The following three conversations represent a wealth of knowledge from some of the biggest movers and shakers in the blockchain industry.
Arianna Simpson provides some expert commentary on the venture capital front, Peter Todd breaks down the technical background of Bitcoin, and Tone Vays gives a first-hand account of the carnivore diet (among a few other insights).
If you haven’t heard of Arianna Simpson, then most likely you’re just joining the crypto world. The BitGo PM turned venture capitalist has had skin in the game since 2012, which in crypto years, is more than enough to solidify one’s credibility. Simpson has developed a keen eye since reading Satoshi’s white paper six years ago, working with Jameson Lopp thereafter, experiencing both bear and bull markets, and now formally investing in the space. So, if you’re just joining the conversation, there are only a few better places to start.
On April 23, 2018, BTCManager caught up with Simpson to talk a little bit more about her start with Bitcoin and her work with the above-mentioned crypto security firm. Now she helps manage an open-play technology-focused investing fund, Crystal Towers Capital, as well as her very own Autonomous Partners, a crypto-specific fund that invests directly in both virtual currencies and blockchain projects in the space. Much happened in between, of which earned Simpson a place in the top female voices in the space, but perhaps it’s best if she explains the rest.
Not exactly, the real kind of genesis in my interest in this space was a trip that I took to Zimbabwe in 2013. I spent some time traveling around Southern Africa and was in Zimbabwe after the worst of their hyperinflation. They had switched over to the U.S. Dollar to restabilize the economy, but they were still having a lot of economic struggles from that. When I came back to the U.S.
I was thinking a lot about the alternative financial systems and what might be possible in a world in which a corrupt central government wasn’t controlling all of the monetary policy and means of exchange. When a friend of mine introduced me to the Bitcoin white paper, everything kind of clicked in my head.
At that point, I was working at Facebook, but I think the company was actually pretty slow to start to adopt anything related to cryptocurrencies or bitcoin. Eventually, it made sense for me to move into the industry full-time because I started blogging and doing a decent amount of speaking on the subject. It ended up that I was thinking a lot more about cryptocurrencies than my actual job.
Well, not really. Ben Davenport, one of the co-founders [of BitGo] had also worked at Facebook, but we didn’t really know each other because he was in the Menlow Park office and I was working in New York.
What actually happened was I wrote a blog post about multi-sig and BitGo was kind of the first company that had really commercialized multi-sig wallets and I mentioned them in the blog post. I sent it to them thinking it might be interesting if they wanted to publish it on their blog or check it out. Then they told me, “Hey this is great, why don’t you come have a chat,” and so one thing led to another, and they made me an offer to join.
BitGo was always in the business of providing very secure solutions for enterprise tech customers. I think one thing that has changed is really just the market. Back when I was at BitGo, the company was running on an AUN model, which obviously was a difficult pricing model to sustain at a point in time when bitcoin was worth $200 or $300.
Since prices have appreciated so dramatically, the business model is now a lot more viable, and I understand the company is doing very well. So, that’s one change, but that it doesn’t really have anything to do with what the company has done, just more a shift in terms of the market.
Yes, that’s right. Even just the same number of customers are a lot more profitable for the company. There’s a growing interest on behalf of exchanges, funds, soon institutional investors, and the beginning of holding coins directly [rather than investing in companies or ETFs].
No, I think it’s actually going to happen. I don’t like to make specific price predictions because I think that’s a very difficult thing to get right. I would say that the level of interest from institutional investors, even governments, is only growing over time.
If you just consider the fact that bitcoin has a finite supply and an increasing demand generally, obviously that bodes well for price appreciation, but it’s hard to predict a specific price point especially in a limited amount of time. We’re still dealing with something very volatile, but I do still think the general trend is ‘up’ otherwise I wouldn’t be spending all of my time doing this.
Coinbase has announced their institutional custody product, and I think they’ll probably do well with that just because they have such a strong brand in the space. I think, though, we need more than one provider, and I don’t necessarily think it’s a bad thing, and these are all market expanding, and because overall the total number of institutions, even individuals, who own cryptocurrency is very low, I think all of these things are net positives for the space. I think Coinbase will do well, but I think there is room for others to grow.
I think as an investor now, it has definitely been very helpful for me to work in the space on a number of different fronts. Number one, I understand some of the challenges that companies face in a different way than if I’d only ever been an investor, which I think is very helpful. It also gives me a degree of credibility that I wouldn’t have if I were only an investor; as much as 2017 was a fantastic year, the years preceding that were pretty tough.
2014 to 2015 made up this long bear market, and it was a rough time to be working in the industry. So having been in the space and having felt that pain personally has given me a degree of ‘street cred’ if you will, which might have been difficult if I had come waltzing in during the bull run of 2017. So that’s definitely been helpful to me as well. Lastly, it enabled me to meet a lot of people in the industry and really get to know folks before all the hype, and that has paid off in a lot of different ways.
Broadly speaking the issue of key management is still an obvious one, but it’s still very much not a solved problem, in the sense that even if you are using multi-sig wallets there are certain degrees of risk and for most people, frankly, usability is not yet at an acceptable level.
