Erik Voorhees: Transitioning To a World of Digital Finance (w/ Raoul Pal)

RAOUL PAL: Erik, great to get you on Real Vision. 
I've been wanting to sit down and chat with you   for a while, so it's good to get here.
ERIK VOORHEES: Yeah, happy to be here.   Thanks for having me.  RAOUL PAL: Listen, for those people who don't know 
you, I'd love to hear firstly your background and   then how you got into this whole space, because 
you've been in this space for a long time.   So I'd love to hear some of the story.
ERIK VOORHEES: Yeah, becoming an old man.   So I got very interested in monetary economics 
sort of during the financial crisis.

And   I was living in Dubai. I was just out of 
college. And I saw the whole world burning   for 6 months before it ever hit Dubai. And it 
was kind of this surreal time where everything   felt fine where I was, but the rest of the world 
was falling apart. And I got really interested in   Austrian economics, in banking generally, what 
money was, how it worked, all these things.  And kind of came to the conclusion during 
that period that money was really like the   most important good in society.

And that 
because it was the most important good,   it was the most important good to not be centrally 
planned or controlled. But I didn't really have a   good suggestion or alternative. Goals has 
obviously been money for a long time, but   had fallen out of practice with almost everyone.
But I was ready for when I heard of Bitcoin.   I was so eager and excited for 
some kind of solution like that.  RAOUL PAL: Who told you? How did you hear? 
What was the seeding of you and Bitcoin?  ERIK VOORHEES: So it was a friend of mine named 
Keith Ammon. He was a fellow Free Stater in   New Hampshire. He's now a state Congressman, I 
believe, in New Hampshire. I had joined the Free   State Project after coming back from Dubai. And so 
he had posted something on Facebook in May of 2011   about Bitcoin. And after reading a couple of 
articles, I absolutely fell in love with it.  It just seemed to me like– the fact that it 
couldn't be stopped, and the fact that you   could move value anywhere instantly at near zero 
cost, and then anyone could do it from anywhere,   to me seemed like the most obviously 
valuable invention I had ever seen.   So fell in love with it.

And it's been my 
hobby and passion and career ever since then.  RAOUL PAL: So what was your– when you first– 
because everybody's idea of both Bitcoin and then   the whole space kind of it changes, right? 
You hang onto a narrative to start with,   you think, right, I get it. And then you 
realize you don't get anything. And then   suddenly the whole thing opens up. What was 
your original narrative that you kind of got?   It was the stateless money transfer of value?
ERIK VOORHEES: Yeah, with Bitcoin, the narrative   I've had since the beginning has stayed the 
same, this, as you put it, this stateless money.   A form of money that was beyond borders, that 
was not attached to a flag, that was immutable,   that no one could print more of, and that didn't 
censor people.

It was just like this neutral   ground for the world that couldn't be stopped. And 
that has very much remained what Bitcoin is to me,   and why I think it's been so successful.
What has changed that the industry has gone from   just that, which itself is a huge invention, 
to that plus all these other different crypto   experiments, many of which aren't going anywhere 
interesting, many of which are changing the world,   and everything in between. And so I like to use 
this analogy of like this tree. And the trunk   of the tree is Bitcoin. And from that trunk, 
many different projects have sprung out. And   so it's now just completely overwhelming, 
because there's so much stuff going on.   But that core stateless money is great.
RAOUL PAL: Yeah, we'll dig into some of   that in a bit I just want to hear your– so you 
hear about Bitcoin, and then you decide to start   a business? Or what did you do now?
ERIK VOORHEES: Yeah.  RAOUL PAL: What was the thing that 
did once you found out about it?  ERIK VOORHEES: Well, at first it wasn't —
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RAOUL PAL: Bitcoin, and then you decide to start   a business? Or what did you do now?
ERIK VOORHEES: Yeah.  RAOUL PAL: What was the thing that 
did once you found out about it?  ERIK VOORHEES: Well, at first it wasn't:it wasn't 
really something– like I immediately realized   there was a lot of entrepreneurial potential in 
that, but it was very small. I mean, the entire   market capital of Bitcoin back then was probably 
like $30 million. And really I just wanted to–   it was my hobby. It was like the thing that 
distracted me from my responsible job.

And at that   time, I was just doing like freelance marketing. 
So that was an easy thing to do less and less of.  And kind of my first real job in Bitcoin, 
I had gotten in touch with Charlie   Shrem, who was down in New York City. Roger Ver 
was his first investor. Roger and I had met at the   first Bitcoin conference in August of 2011 in New 
York City. Roger suggested to Charlie that he hire   me to do marketing for BitInstant. So I was sort 
of the third person to join Charlie's little crew.  And then I had a job.

Then I was making like a 
salary. And I had moved down to the big city. And   that was super exciting. BitInstant, for those 
who don't, it was essentially a way of moving   money quickly into Mt. Gox. So normally if you 
had to send money to Mt. Gox, which was the first   big Bitcoin exchange, you had to wire 
internationally to Japan. And you know, wiring   sucks, especially internationally. So it can 
take 5 days or 2 weeks, and you never quite know.  So Charlie had figured out a pretty clever 
way of basically letting people deposit cash   at like 7- Eleven type places.

And once we 
knew that it was going to be in our account,   we would immediately credit them with the same 
amount of money at Mt. Gox, which we already had   there. So people would get money at Mt. Gox 
in an hour instead of in 2 weeks, which was   hugely exciting and useful for people.
So that was really my first job. And during that   time is when I also started Satoshi Dice, which 
started as a side project and ended up becoming   like the world's biggest Bitcoin gambling site
and half of all the Bitcoin transactions for the   first several years of its existence. 
So that got a little out of control.  [LAUGHTER]
But those two projects were like my   late 2011, 2012 time frame.
RAOUL PAL: And then what   happened when Mt.

