somebody came along a few years after Bitcoin and said hey you know Bitcoin is great for all the reasons I described but what if we could add programs to bitcoin meaning you could actually have programs inside of Bitcoin we call these programs smart contracts they’re smart because they run out on the internet without a trusted third party so you’re not using a a cloud service to run your soft Ware you’re using the entire internet to run your software that was the idea that vitalic had vitalic buin the creator of ethereum had was to basically extend the idea of Bitcoin with smart contracts and again that became ethereum and so ethereum effectively acts as the world’s computer what do I mean by that so the world’s computer is different from client server where you have an application running on a server and you you can access it via your smartphone app or a web browser uh
[00:01:02] it basically uses all these nodes running all over the Internet to run and it used to use a proof of work model very similar to bitcoin to run these smart contracts okay and because of the uh computing power and energy consumption required by Bitcoin the ethereum community decided to migrate to a different technology platform called proof of stake uh there’s a lot of resources online about how proof of stake Works what it is U but it use the most important feature is it uses 99% less energy than or more percent less energy than than Bitcoin itself um and sets ethereum up to scale to visa and MasterCard like numbers meaning Bitcoin itself is not very scalable and it’s not meant to be again it was not meant to be efficient it was not meant to be scalable it was meant to solve one problem and that was to be decentralized and be completely trustless
[00:02:00] and it does that incredibly well whereas ethereum because it’s meant to be the world’s computer actually does need to scale so what they need to do is they make they need to make a tradeoff uh which you’re always going to have to make now in this new kind of blockchain world between a certain amount of scalability and a certain amount of security which proof of work provides for Bitcoin and so proof of stake is setting up ethereum to scale to visa and MasterCard like numbers over the next couple of years okay and there’s a lot of resources you can go to online around some of the new technologies that you’re going to see that help ethereum to scale so this is part of the point I was trying to make before that with all of this stuff this bad stuff that people are hearing about online about exchanges and whatnot the technology here is plowing ahead Bitcoin was upgraded last year ethereum was upgraded last year it’s about to be upgraded again in the spring another major upgrade and these upgrades are super important for ethereum to become
[00:03:01] the backbone for the future of banking um you know gaming um and and a whole bunch of other you know applications that that that we can talk about all right and and so now there are competing Technologies to ethereum right that offer smart contracts um some of your some of our viewers here maybe have looked at them to buy the tokens but Solana would be one uh cardano would be another one uh and there are others okay and they’re all basically those levers that I talked about they’re using the levers in different ways to make different trade-offs right um and that Services different communities over time and the competition is great now from a price perspective because all these tokens are publicly available they do kind of tend to move in in in sync right with with the exception that it all kind of moves with network effect
[00:04:00] so the stuff that gets the most Network effects is the most volatile up and down and is price simply a function of demand and Supply is it basic economics here no well it depends on your definition of basic economics but if you actually look at Price charts for things like Amazon in the 90s when money was really cheap um it looks a lot like what was happening with Bitcoin and ethereum at similar points in time plus the network effects of adoption right so folks like R Paul from Real Vision others have looked at this from a macroeconomic perspective we’ve looked at it as well the two thing the three actually there’s three things that really matter for exponentially growing Technologies when you’re trying to price them in public markets number one is money supply things that move exponentially get an outsized price movement when the money supply is increasing that’s number one that includes tech stocks the Fang stocks etc etc and they also are more volatile to the downside
[00:05:01] investors have more money investors have cash that they have to put somewhere with the expectation that the money is free and that there’s more money coming because the money’s free and so the expectation is these things are growing faster so we should put the money there makes sense okay yep like Tesla right it’s not because everybody thinks elon’s a genius it’s because the damn thing’s growing so much faster than everything else but in a down Market when they’re tightening the money supply the things that move exponentially tend to move down faster turns out crypto is no different in that regard so that’s Point number one point number two is it’s relative as I said to exponential growth so if you have an asset that is growing exponentially like Amazon was in the late 90s right it got the the huge benefit of the move up and also lost 80% of its value in 2000 and just like Bitcoin and just like ethereum I can show you stock charts that are scary because they look you wouldn’t know the difference unless I told you which one you were looking at right so