There’s this tradeoff between security and usability, and I don’t think the industry has figured out the right happy medium. Sure you can buy an air-gapped machine and you can transfer an offline wallet software over with a USB, and then store that offline computer in a vault, but all of these things are major hindrances to usability and just beyond the ability and/or interest of most users. What happens is they’ll leave their coins on exchanges and things like that, which then become honeypots and end up getting hacked.
Ultimately, the real issue is that we don’t yet have good key management solutions that are both easy to use and secure. Now, I think that this is a problem that will be solved, but we’re still probably a few years away from seeing that happen. To be honest, I don’t think we’ve made great strides in that category in the last five years because I still personally see a lot of the same struggles now as I did in 2012 and 2013 when I was first getting into the space.
It’s a product problem. It’s not realistic nor desirable to expect most people to understand key management to the degree that it’s currently necessary. What happens, in most major technology waves, is that a lot of that complexity ends up being abstracted away and eventually things that would’ve seemed impossible or like magic, end up becoming commonplace. So, that’ll be the case here as well, but it’s just moving along at a fairly slow pace in some ways.
BitGo, of course. They have both an enterprise product and a wallet available to others such as consumers. There is Casa, which has a scheme which involves a lot of different people, something like five different digital keys [to store each customer’s cryptocurrencies].
There’s another few companies that are kind of working on splitting keys using multi-party computation in order to make key management more secure and eliminate a single point of failure that’s similar, but not exactly the same on a technical level, as multi-sig. So, yes, there are companies working on solutions to these problems, but I’ve yet to see a solution where I’m like, ‘ok, wow, that’s really it.’
Another problem is that the financial incentives aren’t aligned, in the sense that consumers have shown time and time again that they are not particularly desirous in paying for software security products. Of course, Ledger had a pretty impressive year in terms of sales for their hardware device, but I think hardware devices are a little bit different in terms of consumer purchasing psychology. Even still, we hear of people constantly getting hacked and we’re definitely not in a phase where this problem is solved.
Consumers have become accustomed to not paying for software products. There’s very little incentive to pay for a security software product and the problem is, despite it being a very rational decision to spend, let’s say ten dollars a month to protect $100,000 worth of cryptocurrency, most people just won’t do that.
It’s kind of the type of thing where you don’t expect you’ll get hacked, until you do. It’s a challenging sale to make because you’re not helping people make more money, you’re protecting them from a downside which might happen or might never happen. That’s part of the challenge in getting people to pay for this on an individual basis.
No, they’re probably the best solution at the moment. Even better, perhaps, would be a combination of hardware and software. For example, BitGo’s multi-sig wallets allow you to use their software product in combination with their Ledger device, which is interesting because then you have this key that’s generated and kept offline, but you still have a multi-sig approach.
It would be difficult for an attacker to steal your coins. Something like that is probably the best combination of user-friendly and secure. Of course, everyone’s needs are different. Based on how frequently they need to trade, for example, but there all kinds of other considerations.
No, not at all. That doesn’t reflect poorly on BitGo or any other companies I worked for, but I just discovered that I’m very much an investor at heart. A lot of entrepreneurs end up becoming investors at a certain point in their careers, just because after a certain degree of success as an entrepreneur it seems to be a natural path that a lot of people follow. But to be honest, I’m very glad that I got started in investing fairly young because it’s absolutely what I want to spend the rest of my life doing.
For better or for worse, I spend a bizarre amount of my time thinking about allocating capital, markets, teams, and things like that, so for me this is one hundred percent what I want to be doing. I feel lucky to have figured that out fairly early on. Investing, for me, is both a lone wolf and a very social activity.
On the one hand, you can actually manage a really large amount of capital with a very small team in a way that you could never run, at least not to date, a $50 billion company with a small team, but you could very much run a $50 billion fund with a small team. It’s a different dynamic than what you would see in a company. So, I’m constantly meeting with entrepreneurs and developers and other investors in the industry, but on other hand it also means a lot of time spent by myself reading and researching. Ultimately, that’s kind of the perfect combination for me personally.
Yes. Crystal Towers is one that my partner Tikhon Bernstam and I started in 2015. That fund was early-stage generalist fund; we invested in about 35 businesses mostly early-stage tech companies based in San Francisco, New York, and LA, in a number of fields. We did some autonomous vehicles, healthcare, and a few different things. My second fund, my most recent fund Autonomous, which I started in 2017, is one hundred percent crypto-focused. So I’m investing in currencies, but also in companies that are in the space.
They’re definitely very different. I obviously believe there is a lot of potential in this space in a number of different ways, so I structured things in order to be able to have a certain degree of flexibility in terms of the form factor. Some teams were raising equity rounds, other teams were raising SAFTs, other teams were launching a coin without any ICO. There are a lot of different models being used and are still being used. I just wanted to be able to participate in as many of those as possible because there are great teams that are kind of using many different structures at this particular point in time.