Gox went Under? How   did you get affected by all of that?
ERIK VOORHEES: Yeah. Well I had left   BitInstant by then. The Winklevai had invested 
in BitInstant, and we had a falling out. I left,   moved down to Panama. And it was about 
nine months later, so late 2013 when   Mt. Gox started having serious issues. And I think 
it was the very start of 2014 when it collapsed.  So at that point, my business wasn't reliant at 
all on Mt.

Gox. But obviously it devastated the   whole industry, and it was a cataclysmic event.
RAOUL PAL: And then what happened with the   Satoshi Dice? Where did you go with that?
ERIK VOORHEES: Yeah. So Satoshi Dice became very   successful. It taught me a lot about statistical 
variance, which I did not appreciate. Like   everyone knows that the house wins, but 
Satoshi Dice had very thin margins. And   so I would go through weeks or months 
of losing money as the house, and   this paranoia of, like, did someone figure 
out an exploit, was constantly in my mind.   That was very stressful.
But what was more stressful was   I knew that Bitcoin was itself going to be a very 
controversial technology.

Like stateless money is   truly something new and is going to make a lot of 
enemies. And I was a very outspoken proponent of   Bitcoin. I was also the public face and founder of 
Satoshi Dice, the world's biggest gambling site.   Gray area, whether that was legal or not, 
as gambling it depends on the jurisdiction.  And so I realized that if I wanted to really 
help Bitcoin grow, just from an optics and legal   risk perspective, I shouldn't also be running the 
world's biggest Bitcoin casino. Like I kind of had   to like go underground and do the casino, or stay 
as Erik Voorhees and be the Bitcoin proponent.   And my goal with all this is really 
to advance Bitcoin, to advance this   idea of stateless money.

And so I made the hard 
decision to sell Satoshi Dice. And that sucked.  It was like my first big success, and something 
I was really proud to have built. And had to   kind of let it go in order to stick with Bitcoin.
RAOUL PAL: And then you started ShapeShift?  ERIK VOORHEES: Yeah. ShapeShift the idea for 
that was early 2014. This was pre-Ethereum.   Bitcoin was, I think, 98% of all crypto value, 
or 99%. And I saw– I used to be a Bitcoin  maximalist, and I hated all these other projects 
and coins. But I came to the realization,   2 things. 1, these other projects were 
actually part of the decentralization that   was so important to Bitcoin. And 2, that a 
lot of these things weren't just trying to   be like a narrow form of money, but they were 
actually trying to do something different.  And with those 2, that kind of broke me out of 
that spell of the tribalism and just thinking   Bitcoin is the be all, end all of everything.

And 
I realized that for this industry to grow, people   needed an easy, safe way to convert one digital 
asset into another. And Mt. Gox had just happened.  I wanted to do something from what I had learned 
with Satoshi Dice, of how you can build a service   that is non-custodial, where you're not holding 
any funds. A user sends a transaction in,   and the service sends a transaction right back. 
Same model as Satoshi Dice. So that's where the   idea for ShapeShift came from.
RAOUL PAL: I mean   this Bitcoin maximalism thing is really prevalent 
right now. I mean, you see it a lot on Twitter.   I see it a lot on Twitter. Why?
ERIK VOORHEES: It drives me crazy.  RAOUL PAL: Well, yeah. Me 
too. But why do you think   it is like that? I've got my own thoughts on it, 
but I'd love to hear why you think it's so strong.  ERIK VOORHEES: I think the fundamental reason 
is that there's a very human tendency toward   tribalism.

Humans evolved in these small 
tribes. There's a lot of survival reasons   why people have affection and trust for those 
around them and fear for those who are not part of   their tribe. That's ingrained into our minds. And 
it expresses itself I think in a lot of ways from   people who are vehement sports fans, and they 
love their team, and they hate every other team,   to people who love their political party 
and hate every other political party.  And it just it has emerged in crypto, right? And 
you have all these different crypto projects. You   can understand why someone who owns and loves 
Bitcoin would look at these other projects   as competition, or just dismiss them as scams or 
as a distraction. And so they fall into this kind   of perpetuating spell of needing to justify 
why Bitcoin is better than anything else,   and why those things are always bad.
And I think it's very poisonous.

It leads to a–   whatever facts they learn about 
or whatever stories they hear,   they start painting in the Bitcoin 
good other coin bad narrative,   right? So every time they hear something bad 
about Ethereum, they'll think about that. And   they'll regurgitate the bad thing. And they'll 
recite the bad thing about Ethereum on Twitter.  And every time they hear a bad thing 
about Bitcoin, they'll do the opposite.   They'll justify it. They'll dismiss it. They'll 
defend it. They will come up with a long argument   about why it's not actually that big of a 
deal. And so they'll defend their tribe,   and they will ridicule the other tribe. And 
it just is like this perpetuating phenomenon.   And, yeah. It sucks. It's really a distraction.
RAOUL PAL: I mean one of the things that– I mean   I looked at this. And one of the things I realized 
is Bitcoin is the world's greatest behavioral   economics experiment. So it's an incentive based 
system, loosely based around Metcalfe's law,   which means that basically if you think 
of Metcalfe's law as applied to Facebook,   the more people get– so you get your friend 
on that you went to school with– your utility   valued from that is you get more connections 
with people.

