Finance is essentially a system that tracks the ownership of value. Whether that value is money or an asset or whatever. According to Weiss Crypto Sunday Special host Chris Coney, this system is becoming more abstract.
We’ve already experienced a shift like this before. Once upon a time, we bartered for goods and services directly with other goods and services. Then, we introduced currency as a stand-in, abstracting the process.
Now, we have fintech — financial technology. According to Chris, it’s the third evolution of our financial system, abstracting it even further to the point of dematerialization.
You can watch the interview here, or read on for the full transcript …
Chris Coney:
Hi there, guys, and welcome to this week's edition of the Weiss Crypto Sunday Special with me, your host, Chris Coney. My guest analyst today is Alex Benfield. The macroeconomic topic we'll be discussing today is the dematerialization of finance.
Alex, welcome back to another Sunday Special, mate.
Alex Benfield:
Thanks very much for having me again.
Chris:
Thank you for coming. Let's get into this. This was an offshoot from the conversation I had with Kenny Polcari, but I already had another line of thought to take with you here.
My basic premise is that the process of finance becoming less material and more immaterial has been happening for, well, all of my lifetime at the very least. We're at sort of a peak of it right now.
Essentially, trade is you have some value, I have some value, here's the exchange of goods and services — the barter system, right? The problem with that is … in economics, it's called the “coincidence of wants.”
Like, do you happen to have chickens at the very time I want chickens, and do I happen to have gold at the very time you want gold? If you don't have that coincidence of desires, you can't trade. That's why money was created in the first place, almost like a token to track value which could be redeemed with anybody else at any time, for whatever they wanted.
You want chickens right now? Great. You give me the money, and I hold that money until I want to spend it for sausages or whatever else it is that I want. That was the first abstraction from pure trade. Pure trade is that chickens-for-gold thing or chickens for cows.
But every layer you put on top of that is beginning to dematerialize it away from the actual value itself. All right? There's a whole conversation about money there, which isn't what we're going to talk about today.
When I talk about the dematerialization of finance, I'm talking about that token that represents the value you have provided. That's what money is. And then the financial system arose around that because you can then get derivatives on top of money.
Finance is essentially a system that tracks the ownership of value. Whether that value is money or an asset or whatever.
That was the original barter system. Then, banking comes along, where you want to put your money somewhere. If you want to trade with someone further afield, then you put your money in a bank and you transact between banks.
But again, that's another layer of abstraction and the introduction of a middleman to a transaction that is essentially peer-to-peer. Trade is peer-to-peer.
Well, it's not anymore ... not since money was first created. But it’s been so long ago that we’ve had a system that relies on intermediaries and others having custody of our assets that it's difficult to conceive of a system when it is direct.
Because, of course, it wouldn't work direct if everyone has to transact with physical cash. We know that just wouldn't work; it's too slow. The world's too fast now. We don't want to go back. But how do you get the purest form of money in a peer-to-peer sense? That's how we find ourselves in crypto.
Before I keep rambling on, have you got any comments on that line of thought there?
Alex:
No. I mean, I see your point. I think that the introduction of money helps speed up this process. I can still get my chickens before you need your sausages, or whatever the analogy was there.
I think in that sense, the dematerialization of money does help speed up and better this system while it is abstracting it. I've got to be honest there: It is abstracting the value of trade a little bit. But there [are] benefits that come with that.
Chris:
I just remembered something. In his book, “The Bitcoin Standard,” Dr. Saifedean Ammous talks about the original ledgers ... the ones that were carved insides of caves and as ledgers of debt. Like we were just talking about, they would literally create a little spreadsheet in the side of the rock that would say that “Alex was given four chickens by Chris,” and then there was nothing on the other side of the ledger, which would mean you've been given value but haven't reciprocated. That's like a debt ledger.
The point I'm making with that is that the reason they had to scratch it into the side of the rock is so no one would have to remember it. That is almost like a primitive, primal blockchain, a record of debts so that everyone remembers. And then you tell everyone else, just to make sure that database is in sync.
Alex:
It's carved in stone. Go check it out.
Chris:
Right. Right. It totally falls apart at that point, so you have to carve it in stone. Exactly.
That's the first abstraction. It's a record system of debt in that particular case. Then I guess we've just been looking for better and better record-keeping systems that are less and less corruptible.
Of course, if you want to know what the ledger is, you have to go into that cave and read it on the wall. That's centralized in a physical location, so that's no good, is it? Right?
Alex:
Right. The blockchain is somehow both more permanent than carving into a stone and also more public.
Chris:
But that's the weird thing, though. I always say there's nothing new under the sun. The concepts are the same; it's just the technology through which they're expressed evolved.