I’m very bullish on infrastructure. Where we are in the cycle right now, there’s still a lot of infrastructure foundations that need to be laid. Things like security, as we discussed, but also scalability. So, what are going to be the really dominant scalable smart contract platforms, as well as exchange infrastructure, both centralized and decentralized exchanges. Basically, all of the foundational pieces that I think the ecosystem needs to have functioning before it can really go mainstream. That’s what I spend a lot of my time looking at.
Yes, some teams are certainly deciding to base their companies or launch their ICOs elsewhere and perhaps only allow non-U.S. investors. But it’s not really a problem that has become very significant for me, in the sense that, so far I’ve been able to invest in everything that I’ve wanted to invest in. In the event that that starts to become an issue, I may choose to open up an offshore entity. Right now, though, that’s still not a primary concern of mine. It may also change and if the United States becomes even more closed off, in terms of the types of things that it’s allowing, then that could potentially be a real challenge.
I hope that isn’t the case because I think this is also a great opportunity for the U.S. to help move things forward and maintain a dominant position in the development of technology. What I am seeing, however, is that great teams are coming out of different places, you see Berlin, Singapore, or Hong Kong. It will be really interesting to see how the regulatory landscape evolves and how much of an impact that ends up having.
A lot of it definitely has to do with regulations, but certainly not all of it. Switzerland is another place that has become very friendly to crypto projects and you start to see a hub crop up in Zug and a lot of teams deciding to be based out of there. So, yah, regulations definitely have a real effect of where projects migrate. That’s another reason why ultimately it’s a very bad idea any country to decide to outright ban or make it very difficult for projects to domicile in their jurisdiction.
In the end, there will always be a region that is more friendly and they will reap the benefits of this next major wave of technology. If you look at a state like New York, for example, with the BitLicense, which I think is really quite a bad idea, projects are not based here. They’re moving to New Jersey, to Delaware, to California, they’re moving to other states just because of those challenges. It ends up hurting the geography more so than the projects.
A lot of it comes down to not sensationalizing things. I unfortunately see CNBC and some others who basically pump a particular coin, which I think is frankly irresponsible just because while we would like to think that everybody is going to do their own research and spend hours upon hours reading developer docs before making a purchase, that’s just not realistic. So, blatant encouragement of consumers to purchase a particular coin is just a really bad idea.
There’s no guarantees that prices are going to go up and if retail investors get burned that ends up bringing down the regulatory hammer with more violence and potentially setups the setting back of the space overall. In the end, it’s important not to dramatize the price activity and more real work on the fundamentals would be great. Obviously, clicks are important and price drama drives more of that, ultimately I don’t think that’s where we should be trying to get the space to go.
I think certain projects do, but I don’t think it’s a major issue for the entire space. Some general debate is healthy and we already see quite a bit of that. But certain people are really hellbent on shilling their own projects or projects that they’re heavily invested in (and perhaps not disclosing it), which, again, starts to become problematic. In general though, I wouldn’t say that’s too much of a problem outside of a relatively small number of projects.
I think some of the media has done a great job. For example, Laura Shin’s podcasts are terrific. There’s a number of other folks who’ve done really good work which is good for them, of course, but also for the space. More things like deep dives into certain projects and what the developers are working on is what deserves to be celebrated.
In general, I’m fairly skeptical of private chains. In many cases, that I’ve seen, is that they really just need a database that works. So, too much focus on private chains gives corporations or banks them the impression that they’re being innovative and progressive, but not actually have to do that. I think there are exceptions, however.
For example, Kadena, in which I am an investor, and I think they have an interesting model where they have both a private chain and a public chain. One use case for the private chain, involves an instance in which you have multiple stakeholders who are seperate companies and who don’t necessarily trust each other, but who need to collaborate on a particular subject.
A private chain could be interesting in this example because there’s a sort of consortium responsible for maintaining the ledger and everybody can see that it’s been maintained appropriately and things are happening as everybody is saying they are. They still need to have some control over their data and a little bit more ability to give and remove access to participants, just in there potential in dealing with very sensitive information. In this particular case, a permissioned chain could make sense, but in other cases I think it’s a little bit more hype-driven and hopping on that bandwagon because it sounds good more so than they actually need the technology.
One thing that I read quite recently that I thought was quite interesting was the most recent post that 0x put out.
As I’ve been spending a lot of time thinking about exchange infrastructure and one issue that I’ve heard come up repeatedly from folks who are institutional traders from the traditional hedge fund world, who are trading crypto, is that they cannot be trading on [DEXs]. In part because of performance issues, but also because of KYC and AML requirements and needing to know who your trading counterparty is. So the blog post is basically an explanation of what would be effectively a permissioned pool whereby in order to trade in a particular pool, you would have to meet certain KYC/AML requirements and then have access to that pool and everyone in it would have been pre-approved in the same way.
That’s a pretty interesting concept which is helping to bridge the gap between regulation and actual technical feasibility. I also think it’s indicative of where we’re headed and maybe some larger trends.