With Bitcoin, you get more money   because it goes up.
ERIK VOORHEES: Yeah.  RAOUL PAL: Right? So that everybody is 
massively incentivized to think of it   as their own network, and everything else 
therefore is a threat. You and I would come at it   and say, no, the whole thing is the network.
ERIK VOORHEES: Mm-hmm.  RAOUL PAL: And so none of this is a threat. 
They're all compliments to each other.   But the really strong behavioral economics of it, 
if I get you to convert from Ethereum to here,   then the value of my network goes 
up. It's kind of like genius.  ERIK VOORHEES: Yeah. And that's what really 
sucks about it, because it distracts people   from the important picture, right? Like it's great 
to make money.

I've made lots of money in crypto,   the vast majority from the appreciation in 
Bitcoin itself. That's awesome. I love that.  But that's not the point. The point is not to make 
a bunch of money. There's a lot of ways to do that   in life. The point is to actually change how money 
works, and how finance works, and how the entire   global economic exchange apparatus works at a 
fundamental level. And anything that advances that   cause should be applauded. And anything that harms 
that cause, I think, is fair game for ridicule.  So I see these different experiments as attempts 
at moving this out, right? Even if Bitcoin is   the best money the world has ever seen, and I 
have made that argument for close to a decade.   Money itself is not the sum total of 
financial interaction.

You need tooling.   You need financial services, right? You need all 
these different things that money itself is not.  And Ethereum comes along, and allows people 
to start building some of this tooling in a   decentralized way. So profoundly 
important, like so inspiring and   magical, as magical as money doing that.
RAOUL PAL: When Ethereum first came along,   and you were Erik the Bitcoin maximalist, 
so you see Ethereum. What did you think?  ERIK VOORHEES: To be honest, I didn't understand 
it enough at the start. So I did not buy into its   token sale. I've known Vitalik since he was like 
18 writing for Bitcoin magazine. So I should have   been a little closer and ready to pounce on 
that opportunity. But the fault lies with me,   because I did not understand this whole concept 
of smart contracts and Turing Complete Blockchain.   It did not make sense to me at the time.
I understand it now,   but back then I didn't.

So I kind of just thought 
it was this weird thing. And I wasn't quite sure   what to make of it, but was kind of skeptical.
RAOUL PAL: Yeah, because it's harder to pin a   simple narrative on, because by definition it's 
actually quite difficult. You know, Bitcoin is   very easy. I can go to my mom and say, it's kind 
of digital gold. And she'll sort of understand it.  ERIK VOORHEES: Yeah.
RAOUL PAL: But Ethereum,   that starts to become more complicated.
ERIK VOORHEES: Totally. Yeah. It's   absolutely a more complicated thing, absolutely.
RAOUL PAL: So, OK let's ignore Bitcoin for now   and look at the world that's developing in terms 
of all the digital assets. What is your vision–   we all change our vision as we go as we adapt 
to new things. But where do you think this is   all going in the system of exchange of value, the 
internet of value, all of the various components,   where is your big picture view?
ERIK VOORHEES:   Yeah, my big picture view is that the world is 
currently in the process of transforming from a   financial system and a whole economy based on fiat 
and banks, sort of an analog financial system,   to a financial system based on 
digital currency and blockchains.   And that transformation is 2, 3 decades long, 
will be completely upending of many current   orders, will have many enemies.
But ultimately will substantially   advance humanity forward, will create wealth, 
will make people on net far better off,   and bring about a much more transparent, 
fair, honest and immutable financial system.   So that's the big picture.

That's the goal.
RAOUL PAL: So let's talk about the battles   together. So there are battles to be had. 1 is 
we talked about the maximalism and the tribalism   kind of needs to come together. But I think 
that will happen over time as things–  [LAUGHTER]
ERIK VOORHEES:   I don't know. I don't know. I mean, there–
RAOUL PAL: We're 12 years into Bitcoin and   6, 7 years into Ethereum. It's not very long 
to build a mutual trust amongst tribes yet.  ERIK VOORHEES: Yeah. That's fair. I don't know 
what solves that. It's certainly something that   bothers me a lot. One thing that solves that is 
when people realize who the actual enemy is. The  enemy of the Bitcoin maximalist is not– it's 
not Vitalik.

It's the central banker who will   go out on TV in front of 300 million people and 
say how Bitcoin is used for terrorism and crime.  RAOUL PAL: That was– that's exactly the point. 
Is that the hurdles we've got to get through   are the battle with the owners of the current 
financial architecture. So that's the central   banks, the banking system, the governments, 
the regulators, all of that. The regulators are   making more noises. You must be closer to that. 
What's your view on regulation and where it goes?   Regardless of what your personal view is, because 
nobody wants to be regulated.

But the reality is   you're in business. And you kind of know–
ERIK VOORHEES: Yeah. There's a very profound   tension. The tension is this new technology came 
out that allows money to move without central   control. And there is an entire government 
regulatory apparatus of controlling money,   very entrenched. Most people support it. Most 
people believe it should exist. So it's popular   in some ways. And it's how things are done.
And then this technology comes along that refuses   to listen, can't listen, is immutable, can't 
be turned off.

These things are clashing. And   they will cause all sorts of little battles within 
that clash, right? It's like the unmovable stone   and the– what is it– the God who has all the 
strength in the universe and the unmovable stone.   It's like one of those paradigms, right?
And part of the challenge I think of   Bitcoiners is people who care about this 
technology is helping regulators understand   that many of their goals will still be supported, 
right? Like I don't think regulators are evil   generally. I think they're usually good people 
that tend to harm others without realizing it.   And a lot of them have noble goals. I think many 
of those goals will be met by crypto, by Bitcoin.  Many of those goals will be even advanced 
further. Like, which regulator doesn't want   a transparent financial system that 
reduces fraud? Like that should be–   everyone should agree on that.

