Oh, I see-

Brady Dale: It’s only Bitcoin, you’re saying only bit … Like, other things

Aaron Lammer: Other things correlate to them, okay.

Brady Dale: Perfect.

Aaron Lammer: Yeah, I mean I would say I have trouble going that news is totally disambiguated.

Jay Kang: But to be clear, right, I believe that the price is almost always due to market manipulation and not due to organic reaction to news.

Aaron Lammer: That’s what Brady was saying about the price already being cooked in.

Jay Kang: No, but BCH-

Aaron Lammer: The already manipulated the market because they know.

Jay Kang: BCH was market manipulation.

Aaron Lammer: Well, that was the most clearly market manipulation of all of the market manipulations. Brady, you cover this stuff. You’re writing articles for coin debt. Do you find yourself trying to push smaller things to be news during the quiet times versus the really fast-paced times? It’s like, wow, there was two huge stories at the same time. Because there was a period, I remember, during the bowl run where I felt like there was big news every day.

Brady Dale: Right. So my focus at CoinDesk is on tokens and startups. And so I actually have been trying to … Well, and my editor has asked me to try to do specifically that. But it’s not so much because it’s quiet but just because we think that there probably are interesting narratives in these much smaller token projects.

Brady Dale: I mean, smaller, but their coins are still worth a few million dollars or whatever. So we’re just trying to get a better sense for companies further down the pipeline and to see if our readers are interested in it. And a lot of times, they are because their stories illuminate weird things about how crypto works.

Brady Dale: Like, today I did a story about how certain companies, I mean, a little company was the focus but also big companies like Binance do this. Companies will do ICOs, sell tokens, then get revenue in the form of their tokens and just throw out some of that, like destroy some of that revenue. And that’s good for token holders. I mean, it’s clear price manipulation.

Brady Dale: Illuminating those weird things is interesting to our readings so-

Aaron Lammer: I feel like what you’re covering when you cover Binance burning a bunch of its own tokens is weird new religion … A cult practices being tested out on civilian populations.

Brady Dale: The last time they did a burn, they threw out 30 million dollars worth of tokens, just like threw 30 million dollars out the window.

Jay Kang: What does the Binance token do?

Aaron Lammer: It’s like dust if you do a transaction. They give you your deep change in B2B.

Brady Dale: If you do trades with BNB, as I understand it, you get the trades that lower prices because-

Jay Kang: Oh, so it’s like if the Applebee’s gift card gave you a free … If you get a … I don’t know, like a extra Margarita or something on top of it.

Aaron Lammer: Yeah, you get like extra fries with your orders.

Brady Dale: And it’s brilliant because the more transactions happen, the more the value of the token goes up. And obviously, they’ve got a pile of it, right?

Aaron Lammer: Yeah.

Jay Kang: I mean, it seems like what you’re describing there is sort of like a … How does that work in a market sense? Where they give you free fries on top of your burger that you order?

Brady Dale: Yeah.

Aaron Lammer: Yeah.

Jay Kang: And because they’re giving that to you, that means that the margin of the cost of the fries then gains in value? Like, the thing that they gave you, the fries, then gain in … Like, it seems like what you’re describing is sort of like a [inaudible 00:09:42] inflationary market.

Aaron Lammer: Well, okay, though, I mean, yes. So BNB also, if you refer people. If we were out at a lake on this show, and we‚Äôre like, ‚ÄúSign up for Binance the Cointalk way! Binance.com/cointalk!‚ÄĚ

Jay Kang: God, I wish we got paid for that. That’s such enthusiasm.

Aaron Lammer: So that would be cinched to me and yous Cointalk account in Binance. And if our listeners signed up, there’s a certain amount of the fees, I believe are earmarked.

Jay Kang: Okay, that makes sense.

Aaron Lammer: Let‚Äôs say there‚Äôs a 1% fee, they give¬†‚Ķ It‚Äôs a lot. It‚Äôs like half of the fee goes to the referrer. That‚Äôs why you see these guys sharing their referrer links really hard on Twitter. And all the YouTube shows are big on it. So that then, you get paid out. And you‚Äôre like, ‚ÄúWow, that could be real money.‚ÄĚ Right?