Peter Todd has been one of the most vocal developers in the Bitcoin space and for good reason. The 33-year-old Canadian software engineer has been fiddling with the pioneer cryptocurrency for some time now, and when perusing his blog, much of this work has also shaped much of the crypto narrative.
Surrounding this has been a few notable Twitter quarrels with Ethereum co-founder Vitalik Buterin, his work with OpenTimestamps, and reflections on the “hard sci-fi” of mining bitcoin in space. In the following conversation held at the Hacker’s Congress 2018 in Prague, Czech Republic, BTCManager sat down with the coding whiz to go over some of the major topics in crypto.
It was very much not open source work. A zillion NDAs covered it. It was actually an analog electronics designer and a geophysics startup. Essentially, my job was to design the electronics that connected to the physical hardware itself and then condition those signals for digital. It was right at that transition zone.
Yup, definitely open source. I mean, there’s only one way to do software.
No, closed source code is bullshit. Especially when security is involved. I mean open source, in general, just makes sense, but in software, and the economics of it are just so clearly pro-open source. The correction cost is zero. The economics are dominated by actually building it, and it’s the cheapest to build it so you can see everything.
I would say it’s actually the reverse.
I think that Microsoft’s previous business model completely failed them. Microsoft has just had to accept the reality that closed source isn’t the way to go. Their cloud computing offering Azure, for instance, is currently running Linux, not Windows, on the majority of instances. And that’s Microsoft’s own offering. They started off Windows-only in the early days, and they had to give that up very quickly because Windows just can’t compete. When I do consulting, like security consulting, if a client proposes we be using a closed source component in their system, I just say “no.” That’s just unacceptable. How do you know what it’s doing?
Nothing that comes to mind.
I think the community stuff is much more important than the software. There are far more risks involved there. Software, you can work around problems relatively easily. If you build layers up top, and Bitcoin, of course, doesn’t scale at the core layer, but we found ways to scale on top.
Reasonably confident. They’ll be fine for another ten years. And by that time in another ten years who knows what people will have come up with. Plus, what matters is not Bitcoin per se, but rather freed digital currency. That’s what matters. And if Bitcoin’s architecture proves to not quite work right, well other things can come along later.
Bitcoin is as free as it gets in terms of freedom. But if it’s something that was technologically better, if that genuinely came around…but currently, I don’t see anything that is with all things considered.
The community is focusing mostly on layer two stuff. I’m focusing on completely different stuff. Right now, I’m not contributing actively to Bitcoin core. I’m doing stuff around it.
The most public one that’s actually in production is OpenTimestamps, which proves how old data is. The analogy is that it’s kind of like carbon data where you want to show that some data existed in the far past. If it existed in the past, well the bad guys don’t have time machines. If they don’t have time machines, then you know that the attack can only happen in the present and then you can rule out the attack. That’s often very valuable.
You can say simultaneously both are true. Pure downtime in Bitcoin is incredibly expensive. Minor revenue alone is, I’ll probably wind up giving you the wrong number, but certainly on the order of like millions a day. You don’t want to be there.
And the businesses on top of that, again, very expensive and so on. But for that to go and kill the currency, a lot of other things would have had to go wrong. Now, that doesn’t mean it’s not serious. Airplane disasters, for instance, use the Swiss cheese model in how they discuss the situation. A disaster happens when all the holes in the Swiss cheese lineup. So, we had one big hole in the Swiss cheese, but we had other things that were not holes.
A good example of that is, yes, you could have double spent, but enough people are watching the chain in various ways that they probably would have noticed that something had gone wrong because various implementations and auditing stuff would have kicked offline. And once that notice happens, then people can start raising the alarm. And Twitter alone; you can go from an audience of zero to an audience of a million in minutes.
It would have taken very little time for that bug to be fixed, and most likely in that scenario, you would have rolled back the chain maybe a dozen blocks or something and gone on from there. It’s not the end of the world. It’s expensive, but this isn’t a long-term disaster.
On the other hand, in a different scenario like where Ethereum is headed. They have far fewer people actually watching the chain.
Actually, having a copy of the chain.
Exactly. In Ethereum very few people have full nodes, and the full node implementations don’t work very well. And because of that, if you can’t monitor it, you’re not going to notice this stuff, or maybe you might notice after three days.
After three days, do you roll back the chain or do you just accept that someone made a bunch of money out of thin air? It becomes a lot more dubious. It also makes it a lot more profitable to attack. If you tried to attack Bitcoin with this bug, you’ve got to spend a ton of money to create an invalid block, and then after you’ve spent that money you’ve got to go make it back by defrauding people.
You have to put in a bunch of investment, and your return is uncertain. The most likely scenario is where it gets noticed and gets fixed relatively quickly. The chances are you wouldn’t make a cent, because how do you get your money after?
This is kind of why I advise clients. I mean, if they’re accepting big bitcoin deposits on the path of clients, they should strongly consider waiting a day before actually considering them as valid. Because if you wait that time period, waiting a day means, well, did you defraud us? No. Okay, we’ll accept it now. If yes, well, we’re just not going to give you your money back. The chain got rolled back. Your transaction never existed.