But also at the 
same time, it will prevent them from having some   control and some surveillance that they're used 
to. And they're going to have to get over that.  They're going to have to realize, like, OK. Some 
of this power that I've always had and that I   think I should have is going away. And how much 
do I want to fight it? How many people do I want   to throw in prison for the crime of advocating an 
open, honest form of money? And like that question   I think is where a lot of attention will come.
RAOUL PAL: And how do you think that gets solved?   Is it by then saying, fine, we 
own the on ramps and off ramps to   the taxation system, to payments within society? 
So Bitcoin operates with that outside of that?   Because the other view is that maximalist view, 
which is, well everybody just adopts Bitcoin   as full money.

How do you see this play out?
ERIK VOORHEES: Yeah. I ultimately do believe   that everyone will eventually move to Bitcoin as 
full money, that fiat currencies will go away.   They fall apart on their own. They collapse 
on their own because they're printed into   oblivion.
BOTH: Yeah.  RAOUL PAL: Yeah.
ERIK VOORHEES: And   they've never had to deal with something like 
Bitcoin as an alternative. They always just   go into the next fiat currency. Now that there is 
a credible alternative emerging , they have a much   bigger challenge. So I do think humanity moves 
to Bitcoin over time. I think fiat falls apart.  This is going to make governments lives harder 
because currently they fund themselves in 3 ways.   They tax. They borrow, which is just taxing in the 
future. And they print. Those three ways are how   governments are funded. And as the world moves to 
Bitcoin, that third way goes away entirely. They   will not be able to print anymore. They'll still 
be able to tax.

They'll still be able to borrow.   But they will not be able to print money anymore.
And so that will necessarily mean that governments   have to shrink on a relative basis. Personally 
I find that the most glorious thing that   could come out of Bitcoin growing, is the 
reduction in coercive government. But a lot   of people obviously don't agree with that.
RAOUL PAL: What about the kind of tensions   around the– this is going back to Bitcoin– 
is the tensions around who's mining it? The   concentration amongst a few countries. How 
does that play into the– I mean it's obviously   sub-optimal. I think everybody would agree 
except maybe the Chinese would not agree. But   it's sub-optimal. How does that get solved over 
time? Because people are working on it, and it's   very interesting to see how that gets solved.
ERIK VOORHEES: Yeah. 2 points there. 1 is   the question of who is mining, how centralized 
that is, and where it's being mined,   has been a controversy for 10 years, from back 
when I was on the Bitcoin forums people were   talking about this thing. But I think what people 
forget is they'll look at like a static analysis   of what mining looks like.

And they'll come to 
some conclusion like, 60% of mining is in China,   right? And maybe that's factually correct.
But they don't realize it's not a static   thing. It's a dynamic thing. It's a dynamic 
system. And the mining can move and has moved   around the world. So to whatever degree mining 
in any territory or place becomes problematic   or is clamped down on, the mining industry 
itself, the hash power, migrates somewhere   else. That can cause disruption. It's 
not like a perfectly smooth process,   but it's not like the mines are stuck there.
It's not like we have to assume that in 10 years   60% of mining will be in China. We don't 
know that. We don't know where the mining   industry will evolve. So I think once people 
realize that that is a very fluid industry,   and it can change where needed. It's anti-fragile. 
Hopefully that will allay some of the concerns.  RAOUL PAL: Yeah. Mining is just cost base. And 
if people can figure out cheaper cost base,   hence why Russia does a decent amount of mining 
because they've got cold weather and a lot of   power.

I mean it's kind of a no-brainer, right?
ERIK VOORHEES: I've heard, I have not validated   this, but I've heard that the Bitcoin mines 
in Iceland consume more energy than all of the   people in Iceland.
[LAUGHTER]  RAOUL PAL: There's only about 12 and   1/2 people in Iceland, so probably true.
ERIK VOORHEES: Yeah. I think there's 300,000,   something like that. So it's not huge obviously. 
And this is, of course, green energy there. Like   this is thermal energy from the earth. So, 
yeah. Mining moves around and changes, and   that's just a fun part of how crypto works.
RAOUL PAL: Yeah, absolutely. So in terms of   the broader space, what's exciting you right 
now? What are you looking at and thinking, huh,   this is a game changer, or this could be 
something interesting.

Because it's very   difficult, as you said, it's overwhelming. I 
mean, I can't get my head around everything   that's going on. There's so much innovation, so 
much trial and error and failure and success,   all at the same time. It's incredible.
ERIK VOORHEES: Yeah. Yeah, I mean it's   overwhelming for those of us who are in it 24/7. 
What I'm really most excited about right now   is the rise of decentralized exchanges. Like the 
crypto theme of 2020 was decentralized exchanges.   It was Uniswap and the projects like that.
RAOUL PAL: Explain. Sorry. If you can explain   to people a little bit, some people who 
are not familiar with how that works,   how do they work? What are they?
ERIK VOORHEES: OK. So   Bitcoin is obviously decentralized. You can move 
it anywhere. No one can stop you. But exchange   of digital assets has largely been done in 
centralized custodial exchanges, generally   order book exchanges. People put a bunch of crypto 
in there. They put up their bids and their asks   and trading happens. And it's quite efficient. 
It's dangerous because of the custodial risk.  But it is also like it diminishes the immutability 
and the decentralization of the system as a whole.   So for a long time people have been talking 
about decentralized exchange and have known   that it is possible.

And there have been various 
iterations of decentralized exchanges, basically   building a platform where people can trade digital 
assets without a central company behind it.  And that didn't really take off because 
the latency of blockchains meant order   book exchanges just didn't work 
very well. They were too slow,   too costly. So the volume and the liquidity 
kept staying at the centralized exchanges.  About 2 years ago, 2 years ago is when Uniswap 
launched. And it wasn't the first with this model,   but it certainly popularized it. There is a 
new model of exchange called liquidity pools.   And it's not an order book at all. You 
essentially have a pair, like Bitcoin and S,   and people put both those assets into 
a liquidity pool.