Aaron Lammer: Let’s say someone ran up 200 dollars in fees, that’s 100 bucks to me. Pretty soon, I’ve got a few thousand dollars in fees. But they don’t give them to me in Bitcoin or dollars. They give them to me in BNB tokens. And they themselves are collecting that extra hundred dollars, right. And then they’re issuing the BNB token. So it all works out really well for Binance.

Brady Dale: Yeah.

Aaron Lammer: And there’s an open market for BNB and it’s done incredibly well.

Brady Dale: Yeah, there was a great Medium post-

Aaron Lammer: It’s fucking crazy.

Brady Dale: Yeah. I think his name was-

Aaron Lammer: It’s crazy that we haven’t given out the referral link.

Jay Kang: Yeah.

Brady Dale: There’s a great Medium poster, really explains economics of it by I think, [inaudible 00:11:18] Mohammed, I probably screwed his name up. I just looked at it again yesterday.

Brady Dale: But he explains how it all works. And he’s like [inaudible 00:11:24] in it too. And then on top of that, so they do all this stuff and then periodically, Binance issued I think 200 million tokens. And they’ve committed overtime, every quarter they’ll burn … 20% of their profit, came in Binance tokens, and so they burned half of the token supply. Which means the supply is going down as demand’s going up, so the value of the tokens just keeps increasing.

Brady Dale: So if you did the referral link and then held on to your tokens and this all keeps working, if people keep using Binance, then they’d be worth a lot more by the end. And at least, the theory. And lot’s people are doing this.

Brady Dale: Obviously regulators are like, ‚ÄúThat‚Äôs price manipulation. Kind of weird.‚ÄĚ In fact, regulators specifically said that about Munchee, which was the ICO that killed last year. It had burning in it‚Äôs white paper, and they‚Äôre like, ‚ÄúWell, that makes it a security.‚ÄĚ

Aaron Lammer: I mean, that gets more into the markets and second life and World of Warcraft where there is this ultimate market master who’s like destroying and creating on the fly. Okay, if I read this correctly, and I’m not sure I do. What they’re doing isn’t so different to the EOS’ and the Tezos’ of the world that have this marketing budgets that are used to advertise the coin, get people to develop the apps on their, right? They’re basically paying our money to incentivize people to blow up their party. And BNB is also paying out their own token to get people to come refer people, trade on Binance, make Binance big.

Brady Dale: Well those are little¬†‚Ķ I mean, the money is being spent by Block One from it‚Äôs ICO and our Tezos foundation from it‚Äôs ICO, that‚Äôs different because it‚Äôs not their tokens they‚Äôre spending yet. Though, that is a part of the plan, certainly. That is certainly part of the plan,‚ÄĚ

Aaron Lammer: Oh, but at some point, it unlocks big cashes of their token, right? That they can use for developers.

Brady Dale: I don’t know where that is exactly out on Tezos right now. I think that’s being sorted out. So EOS has roughly 36 million dollars in tokens, new tokens that have been issued by the chain. But they don’t have a system to decide who gets that money yet. So it’s just accumulating. If they don’t get it sorted out by the end of the year, the projections will go up to like a 200 hundred million dollar fund. But they don’t have a plan to sort it out.

Brady Dale: But it doesn’t matter … That’s not too big of a deal yet because both of those companies have so much money from the ICO anyway. That’s not the tokens, it’s just Bitcoin [inaudible 00:13:55] that people gave them that they can fund all kinds of things with that in our-

Jay Kang: I don’t understand how the thing that you’re describing is appealing in any way to somebody who believes in decentralized economic systems. Like, what you have described is perhaps the most centralized … It’s basically like a dictatorship.

Aaron Lammer: It also feels like it echos these weird, extreme hedonistic decadent eras of in our past. Where like, ‚ÄúOn the first day, we will collectively go and burn one hundred souls and 10 million dollars in gold.‚ÄĚ

Jay Kang: I don’t know if this is a right analogy, but you know how in Portland has a lot of strip clubs?

Brady Dale: Yes.

Aaron Lammer: Vegan strip clubs.

Jay Kang: And they’re giving you … They have one vegan strip club, but it is the most famous of the strip clubs in Portland.

Aaron Lammer: Yes.