Like you pointed out, why are we doing all this? Well, technology seems to want to help us do things faster, easier and cheaper. That's basically what it does, right? And of course, technology comes along to finance, either through fintech or decentralized finance (DeFi), and it just does all the stuff we've ever wanted to do with finance, just faster, cheaper and easier.
Alex:
More convenient, yeah.
Chris:
More convenient, exactly. Like you pointed out, the purpose of money originally was to avoid the coincidence of wants. If you don’t have that, that transaction cannot go ahead. But money allows it to go ahead instantaneously without you getting ripped off.
Alex:
Or go into debt.
Chris:
Or go into debt, exactly. That's a very good point as well. Yeah, because debt's an idea anyway. Again, it's a record that value was provided that hasn't been reciprocated, essentially.
How we ended up in DeFi … this is sort of a presentation that I'm developing that I’m calling “The Four Epochs of Financial Dematerialization.” I guess I started this in my head about in the year 1900s. This went on for quite a while because I remember when I was in my teens, banking with a building society.
I had this little book — it was this tiny little thing — and it was almost like ... those dot matrix printers. You may or may not remember these. Do you know what a dot matrix printer is?
Alex:
No.
Chris:
It's one of those … it's like a typewriter that slides up and down. [Have] you seen these?
Alex:
No.
Chris:
No, you've not known that. Okay. So you've only ever known inkjet printers. But the dot matrix was like a continuous feed. It's the ones with the perforated holes down the sides of the paper. You've never seen these? You've never watched a movie from the '80s?
It was a savings account. You go in with your cash and you give it to them with the little book, and the book tells them what the account number is to pay into, and they do it. The cashier does their jiggery-pokery. Then, they stick the book in the machine — it then prints a new line on it and then gives you it back.
You would see a little bank statement, but it was printed in the book. You'd see what your balance was at previous dates, credits or debits, blah blah blah, and you'd track your interest and all that kind of stuff. In fact, if you wanted to know what your interest was, you could go into the bank and say, “Can you update this, please?” She would stick it in the printer, it would print a line out, and then it would show you. Oh, 10 pounds with interest has been added since the last time you updated this, or you paid the money in, etc.
That was, as far as I remember, the first epoch of financial dematerialization. I call that the personal service model, where you'd go in and sit down at a desk with the banker, who was like an authority figure in the community back then. Like in “Mary Poppins,” with Mr. Banks — a respected professional banker. He was a big deal. He obviously had that giant house and so on.
So that's the personal service thing. You have these guardians of the bank and the banking system, and it's this black box. Then, technology comes along, and it doesn't just make it faster, cheaper and easier. It also — it's a clumsy word, but — disintermediates, or removes the middleman, basically. Technology comes along and starts to disempower the middlemen [of] these transactions. Like the banks.
That leads to the second epoch, which I call self-service, where instead of asking the banker to do whatever it is for you — update your balance or whatever — you can do it yourself. This is like early electronic services, ATMs. You can go and draw your own money out, print a statement out.
Telephone banking was, eh, that was something that was around when I was younger, but I never used it because it was terrible. The press 1 for a balance, press 2 for this, that and the other. Whatever. And then credit cards came, which are still a widely used technology but incredibly primitive.
It's a technology that's now what? It was invented in the '60s, so that means it's at least 60 years old. Can you believe that?
Alex:
I didn't know credit cards were that old.
Chris:
They are that old, mate. That's why they just never ever, ever, ever should've been used on the internet. The security model is so flawed that you basically give your private key away with every transaction. It's right on the front of the card. Right?
If you have the card number and expiry date and all that lot, that's basically my private key, “please take my money out of my wallet.” In crypto, we would say that's absolutely insane. Using that model, you just give all the access details away. It just doesn't make any sense.
But prior to the internet, that wasn't so much of a problem because there'd only be a copy of those card details in the store. Right?
Here's another one. I mentioned dot matrix printers. Have you ever seen the way that credit card transactions used to be processed on paper?
Alex:
Yes.
Chris:
You've seen those?
Alex:
Like a stamp.
Chris:
Exactly. exactly. You stamp it, or it's a carbon copy thing. You have seen that. That's similar. Then, they would get sent off to the bank. That's all a crossover between the banker model where they have to take these slips of paper and process them in whatever system they've got in the bank, and the self-service model, where the retailer can do some of the work there.
Then the internet comes along and gives us the introduction of fintech. Or at least, I knew this as fintech. Have you heard that word before?
Alex:
Yes. But only associated with the crypto industry.
Chris:
Really? When did you get into crypto? What year?
Alex:
Chris:
Okay, interesting. I guess fintech was something else from the 2000s, so like 2005 onwards. Something like that.