Whatever the ratio of   those assets is is what determines the price.
So people put assets into this pool. And when   you trade from 1 to the other, the price 
you get is based on the ratio of the pool.   The pool tends to be the same price as order book 
exchanges, because arbitrage keeps them in line.   So what it means is that you don't need 
this sort of high frequency throughput   of a centralized order book exchange in order to 
get high liquidity, high value trading going on.  And Uniswap is the exchange that has really 
turned this from a, yes, it can be done, to a,   wow, this is actually being highly used. Uniswap 
is currently doing hundreds of millions of dollars   a day in transaction volume.

They have surpassed 
Coinbase on certain days. And this is just getting   started. And not only is– it's not like Uniswap 
came along, and it is the decentralized exchange.  Uniswap has spawned like an entire field of people 
experimenting with decentralized exchanges. It's   open source code. People are copying it and 
creating other things. There's SushiSwap,   which was like a copy paste of Uniswap. And now 
it's doing hundreds of millions of dollars a day.   These things are changing so fast. And what it 
means is that the decentralization that everyone   has enjoyed on the money protocol layer is moving 
one layer higher to the exchange layer also.  That's very exciting.

That helps the system grow 
into a more immutable, more decentralized whole.   So decentralized exchanges are just 
really where people– people should   understand them. Anyone in crypto needs to 
understand how Uniswap works. That's like   table stakes for the industry.
RAOUL PAL: We've seen a bunch of   kind of the pull of liquidity moving from 
one to the other. Talk me through some of   the pitfalls that people have been learning 
as they've been building out these businesses,   because it's not been a clear run of it, has it?
ERIK VOORHEES: Yeah.

I mean I don't want to   pretend that decentralized exchanges are a 
panacea. They have different trade offs and   different problems. Instead of trusting a central 
server, you're trusting protocol code. It can have   bugs. It can have hacks. It can have all sorts 
of horrible problems. But people will fix those.   However many problems there are, they will get 
fixed and iterated on. So that's important.  2, is that this does not solve the fiat stuff. 
You cannot trade fiat in a decentralized way.   But you can trade Stablecoins in a decentralized 
way. So as you've seen the rise of Stablecoins,   Tether is like $20 or $30 billion in 
existence at this point. People are   using cryptocurrency Stablecoins as their fiat 
proxy. And they're never going back to banks.  They're never going back to the fiat at the 
banks. They're just– if they want to de-risk   out of the volatile crypto, they go into a 
stable crypto.

So that's been really cool.   And those can trade on dex's all day long.
RAOUL PAL: So where do dex's go from here?   Because right now, I mean as the whole 
world gets tokenized and everything   becomes a digital transfer of value, it 
sounds like there's something really big   here. And I can't get my head around it.
ERIK VOORHEES: Yes. They will consume   more and more trade volume. The big step 
for dex's now is to go out of Ethereum.   All dex's today generally are Ethereum based. And 
you can only trade Ethereum and ERC-20 tokens.   That's still the majority of assets, 
but it doesn't include Bitcoin,   the most important asset at all. It 
doesn't include many of these other   important chains on the base layer. It 
doesn't include Monero, for example.  The next step is doing cross chain decentralized 
trading at scale with liquidity pools.   There is a project called THORchain that is 
doing that.

They have not fully launched yet,   so they still need to prove some things. But if 
that works as intended, you will be able to trade   native Bitcoin on the Bitcoin chain for 
native Ethereum on the Ethereum chain   through a decentralized highly liquid trade. 
That will be an absolute game changer. And I   think that will be the theme of this year, 
of 2021, is that that will start happening.  RAOUL PAL: The interoperability layer is something 
that seems that it's coming as well.

As everybody   builds out these kind of networks and protocols 
and applications, there's a feeling that there's   another layer to come on top of that that ties 
it all together to make it seamless. What's your   thoughts on that? And that sounds like THOR 
is doing really there, within that somewhat.  ERIK VOORHEES: We currently have this 
islands of chains, right? Bitcoin,   and then you have Ethereum, a lots tokens on it. 
But these things don't really talk to each other.   A few projects have been trying to solve 
that. I'd say the most prominent one is   Cosmos.

Cosmos is essentially trying to build an 
ecosystem of chains that can talk to each other,   of bridges between disparate genes.
So that a Bitcoin can go into a Bitcoin address,   a 1 to 1 backed token on a Cosmos zone is created. 
That can move across to a different zone in Cosmos   and then be converted to some other asset on some 
other chain, all of which have no counter parties,   all of which have no central custodians or 
anything. So cosmos is the most ambitious. It is   launching this thing called IDC inter- blockchain 
communication like just in a week or 2. It's been   4 years in the works. And so that will be big.
And again, that hasn't been proven yet.   So it's sort of like still needs to vet itself. 
But if that happens, you'll start seeing these   chains be able to have their own advantages 
and still work with each other, right? Bitcoin   has advantages that Ethereum can't and doesn't 
have, and vice versa. And a world that has both   of these things easily composable together 
is a better world. So Cosmos is doing that.  RAOUL PAL: I believe Polkadot is trying to do that 
as well and maybe a couple others.