Jay Kang: However, if you go to any strip club in Portland, and you give them 60 dollars, lets say, in twenties. Instead of giving it to you in ones, they’ll give it to you in twos, right. They’ve all [inaudible 00:14:54] to decide that this is going to be it. So you have so much … There are all these two dollar bills in circulation and-

Aaron Lammer: Well, that’s actually a relatively sound money approach compared to strip clubs where you can’t use money at all and you have to trade money for bucks at the door.

Brady Dale: I’ve never even heard of that.

Aaron Lammer: That’s how it works in Pittsburgh.

Brady Dale: I mean, I’ve never been to a strip club, or anything. But people have told me that that’s the thing.

Aaron Lammer: Many people have told me that that’s how it works in Pittsburgh. So if you didn’t get a ride home from a strip club, ever, in Pittsburgh, the guy outside with the black car might have told you that he gets insane 600 dollar tips in strip club bucks sometimes. Because-

Jay Kang: Nobody-

Aaron Lammer: Traveling businessmen go in-

Jay Kang: They don’t want to use it.

Aaron Lammer: Wanna swipe a credit card, take out a couple thousand bucks in strip club bucks, don’t use them all, you can’t trade them back. All you can do is hold them forever.

Brady Dale: Does he [inaudible 00:15:52] at 50% off to other people?

Aaron Lammer: Yeah. He doesn‚Äôt work for the club, but most of his business pays and he accepts it because the tip¬†‚Ķ Most people are like, ‚ÄúOh, it‚Äôs 20 bucks? Here‚Äôs everything I got.‚ÄĚ Which is probably the end state of the BNB token too. People are just going to be giving this away at some point.

Jay Kang: The reason why I brought it up … And I actually, the Pittsburgh thing is probably a better example, but is that they won’t accept one dollar bills in these establishments. And so there is a collective decision made that they will … That this is how the entire economy is going to work. It’s going to work in two dollar bills, right.

Jay Kang: You know, it works. I think it’s probably a good thing. It’s better for the dancers, it’s better for the club … It’s better to pay people. But-

Aaron Lammer: Mm-hmm (affirmative). It’s a managed economy.

Jay Kang: It is a managed economy and it is not decentralized, it is not like an actual market. It’s just like, if you walk in that strip club, you have to obey those rules. That’s what this BNB thing sounds like.

Aaron Lammer: Well, can I intercede with one question?

Jay Kang: Yeah.

Aaron Lammer: Jay and Brady, both. So clearly in crypto it’s a taboo to create an inflationary situation. But isn’t it therefore a Mitzvah to create a deflationary situation?

Jay Kang: I don’t believe so because I think that if you went to Satoshi, who is in the process of starting his publicity rounds for his book-

Aaron Lammer: Brady, since I hope you don’t actually listen to this show all that often, our last episode was on Excerptoshi.

Jay Kang: I think it’s our third episode on Excerptoshi.

Aaron Lammer: Anonymous author of the forthcoming Satoshi Memoir, which we’re trying to get a galley copy of.

Brady Dale: Nice.

Aaron Lammer: So that we can read it for the show. But anyway, sorry-

Brady Dale: I do listen some, I haven’t heard that one yet.

Jay Kang: So I think if you told Satoshi there’s going to be one dude and he’s going to decide to burn Bitcoin based on the idea that the price will never go down. And if the price is about to go down, he’ll just burn more Bitcoin and then there’ll be less of them so each of the Bitcoin will be worth more.

Aaron Lammer: But anyone can burn Bitcoin.

Jay Kang: Huh?

Aaron Lammer: Anyone can burn Bitcoin.

Jay Kang: Yeah-

Aaron Lammer: You could burn your Bitcoin.

Jay Kang: Anyone can burn Bitcoin, but there’s not one person who can burn all the remaining Bitcoins.

Aaron Lammer: That’s the wildest thing you could do in the club in Dubai. Is just like take out like a ledger nano and just smash it on the floor.

Jay Kang: But that doesn’t-

Aaron Lammer: Say, ‚ÄúI just burned a hundred Bitcoin.‚ÄĚ

Jay Kang: That doesn’t destroy the Bitcoin, though.

Aaron Lammer: It’s not falling out if you keep your secret private key somewhere.