Probably a bit of both.
I’m sure there are critics of Bitcoin who would be watching this stuff all the time.
And that’s a good thing. It’s good to have those people looking. Also, things like Bitcoin monitoring services. Blockchain.info got their start just showing the transactions, the stats, and so on. These people wind up re-implementing things, and that’s always an opportunity to put in sanity checks. That’s where all the supply of Bitcoin increases when it shouldn’t, that’s either a bug in your code, or it’s a bug in the Bitcoin protocol.
And when you see that, naturally it raises alarms and you start asking why is your site giving bogus results. Well, maybe it’s because something is actually really broken, it’s not just your site.
There are lots of people who do things like that.
Very, very satirical. I hope you noticed the photo on that, which was a literal block mesh. It’s a better joke if you’d actually see that image. I think that that’s a very good example of people just saying “blockchain” when they’re just trying make it sound like they’re doing something to solve a problem.
Nope. On the other hand, I mean you could certainly find use cases for blockchain in basically anything. A blockchain is just a chain of blocks. That’s the definition I use, and a chain of blocks can be useful in all kinds of things.
Your file system in your computer has roughly that same technology. With blockchain, though, you can now verify that the contents have changed unexpectedly. If a speck of dust lands on your hard drive that’ll wipe out some data, and you want the same kind of technology as blockchain technology to determine, did that data change since the last time we hashed it? That’s how simple Bitcoin ultimately is.
I don’t entirely agree with his article.
He’s right in the sense that the semantics is a wasteland, but I’m not sure the solution is just to say “we’ll come up with entirely new terminology.”
For starters, entirely new terminology would probably have the same semantic problems after a year or two anyway. This doesn’t stem from people’s misunderstandings. A lot of this stems from straight up fraud. Ethereum is an example. It got its start in part from fraud, from people making up use-cases that would obviously never work and advertising it to gullible investors. If you think of Vitalik, prior to Ethereum, he was off shilling a quantum computing scam.
Yeah. His excuse was he was 18, and he didn’t know what he was doing. Of course, it gets portrayed as if he was a young teenager, which isn’t true, he was an adult. He was in college at the time, or I should say university at the time for North American terminology, and it’s just so dubious. He knew what he was doing; he’s not dumb.
Well, you notice how that’s happened less frequently? I think he realized he can’t win those kinds of debates. He’s much better off just insulating himself with like-minded people. He doesn’t debate people that much.
Probably a bit of both. It can be very helpful at raising alarms and uncovering stuff very quickly. But, like media in general, it isn’t necessarily that effective. Most of the problems really stem from this big chunk of people who would otherwise be reasonably honest, but they’re willing to tolerate scams.
To name a concrete example, one guy I used to respect more was Christopher Allen. He wanted a good time stamping protocol to exist and, long story short, I had OpenTimestamps on and off for a while. I actually got it to the point where it was working and roughly around the same time another competitor came onto the scene and started doing their time stamping stuff. A little after that, they launched an ICO and lied about what their system could do relative to my system.
Christopher Allen and a few other people came and said “you know we should talk about this in private,” and “don’t make a big fuss, et cetera, et cetera.” Well, I’m sorry, that’s just dishonest. You know damn well Tierion lied about what their product did. There’s no reason to sugarcoat this. They lied about it, and they should be treated very harshly for this.
The right outcome is for them to apologize and take the stuff down. Of course, they’re not going to do that because they materially lied to investors. They dug themselves into a hole. And what does Christopher Allen do? He later takes a pile of money from these people to fund one of his own projects. You can see what the motivations are there.
Even if not intentional, you just being kind of nice to people, and you get rewarded for that. But it’s just not good for the public.
I’ve noticed in general the people who argue most strongly to be civil, they’re usually the ones in bed with scammers. Which is really sad, because, in any other field, you would want to be all over this. This sort of crypto finance, in general, is a very special case because you make a ton of money by scamming people.
If I were in say programming language design, it would be a completely different discussion, because there’s just not these opportunities to make money by scammers. No one makes money by introducing a new program. At least not on the level that you do by scamming people in ICO.
The assumption in those fields should be “we’ll assume honesty.” Bend over backward to assume good intent. That’s not true in crypto finance. In crypto finance, it’s much more likely that the guy is saying something that’s misleading. He’s probably lying to go make money.
Well, you have to ask what type. The algorithmic stable coins, which that don’t have things backing them, they’re probably downright dangerous. There’s good reason to think that they all could fail if the market parameters get out of whack, but the more boring stable coins, which actually have something backing them, they’re reasonable enough.
And the crazy thing about it is even something as dubious as Tether still hasn’t done proper audits. From the point of view of an investor who just wants to buy some Tether to move some money around, they can make a lot of sense even if the backing doesn’t exist, which is kind of insane. But you’d hope the market would eventually then get better alternatives.