But those are   the 2 leading one. Quantum Network is another 
one isn't it? Quant, I think, was the other   one that we called talked a lot about. Quant–
ERIK VOORHEES: Yeah, don't know that 1.  RAOUL PAL: –Quantum Network.
ERIK VOORHEES: Yeah,   see can't keep up with it all.
RAOUL PAL: No, it's impossible. But   it's fascinating because you and I are talking 
now in a way that back in 1996 would have seemed   inconceivable.
ERIK VOORHEES: Yeah.  RAOUL PAL: Right? So I don't know 
what type of computer you're on.   We corresponded on Twitter, which is a 
platform. I'm using a different computer   to you. I'm in a different continent. 
We're using video. All of the stuff,   we don't care anything about what drives it. 
I just know I click on Zoom, and you're there.  ERIK VOORHEES: Yeah.
RAOUL PAL: Right? In other words,   interoperability that once you– we stop 
becoming tribal, really, when we don't care.   We don't care how I send you money.

And it 
could get 3 different chains to get there.   You know? And that becomes super interesting
ERIK VOORHEES: Yeah. And your analogy with   computers and like this video talk we're doing 
right now, the reason that works is that you have   this borderless super inexpensive transmission 
of communication, right? You can speak,   and I can hear you, and vise versa. And you can 
talk to anyone, anywhere in the world like this.  You don't need a license to go communicate 
with a video call with someone else.   You don't need to walk down the street to, like, 
file a request to have a call, and then wait a   week for your call to start. And yet all that 
exists in the banking system. It's preposterous.  [LAUGHTER]
And when that's gone, when all that's gone,   and people look back at, like, even in the year 
2020 an international wire would take multiple   days. Like, this is an analogy I like to use back 
when I was first promoting Bitcoin was like–   you can more quickly FedEx an anvil with cash 
tied to it to Japan, right? If you're willing to   pay for the shipping, you can get an anvil there 
with cash tied to it faster than a digital wire.  Why? It's preposterous.

The money that's going 
there is already digital. It's going in a digital   bank account to another digital bank account. 
What's the problem? The problem is that banks   have 0 desire to compete with each other as 
they are appendages of the state. And there   has been no fundamental financial innovation 
at the banking and currency layer because   government is the monopoly provider of money.
And what you've done now is you've cracked open   the market to start innovating with money 
and finance in a way that it's never been   able to do before.

You're going to start to 
see advancements that should have happened   a decade or two ago and are way overdue.
RAOUL PAL: Yeah. I mean I grew up in that   environment investment. I was investment banking. 
And almost all of it is going to get dismantled   over time. Investment banking less so because it's
the advisory part of the business that generates   a lot of fees for people. But the money 
center banks, I mean with the rise of   central bank digital currencies coming 
as well, it sounds like the governments   themselves have kind of got the gun to the head 
of the banks to put them out of their misery.  [LAUGHTER]
ERIK VOORHEES: Yeah.  RAOUL PAL: You know because you don't need a 
bank. You just need a fintech layer if you've got   central bank digital currencies. Now, I that's no 
solution in the world we're looking at. But it's   the growing acceptance of the digital world, 
that even the central banks kind of realize.  ERIK VOORHEES: Yeah, well and banks exist because 
they used to have a really important purpose,   right? Money was like a physical metal.

If you had 
a bunch of it, you needed a really safe place to   put it. You don't put that in your house. You 
go to a brick building that's easy to get to,   and they are trustworthy, and you 
leave your money in the brick building.  Money has all become digital. And those brick 
buildings are still there. And that's still   where you go for your money, and it's still where 
you go to send a transaction. It's a legacy habit   of how humans used to work when money used to 
be metal and physical. It's amazing that it's   taken so long to get out of that system.
Crypto has broken that wide open. And it   children today will grow up, I think, 
without ever having bank accounts.   They just will not need them.
RAOUL PAL: No, when you look at it,   it's objectively hilarious now compared to where 
the rest of the world is in terms of technology.   And to finance feels like it's the last part.

Well 
finance and probably government are the last 2   things yet to be fully disrupted by technology.
ERIK VOORHEES: Yeah. Yeah, government's a–   that's a hard nut to crack. [CHUCKLES]  Crypto certainly allows people to govern 
things in a much more resilient and robust   and immutable way. There is an irony in that 
when the government looks at crypto people,   they see a bunch of these, like, anarchist types. 
But what the anarchist types have actually built   is a system of, a true system of laws and not 
of men, a system of code-based laws that are   transparent, objective, execute exactly as 
written always, regardless of who you are.  Versus this subjective system of men, 
of government, which is subjective,   hard to understand, arcane, hard to change, 
hard to read, horribly unfair in certain   circumstances to certain types of people based 
on who they are, what country they were born in,   like all that kind of stuff.

Code doesn't 
care. Code doesn't care. It brings objective   money now, objective governance of
important systems to humanity. And   that's a beautiful thing. And I would hope 
most people start to see that as a really   important step for humanity.
RAOUL PAL: The step they're   going to take, however, is central bank 
digital currencies. ERIK VOORHEES: Yeah.  [CHUCKLES]
RAOUL PAL: Yeah. There's the   world that we want, and we're going to probably, 
and the world that we're being delivered, which is   more regulation. Fine, we get it, and central bank 
digital currencies. Talk me through how you're   thinking of this? What it means for Stablecoins? 
Because there's a war to be fought there. We   talked about the battles that needs to take 
place.

This is one of them, who owns the rails.  ERIK VOORHEES: Yeah, so central bank digital 
currencies are interesting. They're– for the   first couple of years that people were talking 
about these, I dismissed it with kind of like   kind of a snide comment of, like, fiat currency 
is already digital. All right? You already have   central bank digital currencies. It's called 
dollars. It's called euros. It's called yen.   Those are digital currencies created 
by central banks. What's the big deal?  I've changed my tune a little bit because 
central bank digital currencies as conceived   are different only in bad ways, which 
is the surveillance, right? They will be   surveilled top to bottom 100% and controlled 
completely by their respective governments.   Whereas central bank digital currencies fiat today 
is fairly surveilled, fairly controlled, but not   completely. And you can pull it out and have 
cash. Like, there are leaks in that system.  The new central bank digital currency that's 
being conceived will be a completely totalitarian,   in the accurate sense of that term, money 
system for the planet.