Jay Kang: If your burning your 20 word seed card…

Aaron Lammer: I mean, who knows if these companies are really burning these coins, either. This is totally … I can imagine-

Jay Kang: But that’s what I mean. I don’t think that it is a Mitzvah then to … I do not think that it is a Mitzvah to create a deflationary currency if it means that you have essentially created a completely authoritarian economic system.

Aaron Lammer: How do they defend it? Or I guess they don’t really have to.

Brady Dale: Well, I will say, when this company announced their burn, which hasn’t happened yet, it starts on August 31st, their token price went up. People were excited about it. And I think you can prove that things are burned. I haven’t studied finances token a ton, I just look at it a little bit because of the story. In one of the other examples, and it was one that William [inaudible 00:19:04] had pointed out, and so I just looked at that. But it sort of shows the address they send it to and I guess you can see that like, they moved.

Aaron Lammer: Yeah, I guess you can see on the chain where it moved.

Brady Dale: Yeah.

Aaron Lammer: And in some ways you have to take these future burns with a grain of salt, just as speculating that, well, they promised to burn that much every year and they did the first two years-

Jay Kang: Of course it first went up when they said they were going to burn it. Because there is less of them, so like …

Aaron Lammer: Well, isn’t that sort of the guiding ethos of all this stuff? And I think this pertains to Block One and EOS also, who are probably like, maybe other than Ripple, the most famous potential manager of a block chain economy. Which is, there’s a logic internally that whatever is good for Block One is good for EOS. And whatever is good for EOS is good for Block One. And therefore, the conception of ethics around creating a deflationary environment never come in because everyone is aligned in the same direction towards positive price pressure.

Aaron Lammer: And Jay, you flagged historically that this is kind of cult thinking. If we all have the same goal, we can’t screw each other over.

Jay Kang: Yeah, and it’s also very non-decentralized.

Aaron Lammer: What do you think?

Brady Dale: Well, so first of all, on this specific topic, both EOS and Tezos are inflationary.

Aaron Lammer: Right.

Brady Dale: Yeah. I don’t think there’s a hard cap in one of them either.

Aaron Lammer: But they’re fixed inflationary? The amount that they’re going to be inflated is preset?

Brady Dale: What’s preset, but it can change. Everything on both can change. The idea of both … So what’s interesting about … I mean, I think EOS is super decentralized. It is centralized because of [inaudible 00:20:49] who says that everything, anything, everyone just kind of agrees. So like EOS just to kind of … I mean, it’s hard to fully explain EOS. The idea of EOS was to sort of make all this stuff easier, and it’s so complicated. And everybody wants to be a valid … Well, all these people want to be validators.

Aaron Lammer: Validators are like miners?

Brady Dale: Are like miners. Yeah, they’re taking in transactions and they’re given paid-

Aaron Lammer: Why do everyone have to come up with their own name-

Jay Kang: Yeah, I agree.

Aaron Lammer: For each of these chains. Like the Tezos bakers are the validates-

Brady Dale: Yeah, yeah.

Aaron Lammer: Was this getting too simple and we needed to create greater symbolic layers on it?

Jay Kang: It’s like a new basketball team. It’s like, we don’t call it the point guard here. It’s like the little bouncy men. But it’s what we’re call it.

Brady Dale: The idea of bakers is kind of fun because Arthur Breitman, who came up with the whole thing, is French. It’s a French reference because to be a baker, you have to stake 10 thousand tokens and the 10 thousands tokens are called a roll. So you’re baking a roll.

Aaron Lammer: That is cute.

Brady Dale: It’s cute.

Aaron Lammer: But that’s like occupying a place in my brain-

Brady Dale: That you just don’t use.

Aaron Lammer: But I can’t use for something else.

Brady Dale: For something else, yeah.

Aaron Lammer: But if you just said, they‚Äôre like Tezos miners or they‚Äôre EOS miners, you‚Äôre like, ‚ÄúIt‚Äôs crazy, there‚Äôs only 21 miners.‚ÄĚ I‚Äôm like, ‚ÄúOkay, this metaphor is already complicated enough.‚ÄĚ

Brady Dale: Right, right.

Aaron Lammer: Explain. Okay, so there’s millions of miners-

Brady Dale: Well, EOS actually calls them block producers.

Aaron Lammer: Okay, so there’s millions of block producers on the Bitcoin [inaudible 00:22:10], thousands of block producers.