I think the obsession is they’re a good narrative to investors. It’s not about it being useful; it’s about it being a good narrative to investors. They come out of this sort of Tierion side of thing, where lying to investors is relatively accepted. I wouldn’t be surprised if a lot of them aren’t really going to work, and they’re going to fail, and a whole ton of money will be lost.
I mean, I wish I didn’t have to.
Well, the ones that impressed me are the technologically simpler ones, which are just, “we got our ducks in a row, and we figured out the regulations, and here’s this offering.”
I think I could be misremembering, but I think Coinbase, or one of the major well-known companies, they recently announced that they’re going to do one, and that’s the kind of thing that’s reasonable. It will just be a boring coin. There’s no fancy tech involved. It’s easy to evaluate, whereas things that are algorithmic, we know that they will fail.
It just takes a bit of time for the parameters to get out of whack and it ultimately implodes. We’ve seen them fail before.
Well, of course, I’ll promote my own blog, which is at PeterTodd.org. And the standard advice I often give people is read Bruce Schneier’s book Cryptography Engineering. The reason is, it’s just a simple intro to crypto, and unless you understand the basics, you’re sort of swimming in the deep end.
BTCManager spoke with Tone Vays and all things surrounding Bitcoin outside of its price. The teacher turned corporate-financier turned back to teacher, blockchain consultant, and budding carnivore has had skin in the game long before Nassim Nicholas Taleb’s series of novels. The route to ~166,000 Twitter followers and becoming a master node of knowledge in the crypto game, however, has been far from traditional.
Since earning a bachelors in mathematics and geology from the State University of New York at New Palz, he became a high school teacher in New York City. Fortunately for the crypto community, the role didn’t really stick.
From there Vays got a Masters in financial engineering from Florida State University and then moved from Bear Stearns (pre-crisis) to JPMorgan (post-crisis) and got a front row seat into the great system of IOUs that is the world’s financial system. Now, he’s on the side of finance trying to reinvent the wheel with Bitcoin, and only Bitcoin.
An uncompromising purist, Vays explains in the following interview his distaste with the altcoin market, Bitmain’s shady business practices, as well as his attempts at living like a true carnivore (hint, it’s tricky). All of it insightful and none of it financial advice.
I have a background with JP Morgan and Bear Sterns before that. I was first hooked on trading and technical analysis since before my very first job. I learned how to trade in 2004 and my first Wall Street job was in 2007, but my job there wasn’t trading, but building risk models for hedge funds. I always wanted to be a trader though, and I eventually quit my job to be a traditional trader in 2015. Even before that, I was already in love with crypto, but mostly Bitcoin.
So, all of my experience was in trading traditional assets and even when I started trading crypto, I didn’t like trading crypto. I didn’t trust the exchanges and I didn’t like the illiquid markets, so I only traded for a little while.
Even today, the only trading I do is on the traditional markets, but I teach people trading because I have a big background in education. I like trading and I’m good at explaining things and in the crypto space I found a niche market where people are traders, but they’ve never “learned” it.
I’m able to almost dominate the crypto-trading-education market with all of my experience and skill set. But as far as “what do I trade,” I still trade traditional assets because I feel that I can make a better return. Or, not necessarily a better return, but its a better risk-reward ratio. I can trade the traditional markets in a low-risk way and I make a good enough return that I don’t have to add more risk to have a higher return in the crypto space.
The skill set that I teach is across all assets, not just crypto. It’s just that my clientele tends to come from the crypto space.
Because all of my videos are on my love of Bitcoin, my explanations of blockchain, and covering blockchain news. I do all of this because you can’t monetize that content. So, coming to conferences and speaking is so that I can spread the knowledge of Bitcoin, but I make money from what I do best, which is trading.
Right. My skill is trading and I can teach trading, but my passion is Bitcoin evangelism. I am able to monetize my evangelism by educating traders in the crypto space.
If a person has experience in trading traditional markets, there isn’t a whole lot of additional resources I can give them. If anything, I have to warn them that when you trade traditional markets, the one thing you don’t have to worry about is your funds disappearing. But in the crypto market, that’s a risk.
The other day, an exchange called 1Broker got taken down by the U.S. government and I had some bitcoin on that exchange because I used to trade there. I still had some on there that I’ve always been too lazy to withdraw, and now it’s gone. That’s the risk of a government deeming that exchange illicit and confiscating the funds.
Then you have external hacking that can happen, and you can even have internal hacking, like an employee running off with the funds. These are the risks that a traditional trader doesn’t have to worry about. I don’t have to worry about my exchange with my retirement fund running away with my money, that just doesn’t happen. Sure, there’s a risk of government confiscation, but it’s a lot smaller in the traditional environment than in the crypto environment.
As far as the trading skill set goes, I introduced a very popular Wall Street indicator. It’s called the TD Sequential and it is something that professional traders use, but not amateur traders. The reason is that it’s a very expensive and licensed indicator where, as far as I know, the only place you can get it, unless you want to write the code yourself, is through the Bloomberg Terminal.