And you are going to see   the battle between free and open money and central 
bank digital currency. I know which one is going   to win, because one of them is far more efficient.
And people are profit maximizing creatures.   And even if it takes a decade 
or 2 longer than it should,   humanity will not suffer the burden and 
the cost of a totalitarian money system   when there is a free market open, 
immutable, objective alternative.   So I know where it is going. But it's going to 
be a big struggle to get there. And I hope it   doesn't claim too many people in the process.
RAOUL PAL: Yeah, I mean I called it the Bitcoin   life raft for that. Because as we move to 
this regime, look, there's going to be some   great benefits of programmable money, be able to 
blend fiscal and monetary policy.

But in the end,   all it means is that they're going to print 
more money and just use it in more unique ways.   And you need a way out of it, and 
Bitcoin is the perfect way out.  How do you get around the fact that in the battle, 
they're going to stop the on ramps and off ramps,   if the battle gets too hot? So it becomes hard 
for you to take your value out and use it in  non digital forms, so physical forms. 
Let's say you want to buy a house,   buy a car, whatever it is, send the kids to 
school, whatever it is. How do you do that?   That's the thing that worries me actually, 
because there are banks that just will not   accept money that comes out of the crypto system.
ERIK VOORHEES: For sure.

I've had 3 bank accounts   closed just because I've received 
fiat that came from a crypto company.   And now that's just the bank doing their own 
risk mitigation. That's not a directive from   the Fed, not yet. Yeah, it's a good question.
So first, governments can't stop the on and off   ramps, but they can make them very problematic. 
And they can drive them underground. So it's   important to realize they can't be stopped. 
They can just go underground. 2, I don't think   all countries will act in unison here.

I think 
some will be much more oppressive than others.  And 3, at least in the US, and maybe I'm being 
naive. There is a hope that enough people–   I almost want to laugh saying this, because maybe 
it's just too naive. That enough people understand   constitutional limits to the federal government 
that that outright bans have to actually have   basis in the Constitution. That doesn't just 
happen automatically. Now, people can easily say,   yeah, but look how easily they banned gold, right?
RAOUL PAL: Well, the gold one is an interesting   one, because I look at this– it was only the US 
that banned gold. So US gold went to Switzerland.   And the rest of the world continued 
with gold. So people's argument, well,   they banned gold. I'm like, horseshit.
ERIK VOORHEES: That's a good point.  RAOUL PAL: 1 country in the world at 1 time banned 
gold.

Well, guess what? Turkey's currently banned   gold. A bunch of countries banned gold, 
because they don't want capital flight.   And they're deal with crypto periodically. But 
as you say, there's always somewhere else that   will accept it. Because if it's deemed to 
have value and it's trusted, it's got value.  ERIK VOORHEES: Yeah. Yeah, and I think what 
can happen is if there's major crackdown,   crypto, Bitcoin, its value can fall by a lot. 
50, 70, 90% just from that kind of crackdown.  RAOUL PAL: Yeah.
ERIK VOORHEES: But,   OK. So it falls from a $1,000,000 to $100,000, 
and it goes underground for several years. Like,   it already won. Right? Humanity will move 
to it either 5 years from now or 20 years   from now. It already won. And it has been tested 
through these market cycles, I think, quite well.  So you know, ultimately it's incumbent on anyone 
who cares about this stuff to speak about why   governments shouldn't fight it. And hopefully 
enough people within government will realize   that actually, yeah, this is where things are 
going.

And even if we could harm it for a while,   what value is that? Like, what value is that 
for humanity long term, and get enough people   thinking that.
RAOUL PAL: But   there's an issue within that whole construct,   which is not the construct of does it survive. It 
is a cockroach. It's almost impossible to kill.  ERIK VOORHEES: Yeah.
RAOUL PAL: I get that.   But there's a big damage to a system of 
money where the value of money falls 90%.  ERIK VOORHEES: Yeah.
RAOUL PAL: Right? We understand we're   still probably in the Metcalfe's law adoption 
effect phase, so we haven't got to full price   discovery. But let's say we are at a $1,000,000, 
and in some hypothetical future the IMF will   get together and say, all of these countries, 
you cannot trade with us unless you stop it.  The value falls, and there'll be some sort 
of black market versus white market probably   in crypto.

It just it depends how long 
it takes to recover from that. Again,   I'm no believer in a catastrophic failure from a 
ban. I'm just always trying to think it through.  ERIK VOORHEES: Yeah, it would be a real problem. 
I don't want to minimize that. It would be a real   problem. But Bitcoin's history is 1 of defeating 
real problems over and over and over. Also,   I think you have to keep in mind the 
point at which national governments,   IMF are outright trying to ban it, is a point 
where their own currencies are falling apart.   Like that's what will cause them to really fear 
it so much that they go through that effort.  And that's a situation where inflation is 
probably really painful for a lot of people.   Stock markets have fallen apart or are only 
[INAUDIBLE] in inflated terms. There will be   a lot of skepticism toward governments trying 
to do that. And they'll be basically trying   to prevent people from owning Bitcoin and 
putting them in the alternative of their own   fiat currencies which are falling apart. Right? 
So that's going to be a tall order.