Brady Dale: Right, yeah.

Aaron Lammer: How do you do it with only 21?

Brady Dale: There are lots more than 21, but only 21 get to actually earn the big bucks from doing. And they’re only 21 are the official ones. And there’s a constant continuous vote that’s going on, it changes every three minutes. If votes change, it’s nuts.

Brady Dale: But the point I wanted to make about EOS here is like, there’s 21 there, there’s lots of other entities that are doing validation on the side. They’re getting paid like a little bit and some others are getting paid nothing. Everybody wants to move up in the rankings. And so the way that people who don’t have a lot of money and don’t hold a lot of tokens do it, is they try to build credibility.

Brady Dale: So there’s all these people going out and doing things that are seen as good for EOS. Everything from putting on events, to running a website, to providing certain services. And the idea is if you can get the attention of the community and they appreciate it, it moves you up in the rankings. More people are likely to vote for you.

Jay Kang: It’s pyramid scheme.

Aaron Lammer: They prefer cult.

Brady Dale: It’s this crazily complicated grassroots thing.

Aaron Lammer: It doesn’t sound complicated. You just described Herbalife.

Brady Dale: Well, I mean in terms of yeah, everybody’s doing activities to rise-

Aaron Lammer: Imagine it being in the shape of a pyramid.

Jay Kang: And all of being a scheme.

Aaron Lammer: Getting your neighbors involved in it, yes, it’s like Herbalife.

Aaron Lammer: Okay, but beyond it being a little pyramid scheme-like, the part I don’t understand and I wanted to ask, we have to have on journalists to explain these things because we just can’t grasp them. So we had journalist from Wired who described Tezos to use, Gideon.

Aaron Lammer: So what I don’t get here is all this stuff points back to this idea of governance, right. These 21 validators represent votes, the governance system, right.

Brady Dale: Right, right.

Aaron Lammer: What are they governing? Jay is correct, the recruitment scheme is pyramid scheme-like. But it’s all to create this giant hierarchy through which decisions are made.]-

Brady Dale: The hierarchy is shaped-

Aaron Lammer: A cult.

Brady Dale: Like a pyramid.

Aaron Lammer: I mean, it’s also like early Christianity or something like that.

Jay Kang: But the idea that only 21 people make the money and everyone else is scrambling around-

Aaron Lammer: That’s not really how it works, though, because if you’re smaller you can join the pool with more people.

Jay Kang: No, no, I’m talking about EOS.

Aaron Lammer: No in EOS, if you own point a little bit, you can get into a pool of a bunch of people that is part of one of those 21s and get a payout.

Brady Dale: I think that’s more how Tezos works.

Aaron Lammer: Oh.

Brady Dale: That’s more how Tezos works.

Aaron Lammer: Well, I wish everyone had not picked all the different words so I would not be completely confused.

Brady Dale: So the thing that’s funny about EOS on governance. So Tezos is whole thing. I love comparing these two, I think there’s a lot of great comparisons to be made between them. There’s a lot of great parallels. They both sort of argue that they were about governance. But Tezos in it’s original incarnation, did pretty much write all the things it wanted to govern into the code. And the rules are all there. And the thing with Tezos is everything is up for grabs always. It’s always possible to change everything. But it’s all got to be code-based.

Brady Dale: Whereas Dan Larimer came out and was like, ‚ÄúWe‚Äôre going to make a much faster block chain. It‚Äôs gonna much lower fees and also we‚Äôre going to fix governance.‚ÄĚ And everyone‚Äôs like, ‚ÄúOkay, how you going to fix governance?‚ÄĚ Like, ‚ÄúWell, we don‚Äôt actually know, we‚Äôre still launching without that. We‚Äôre going to have like a written constitution.‚ÄĚ And that was a real mess and-

Jay Kang: Okay, wait a bit, just go a minute. I feel like¬†‚Ķ You know, like the early ALI G where he‚Äôs like, ‚ÄúWhat is politics?‚ÄĚ You know?

Brady Dale: So what I love-

Aaron Lammer: Give me an example of one thing that they would be deciding with governance?