Well, yeah. The Bloomberg Terminal is just an expensive terminal. A Bloomberg Terminal gives you so much information and a portion of that information is this indicator. Unless your willing to spend $3,000 a month on a Bloomberg Terminal, you just have no access to this one particular indicator. Because of that, there are very few people that know how to trade it. They’re just the top-notch professional traders. These people that know how to trade it, they’re not in the business of education. They’re in the business of sitting at home and trading.
I believe I introduced this indicator to the crypto traders and now I’d say a good 20 to 30 percent of all of the Bitcoin traders, are somewhat paying attention to this indicator that they would’ve never heard of. I am probably the best, if not the only resource for, not only crypto traders, but also traders with traditional trading experience to learn how to trade this particular indicator.
Now, if they want the actual version to appear on their chart, they still have to pay that $3,000 to Bloomberg, but at least through me, they’ve learned how to use it.
They’re going to get their money’s worth regardless. But the math of the indicator is public knowledge and I’ve coded it for TradingView, which is my charting software along with most people in crypto. Others have coded it too, so now, there are dozens of versions of this indicator. Some are coded better than others. I only trust the one that my developers coded, but anyone can code it, but I’m the one that introduced it to this space. Otherwise, no one would of heard of it because maybe less than one percent of all global trading uses it.
But I believe it’s the most accurate indicator there is. And I’m kind of proud of introducing this method of trading as it has given me some kind of expertise. This is why people continue to show up at my workshops to mostly learn this indicator along with my other knowledge of trading.
It’s a very advanced indicator. However, just because it’s an advanced indicator, it doesn’t mean that you should not be learning the basics of trading with that indicator alongside helping you. For example, when I was learning trading in the early 2000s, within six months of learning that trading even exists, I learned how to trade options.
Options trading is probably the most advanced and most dangerous trading you can do in the world.
No, it’s even worse. Except the money losing part. Options are what almost took down the financial system in 1992 with the long term capital management. The whole financial industry had to bail out a hedge fund that was being run by nobel prize economists who invented the option pricing model.
They almost took down the whole financial system with options. Options are a very dangerous tool that I don’t recommend anyone trade, but I learned it within six months so my trading, all of my trading, has been focused around options.
Regarding the TD Sequential, just because something is advanced and complicated, it really depends on the person. While I caution people to know exactly what they’re doing in trading, learning the most useful tool in the beginning is not necessarily a bad thing. It could get you going in the right direction from the start.
This is an interesting question. To me, fundamental analysis ends with Bitcoin. There are projects, rather than tokens, in the crypto space, however, that I do find long-term good investments. For example, Bitfury. I think Bitfury is a great company and I think they’re going to continue to do very well.
The long-term viability. I believe that Bitcoin is the only token that is long-term investment grade quality. Everything else, every other token, from litecoin, monero, on down through your ICOs, I think all of them are short-term penny stocks. I would never hold my value in any of those coins. Perhaps, for seconds at worst and a couple of months at best.
That being said, I teach people that you can trade anything you like. But if you’re going to put your money into a long-term hold, the only token in the crypto space that you can do that with is bitcoin. Now, because of my travel schedule and because I don’t trust exchanges, I decided to have a long-term outlook on bitcoin. Even though I’ve been bearish on the price of bitcoin and predicting sub $5,000 prices since January 10 of this year, I’m still holding onto most of my bitcoin. My time horizon for bitcoin is multiple years down the line.
I did sell a little bit of my bitcoin to pre-pay some of my bills for the year. However, my long-term view of bitcoin makes me comfortable to hold on and see its fall in value. I just don’t see that from any other token.
Mining companies could be very successful, you just have to pick the right mining company. I think Bitmain is problematic, I would never invest in them. But, Bitfury and Avalon [Canaan] seem to be very good companies.
It’s not about cornering the market from a hashing power perspective, it’s about all the rumors I’m hearing about them squeezing suppliers and competitors. Also them having ASICBoost and mining in a way that was deemed unethical in the community which they had kind of a gentleman’s contract, but they broke it.
They won’t cooperate well with their competitors. There are just lots of other shady practices that are going to cause them a lot of problems. They’re leading chip developer has quit to start a competitor, and when you lose your number one engineer and he goes and starts a competitor, that’s a big problem for your company.
So, I think Bitmain is a very bad investment and their biggest innovation was the supply chain, it wasn’t the ASIC chip. This is why Bitfury is a much better investment. Also, traditional companies like AMD and Nvidia are interesting investments.
It was no longer viable because the price of bitcoin has dipped, but we’ll see what happens on the way up. It’s also to Nvidia’s advantage to say that while they’re working on some good R&D in the background until they suddenly launch something. You have to be careful what these companies say publicly.
With mining and chip manufacturing, if you properly research the companies, you can do well. I think that companies involved in research and development of hydrology, cooling, and vent routing are also interesting. These mining operations need that. Energy companies, renewable energy, and the cheap sourcing of energy. These are traditional companies that could benefit greatly in the near future, and if you properly choose the right company, that could be useful in the mining of bitcoin. That could be a great traditional investment.