And I don't   know that they would be successful with that.
RAOUL PAL: So here's another way around it.   And I haven't thought this through. Is if the 
community starts building out the digital exchange   of value of physical assets more. So we've talked 
tokenization of real estate and stuff like that.   The things that we want to cash in our lifestyle 
chips for, which happens to be in dollars or   whatever currency you live in, the things that 
you need to operate in the physical world.  The faster we build out that, 
the harder it is to stop them,   because then because of the decentralized 
nature it's almost impossible to stop.

Sure,   there has to be a tax probably. You have to 
pay somebody for the tax of selling your house.  I get it. We live in a society. That's 
the government rules. But it's very hard   to stop the exchange of value. And I feel 
like we haven't built that part out yet.  ERIK VOORHEES: I have a slightly 
different perspective. I think   the Bitcoin industry started by building that 
out, right? Like the whole narrative in the   beginning of Bitcoin was, like, let's get 
people accepting this as a means of payment.   That was a huge uphill battle and didn't get 
any traction.

But all the infrastructure is   there. There are already companies that 
will process Bitcoin payments, other   types of crypto payments for different things.
It's just not used much, but all that stuff's   already built and ready. Like, my Jeep 
I bought with Bitcoin back in late 2013.   I actually bought a brand new Jeep from a 
dealership with Bitcoin. And that was 7 years ago.  So it can happen. It does happen. And I think in 
a situation where people were really worried about   receiving fiat, because it was losing value 
quickly or the banking system was becoming   less reliable, you would start to 
see a real interest in the seller,   receiving something that they could trust more. 
And whether that's Bitcoin, or whether that's   an algorithmic Stablecoin, which isn't 
as volatile, that infrastructure I don't   think is going to be too big of a challenge.
RAOUL PAL: So the final question about the kind   of overall universe of what's interesting that's 
been going on.

So obviously it's been the– last   year was the year of decentralized exchanges 
but also DeFi. What's your thought on DeFi   and how that's evolving? Because that has been 
slightly hilarious. There's been good things,   bad things, a lot of experimentation, a few 
scams, I mean, it's been a great story. But it   feels like something real is happening here.
ERIK VOORHEES: Yeah, absolutely something   real is there. I think a good analogy is 
like the ICO days. And in the ICO days,   you basically had a profoundly cool and 
important invention, the ability to raise capital   quickly effortlessly from around the 
world regardless of who is involved.   That was really powerful. And then to give 
them– and to not just raise the capital,   but then to have a liquid transferable token 
that represented a stake in that project.  That was a great invention. People took that 
invention and did all sorts of things. A lot   of it, total nonsense garbage, a lot of 
it scams. But some actual projects that   were totally legitimate, very credible teams, 
they raised money.

And they actually delivered.  And so you have this core of, like, legitimate 
innovation happening inside this big bubble of   speculation and nonsense. And that was true of the 
ICO days, and it's true of DeFi today. You have   this core, good teams building like legitimately 
innovative projects, many of which will be   profoundly important, surrounded by all sorts of 
nonsense and noise and scams. And you have to just   understand that it's both of those things.
And people argue on Twitter all day of,   like is DeFi scam? Or is DeFi legit? Is DeFi scam 
or is it legit? It's both, depends on the specific   projects and the attributes of that project.
RAOUL PAL: Yeah, my view on this has been– I   wrote some articles about it.

Is that in the VC 
world, so early stage company building something   from an idea, you've generally got a team of 
people who will vet it, good or bad. You'll get   a bunch of those wrong, but there's some process.
Within the token world, because there's a lot of   retail in the space, these tokens actually 
trade quite richly to start with. So there's   an incentive to take your money and run.
Now, good projects, sure, the founders may   sell some tokens and some of the original buyers 
of the offering will buy them. But then over time,   the proper project comes to the surface because 
the quality business– and if you had real time   market to market valuations on VC, it would be 
terrifying. Much like it is with tokens or DeFi.   You know, nobody wants to sleep at night 
with that. But you know, you've started 2   businesses.

You know how terrifying they are.
ERIK VOORHEES: It's such a good point,   that immediate price discovery that are encrypted 
tokens. When a project falls apart and it's token   declines by 95% or 98%, people are like, no 
one should have invested in it. It was a scam.   Most projects go that way. Most projects will 
fail. They just do not get off the ground.  And the reason you don't see it in startups as 
much is because it's opaque. The equity is held   by some VCs and some investors. It is not traded. 
You do not know what the price is for years often.   And then they'll just liquidate and go out of 
business without ever having a traded price.  So crypto, ICOs, tokens have brought a price and 
a transparency and liquidity to those shares,   which I think is really, really important and 
profound.

But, yeah. I mean people need to   do their due diligence. Just because they 
make a flashy white paper and they give   you all these promises, don't throw $100,000 at 
them. And fools and their money are soon parted.  There is a part of how markets work, which 
is that when people make bad decisions,   they need to be losing money on average. And when 
people are making good decisions on average, they   need to be making money. Crypto puts that right 
in the face of the world. And some people don't–   can't handle that, because they see so many 
people making bad decisions. And they blame it on   crypto without realizing, like, it is just a 
mirror, a clearer mirror for humanity itself.  RAOUL PAL: Yeah. I mean absolutely right. I can't 
agree more. Erik, listen, fascinating to speak to   you. Really enjoyed it.
ERIK VOORHEES: Yeah.  RAOUL PAL: Thanks so much. And good luck with 
everything you're up to. ERIK VOORHEES: Awesome.  RAOUL PAL: Super exciting times.
ERIK VOORHEES: Thanks,   Raoul. Thanks for having me on.
RAOUL PAL: All right, take care.  NICK CORREA: Thank you for 
watching this interview.   This is just a taste of what we do at Real Vision. 
To learn more about the complex world of finance,   business, and the global economy, click 
on the membership link in the description.   Give us 7 days to change your life.

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