Brady Dale: I mean, fundamentally, the most important thing of block chain, and especially like these sorts of block chains has to decide is is anyone trying to fuck with the system? Right, so if someone got into one of the 21 block producer roles and was trying to put fake transactions in there. I mean, that‚Äôs the most important thing you got to decide, is¬†‚Ķ Everybody else is just like, ‚ÄúOh, I think number 17 is actually lying about some of these transactions.‚ÄĚ That‚Äôs the biggest question.

Aaron Lammer: Okay, and we’re just going to keep pausing you along the way. Bitcoin seems like it solves that problem. Like, Bitcoin is not … As far as I know, Bitcoin does not have all these crazy governance techniques.

Brady Dale: Mm-hmm (affirmative).

Aaron Lammer: Yet there isn’t massive disputing about which is the correct chain in the block or everything.

Brady Dale: Yeah, because that’s the problem when you have only 21 entities with so much power.

Aaron Lammer: Right.

Brady Dale: And there’s some very clever engineers running them.

Jay Kang: Why would you set it up that way though?

Brady Dale: Because everything in crypto is about trade-offs. So when you have more validators, it’s more secure, it’s way harder to put a phony record. And that’s why Bitcoin is almost impossible to fake. When you have fewer validators … When you have fewer validators, you can do much faster transactions much less expensively. Like that’s a-

Aaron Lammer: So basically all of these environmental issues around scaling Bitcoin, it‚Äôs going to heat up all the electricity of the world. It‚Äôs like, ‚ÄúHey, we only have to run 21 of these generators.‚ÄĚ

Brady Dale: They’re vast … I mean, it isn’t even generators, it’s vastly less. It’s vastly less electricity, so that’s certainly something.

Jay Kang: Okay but why is it … I don’t get it then. If it’s 21 people, and it’s not decentralized in that way, and those people have vasts amounts of power-

Brady Dale: Right.

Jay Kang: Right? It doesn’t even feel like it’s a crypto currency.

Aaron Lammer: This isn’t a dictatorship, it’s a feudal lordship.

Brady Dale: Yeah, like someone-

Jay Kang: Me and the 20 Dukes have decided …

Aaron Lammer: Me and my [inaudible 00:27:43] are the only ones who deserve democracy.

Brady Dale: So here’s a great governance story, I did this story I think in late June. And this is a great example of things that come up when you have these sort of governance issues, right. So this guys, Dean [Igamen 00:27:59] described EOS as an attempted democracy hiding their true oligarchy, which I thought was pretty good.

Brady Dale: So what happened was, the first mess that happened with EOS is that when they sold all the tokens, they were originally ERC-20 tokens, okay. And now they‚Äôre all on the EOS block chain. So when EOS was about to make that move, they told everyone, ‚ÄúYou‚Äôve got to prove that you have these tokens to this smart contract on a Ethereum, and lock them in there and it will generate a proof. And you‚Äôll create an EOS wallet that will match that proof and then it will know when EOS goes live, that those tokens, they were on ERC-20, are now over on EOS.‚ÄĚ

Aaron Lammer: It‚Äôs like if Arby‚Äôs merged with Burger King and it was like, ‚ÄúThis is the last day to trade your Arby‚Äôs bucks for King bucks.‚ÄĚ

Brady Dale: Totally, that is-

Aaron Lammer: ‚ÄúAnd if you don‚Äôt, your problem, man.‚ÄĚ

Brady Dale: Yeah, that is totally what happened. But because it was complicated and weird and people couldn’t figure out how to do it, all these people starting setting up websites that would help you make the transfer, that were just clearly fishing sites, right.

Brady Dale: And so just put your private key here, and we’ll take care of everything for you.

Aaron Lammer: Can we just pause for a minute and appreciate how technology changes and money changes, but the same scams exist from when we were like 17 years old. Which is like, put your social security number in here.

Jay Kang: It’s a great scam.

Aaron Lammer: No one’s going to get approved on the tell me your password.

Brady Dale: Exactly what happened.

Jay Kang: You can’t beat that scam. It’s the best scam.

Aaron Lammer: Wow. So how much do you think that those scammers made of with in the EOS transition?