Of course. They hinge on the success of bitcoin. Also, what I thought might happen, but it doesn’t look like it is, the exchanges in the crypto space could also be a good investment. Current exchanges are still amateurish, but the idea is, Netflix is just Blockbuster, but on the internet. But they did it so well that they took Blockbuster out of business of bringing movies to your door.
I don’t think this is going to happen, but it’s an idea: When you have a crypto exchange that has hired the brightest people in order routing and order matching, and that exchange has the best technology and that exchange is making lots of money, they can then bring that technology to the traditional exchanges. If Coinbase, for example, did the right things and they had the right engineers, we could’ve seen a future where Coinbase had bought the NASDAQ, could’ve bought ICE which owns the New York Stock Exchange.
But because the crypto exchanges did not step up, they missed their opportunity. Crypto chip manufacturers, like Bitfury for example, have a chance to take out IBM, take out AMD, take out Nvidia, and be a top five company in the world.
Correct. The more money you make, the more innovation you have, the more talent you get out of college, and the more you can branch out the better. Amazon started selling books on the internet, and now their dominating web services. Who would’ve thought? They’re challenging Netflix for movie streaming now. They’re challenging music streaming. It is really about how much money you make from your core business and where you branch out.
Crypto exchanges could’ve had a chance to be something massive that took over traditional markets, but now it looks like it will be the other way around. But, there’s still time. You just need to look at these other industries that could potentially grow out of that crypto space and dominate the traditional space.
Correct. A lot of people are missing the fact that the hunt for the cheapest, most efficient electricity to mine bitcoin is going to benefit the whole world. And a lot of people miss that. There isn’t a need for renewable energy until you have an advantage on mining bitcoin.
Just like how the price of oil goes up above $100 a barrel, solar power does well because people look for alternatives. And every time oil drops to $20, no one cares about solar power because their energy is cheap.
It’s difficult for a hot wallet in your cell phone to make money, but the cold storage ability and the innovating in people’s preservation of bitcoin, that is monetizable. Hardware wallets and other custodial solutions that give that person the power to be their own bank, those could become very powerful and very profitable. It’s also, very challenging.
Bitcoin does certain things well. Bitcoin is the first un-confiscatable asset the world has ever had if properly secured. Bitcoin is censorship-resistant value transfer, which doesn’t exist in the fiat world, unless it’s hand-to-hand transactions. And Bitcoin has a hard monetary policy that is similar to gold and pretty much unchangeable.
But Bitcoin still struggles with transaction speed, transaction costs, even though it’s much better than last year, and fungibility, which is privacy. But there’s a road map and within the next two years, Bitcoin should have very fast, very cheap, and way more private transactions.
More like Schnorr Signatures and Bulletproofs. MimbleWimble is a little tricky technically. Lots of solutions in any case, lots of great things on the horizon. But Bitcoin still struggles with volatility, it’ll take many years for the value of bitcoin to rise enough so that your small transactions are not volatile in price.
Also, Bitcoin security is a challenge. In order to make it un-confiscatable so that you don’t lose it, there’s lots of innovations that still need to happen. It has to be way more user-friendly and I think there is money to be made there for the people that can solve the storage challenges and custodian challenges.
What happens when you die? What happens to your bitcoin? Mine is gone forever. How about you?
Exactly and these are the challenges that still need to be resolved and there is money to be made in solving these problems.
I am doing my best! Before I got into bitcoin, my hobby was diet and exercise.
Just more like looking good and feeling healthy. Competitions were like Tough Mudder or an obstacle challenge. I was playing competitive sports.
Volleyball mostly, but also baseball and softball for fun. I have also tried to keep my diet in check and to stay in shape. And I’ve always been a big fan of the Paleo diet because it did very well for me. And recently, I’ve been doing my best to be a carnivore, but it will take time.
There’s two things. Being a carnivore is sustainable and not health dangerous. The challenge is actually doing it. Eating only meat, and only red meat, can get boring, and while it’s easy to cut away vegetables, I still like my fruit and I still like my alcohol.
If you’re a purist, no. I think it’s a way for me to try out certain diets and eventually, in my next life of hobbies, I will design my own ultimate diet plan somewhere between Paleo and carnivore. Keep an eye out for the Tone Vays Exclusive Diet.
Concluding, BTCManager inquired about some outside reading and the philosophical basis for Vays’ bitcoin push. Naturally, Saifedean Ammous’ book The Bitcoin Standard and anything revolving around Austrian Economics came highly recommended.
After that, he explained his debt of knowledge to Martin Armstrong and Armstrong Economics for providing a “high-level outlook on how markets work,” and openly regretted not having yet read the entire blog. Finally, he gave a big shout out to Max Keiser for putting “Bitcoin in [Vays’] head.”
For more information on the life and times of Tone Vays, readers can also check out his blog LibertyLifeTrail which dives into sovereign thinking and the promotion of an independent lifestyle. After that, Tone Vays Trading delivers content on trading strategies, workshops, and consulting opportunities.
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