[00:06:00] um you know and and and then that there’s a third aspect to this which has to do a little bit more with the application of it meaning what am I using Bitcoin for what am I using ethereum for but but believe it or not it’s the first two that in the early days are driving the price even more the network effects and the money supply all right now ethereum is interesting because it has all of these applications that are live now um you know that there’s three kind of killer apps that are already basically generating billions of dollars in Revenue so people who uh stake ethereum or process ethereum transactions actually make a lot of money okay and the money comes from three applications the first is defi right or decentralized Finance so back to our primary what is decentralized finance so that most people have no idea how the banking system works right what’s the difference between a checking account and a money
[00:07:01] market account all I know is if I move my money over to the money market account I get a little bit more interest why why is it happening the average person has no idea why that’s happening there’s a reason why it’s happening right the bank is putting the money to work and and you know repo transactions and other things that actually generate income and you get a tiny tiny tiny piece of that okay whereas in checking accounts it’s it’s more of a reserve model and therefore there’s there’s generally no interest paid and but there’s a whole bunch of there’s a stack to the banking system of services and interconnects and interbank lending and Federal Reserve interconnects and Swift and all this other stuff that no one has any idea what it means but it’s all necessary to make the current system work decentralized Finance attempts to take that entire system and rebuild it basically without the Banks without the FED right banks are closed way more than they’re open stock markets are closed way more than they’re open right you know not even County holidays just 9 to5
[00:08:00] stock markets are closed or closed like 18 hours a day defi is meant to be open 247 have no borders be always on right the first kind of like killer de truly decentralized application for consumers right uh was actually music file sharing right so so the first the first kind of file sharing sites that you couldn’t shut off were an example of a centralized application right uh so Napster was one that was centralized and it got killed crushed right and so then everybody moved to decentralized systems and uh so bit torrent being the most famous one which is where the bit comes from in Bitcoin and you know to this day it runs yeah whether you like it or not it’s there just like some P okay so so defi is basically taking lending Forex uh the ability to move between coins the
[00:09:00] borrow um the ability to issue equities and moving all of that into smart contracts running on the ethereum network or competitors to ethereum taking everything that we’ve built since Brett Woods in the United States and rebuilding it on Smart contracts and and Bill you know I looked into defi I never uh dove into any of the uh liquidity pools or exchanges there but the returns were crazy that we being offered it’s it’s very simple in the early days of these systems there’s not a lot of users and so the early users are getting outsize benefits of you know because there’s two parties to a transaction I have to pay the other party to incentivize them in the transaction and so so that will stabilize into normalized uh interest rates fees over time as more and more people enter the system but the beauty is there’s no company in the background making
[00:10:00] decisions the network figures it all out on its own what interest rate do I have to pay to get more money in the system in order to lend more it’s all automated so when when companies were dying when blockfi died and Voyager died and Celsius died FTX they were centralized actors making very bad risk management decisions and we didn’t know that until they died you could look at these smart contracts right and they were working just fine as a matter of fact some of the companies that died had lent money to these contracts and they had to basically pay back the loans or they were going to have their collateral liquidated so they wouldn’t pay back the courts but they paid back the defi contracts because the defi contract wasn’t willing to negotiate it was literally going to liquidate them and the court said we get it you you have no choice do what you have to do right and and and so that’s just proof that the defi model worked it’s getting a massive amount of investment it will continue to do so it is the future of banking but we’re in year look the term didn’t exist
[00:11:01] four years ago it’s brand new so we’re in year four or three of 20 in order to rebuild the banking stack and it’s incredibly exciting uh and it’s accelerating right I I predict that in 20 years the highest market cap banks in the world will be based on defi rails