Brady Dale: Yeah, it wasn‚Äôt that much but like¬†‚Ķ I mean, I think some people did pretty well. So okay, so here‚Äôs what happened. So then as¬†‚Ķ It was a whole mess to get the chain live, then it comes live. And one of those groups out there that was trying to get attention for doing good things in the world was telling people, ‚ÄúIf you got hit by a fishing scammer, bring us all the proof you can, and we‚Äôll look into it. And if we think it‚Äôs right, we will recommend the account that holds it is frozen, so we can get it reassigned back.‚ÄĚ

Brady Dale: Because these 21 block users have that much power, right.

Aaron Lammer: That’s pretty non-decentralized.

Brady Dale: Oh, totally. So then what happened-

Aaron Lammer: That would be kind of what I was trying to create, the democratic system to prevent-

Jay Kang: I am going to go … Look, my Dad is really in good with these 21 dudes. And he’s going to go to them and he’s going to tell them to just hook you up. But in exchange, I need something.

Aaron Lammer: This is basically like-

Jay Kang: This is like the dumbest … Okay, I don’t know if like … I don’t mean to slander EOS, but this is crazy.

Brady Dale: No, it’s intensive.

Jay Kang: Why is this appealing to anyone?

Brady Dale: So they … Hold on, we’re not-

Aaron Lammer: It has a lot of cult-like fun to it.

Brady Dale: We’re not done with how crazy it gets though.

Brady Dale: So this group was like, ‚ÄúOkay, we‚Äôll look into it and then if we agree, we‚Äôll pass our evidence on to this thing called the EOS arbitration forum.‚ÄĚ

Jay Kang: Do they have cops?

Brady Dale: Well, so there was kind of meant to be cops.

Aaron Lammer: This ends in Hasidism where they have their own police force, they vote as a block …

Brady Dale: They kind of did. So there this arbitration forum-

Jay Kang: Yeah, like when I was on Twitter I used to follow them on Twitter.

Aaron Lammer: Full disclosure, I’m a Jew. So just as Jay has a lot of Korean jokes about Koreans, I have Jew jokes.

Brady Dale: I at least have Kansan jokes.

Aaron Lammer: You can chime in with some comparisons of this to early Christianity. Because this does really seem like we picked … Like, Jesus died, we picked 21 prophets, whatever they say is the word, that’s the word.

Brady Dale: So the ideas was it wasn’t meant to really just be entirely up to them. There was supposed to be a process. There supposed to be this arbitration forum that would take complaints and then they would vet it and then once they agreed, they would take the 21 dudes. That was how it’s supposed to work.

Brady Dale: The problem is, EOS had never actually dealt with their whole governance plan when they actually launched. So there were all these people who were like, ‚ÄúI had my tokens stolen.‚ÄĚ There was people who were like, ‚ÄúYeah, we think these guys really did. We think it‚Äôs true.‚ÄĚ And people were freaking out. Take these people tokens back away for them, don‚Äôt let them have been robbed.

Brady Dale: But the block producers were all like, ‚ÄúNone of the conversation is legitimate because nobody has¬†‚Ķ‚ÄĚ Because there was supposed to be a constitution that sort of designated the process but that never got ratified by anyone. They didn‚Äôt really know how to ratify it. But then, there was so much pressure that the block producers were like, ‚ÄúFine, we‚Äôll just do it. But this feels like maybe a bad idea.‚ÄĚ And then they did it again later the next month.

Brady Dale: And then what happened is after they did it that time, somebody else put a fake document up on Telegram that purported to be from the arbitration forum, it purported to be proof that certain funds should be moved around. People were like, ‚ÄúI think this is fake.‚ÄĚ Because it just didn‚Äôt have anything sorted out.

Aaron Lammer: To be fair, this is what Ethereum did when they rolled back the DAO hack.

Brady Dale: Right.

Jay Kang: Yeah.

Aaron Lammer: So they just had one big claim that-

Jay Kang: But they don’t have a-

Aaron Lammer: We lost a bunch of shit.

Jay Kang: They didn’t have a structure. I mean, what you’re describing me is essentially a … This is like the fourteenth metaphor that we’ve used for it, but it’s like … You’ve all seen the movie Casino?

Aaron Lammer: Yes.

Brady Dale: Yeah.

Jay Kang: Yeah, it’s like basically, the bosses meet in the back of that … It’s like the mafia. You have different bosses, right. And you can put up complaints to them and you hope that the people will listen to you. And that those people can make things happen for you because you can’t go anywhere else. The only difference is that this is a completely voluntary thing that you’re [inaudible 00:33:23] into and they can’t do anything for you.

Aaron Lammer: And those bosses are supposed to represent the interest of the local bosses in their cities. Theoretically, these 21 are supposed to like-

Jay Kang: How did they flag the 21? Are they like all the cousins of the dude who fucking started Tezos?

Brady Dale: So it is interesting to me. I’m not saying … I’m not necessarily endorsing the mafia metaphor, but it’s also interesting that the largest token holder out there-

Aaron Lammer: Cointalk has Brady Dale-

Brady Dale: Yeah, exactly.

Aaron Lammer: Saying Block One is a mafia.

Brady Dale: So here’s the thing-

Jay Kang: Also, they’re all cousins.

Brady Dale: Here’s the thing, Block One holds 10% of the tokens. So all voting ultimately comes down to token holding, right. So they [inaudible 00:33:58] the tokens, they announce they were going to start voting them soon. I don’t think they have yet. But it is kind of like the big, big boss hasn’t even spoken yet but they’re going to say something at some point.

Brady Dale: And this is hard to explain, but here’s how the top 21 get hits. If you hold any EOS tokens, you can designate those tokens for voting. And you have to stake them to do it, which is cool because most people are holding on to them, that’s fine. And when you do, you can pick up to 30 block producer candidates you want to vote for. And all your tokens go for all of them.

Brady Dale: So I could vote just for Aaron if I had 100 tokens, they would all go for you. If I voted for Aaron and Jay, you would both get 100 votes. And there’s no way for me to break it up. I can’t give like 30 to you and 50 to you.

Aaron Lammer: You know, usually when we bring up a coin on this show, at a certain point, Jay and I just start buying the coin in the middle of this. I couldn’t be less interested in what you described. Yeah, it’s like a crypto that has like a student council election tacked on to it.

Brady Dale: Yeah.

Jay Kang: But it’s really corrupt.

Aaron Lammer: I‚Äôm like, ‚ÄúCan I vote for-‚ÄĚ

Jay Kang: And also, it’s highly sensible to misinformation.

Brady Dale: Yeah.

Aaron Lammer: And it’s also just like … It’s tough enough to vote for my local congressmen, much less my EOS

Brady Dale: Yeah, 30 strangers, you have no idea who they are, even like where they are. They say they’re in Canada, I don’t know.

Aaron Lammer: That’s a real question, though. Is there anyone who’s not a strident libertarian who represent a EOS block?

Brady Dale: Well, no one who a bunch of them … Because one of the complaints, also, is that a lot of these people put all of this effort in the grassroots level to make everything work nice and well. And then a bunch of those people who put a ton of time into making this all happen or nice people didn’t end up in any of the top 21 spots. And they feel like they should’ve because they did all of this work. And a bunch of entities no one had ever heard of in the larger EOS community, just all of a sudden appeared at like spot 10.

Aaron Lammer: Just like real politics. A bunch of people do grassroots work, and some asshole makes it to Congress.

Brady Dale: So much … Only way more so because it was very clearly like the more tokens you have, the more power you have. So what was obviously the case is you … And you can just see it on the chain, that these stranger who just appeared and got these 21 spots, just had some giant whale vote for them.

Aaron Lammer: It’s just like-

Jay Kang: Evidently, it’s got to be like Bernard counts for other people on the board. I bet some of those were not real people.

Aaron Lammer: If I was producing the EOS movie, all like the 21 … What are they called? The validators?

Brady Dale: Block producers is the official name.

Aaron Lammer: The validators would all go to a hotel together and they’d all be like locked … It’s like when they decide the new Pope. The 21 would have to meet and it would be like, they are like cloistered in seclusion until they decide on these vital EOS issues.

Brady Dale: So the fun thing in that … That’s true. One of their fun thing about it is … And maybe this is good, maybe this is bad. I don’t know. But there is technically an election like every three minutes. Because it just … The system, every time it goes through a full cycle of all 21, it just rechecks what the votes are. So it’s like-

Aaron Lammer: Oh, okay. So it’s almost like a constant vote of no confidence that you have to survive.

Brady Dale: Yeah, you can be voted out any minute.

Aaron Lammer: Right. Do they change though? Minute to minute, like who the 21 are?

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