Alex:
A few years ago, instead of telling people you worked in crypto, it was a lot easier to tell them you were in fintech. People took you a little bit more seriously.
Chris:
I wonder, because Weiss Ratings founder Martin Weiss was talking the other day about his informal survey of people on Wall Street where he's just testing them out saying, “Do you know what DeFi is?” A lot of them are like, “That's something to do with crypto,” or they say they have no idea. That's why I wanted to have that conversation with Kenny.
I wonder, though, how many people still don't know what fintech is. I do wonder that. I just take it for granted now that everyone knows what that is.
Alex:
Financial technology. The modernization of finance. I don't know exactly what fintech really is.
Chris:
Okay. I'd say that's the third evolution. Instead of messing about with these very basic electronic systems like ATMs and so on, this uses the internet so the consumer can connect directly to the bank's computer system and send requests directly for statements, logins, internet banking, apps on mobile devices, Robinhood. That's essentially —
Alex:
Automated clearing house (ACH)?
Chris:
Pardon me?
Alex:
Like an ACH withdrawal or something.
Chris:
Well, that happens within the banking system itself. There are two layers here: There's you, the user, using your personal computer to connect through your fiber optic internet connection to the bank. And then you say, “Can you please send the bank payment to Alex Benfield?”
Then, the bank sends the ACH payment over the SWIFT network to another bank. But inside another system we don't have access to because the banks have custody of the money. They're allowed to transfer it to each other on request from us. But if they say no, we can't do anything about it because we don't actually have control of our own assets.
That's the thing that we keep banging on about in DeFi — that that can't happen because, by default, we hold our own assets. Really, the internet is where fintech comes along and provides direct access — or as close as we can get — into the financial system.
Robinhood is the same thing; It's using the internet to connect directly with an electronic broker who executes the trades for us. It's still not perfect, and it's still a service in the sense that we say, “Can you please buy us some Tesla, Inc. (Nasdaq: TSLA)?” and then they go and do whatever it is they do.
Then, you got other things like price comparison websites, so you don't have an insurance broker anymore saying these are the life insurance policies, car insurance policies, etc. They're all there. Everything's interconnected. Compare the market we have in [the] U.K., which is pretty famous, where you just get all the car insurance quotes from all across the financial system and you should go, “That's the best one. I love that one.”
We stopped getting paper bills, things like that. Crowdfunding comes along, so you can fund your business with a million people pledging $5 each, rather than having bank loans or IPOs. Kickstarter comes along … this sort of stuff.
Peer-to-peer lending was a big thing in fintech when I started. There was this service called Kiva where you could lend money to people in third-world countries who wanted to start a small business or if a doctor wanted to repair their car that had broken down or whatever. It was commercial, so I lent hundreds and hundreds of dollars on that.
Those loans were paid back with interest. The default rate was like 2% on the loans that I gave. So that was using the internet to send the money through PayPal Holdings, Inc. (Nasdaq: PYPL) into the Kiva platform, and they would have agents on the ground that lent this money out to people in developing countries.
Have you ever heard of Kiva? Have you ever heard of that?
Alex:
No. That 2% was a pretty low interest rate.
Chris:
It was pretty low because they were curating the platform, and the agents in the field were responsible for going to actually see the people making the tortillas. I remember all these different loans.
People wanted to repair their houses, or tradespeople wanted to buy new tools or whatever. They just couldn't get on with business. Like the doctor couldn't even get to his patients to get paid because his car had broken down. Things like that. So I did a lot of that.
Alex:
Sounds like a lot of risk to take for 2% interest.
Chris:
No. The default rate was 2%.
Alex:
Oh, okay. Okay. What was your yield?
Chris:
Hmm, I can't remember what my yield was. This was like 2005, so I can't remember what it was. But it was worthwhile to keep doing it because you could just keep reinvesting.
I saw that as like a, I don't know, that's like social lending for social good. Because I was earning an interest rate, and at the same time, I'm helping people dig themselves out of poverty. Which is a total win-win.
Alex:
Right. Now you have that in DeFi a little bit, without the social aspect.
Chris:
I suppose so. It's not curated, though, is it? I wonder if Kiva's still around.
Alex:
At least you don't know about the social aspect. [inaudible 00:18:48].
Chris:
Well, Kiva's still around, I think. 501 nonprofit organization.
Alex:
Yeah. Maybe they ought to integrate here with blockchain.
Chris:
Yeah. Established in 2005 — can you believe that? That's weird. So yeah, they are still around. I don't think you could integrate with. Well, could you? Couldn't you?
You could use the blockchain for the payment rails, but you can't replace the human element because they were unsecured loans. The only risk mitigation that I had was that the agent on the ground had a profile on the website and they had a reputation.
So it would show you, broken down by agent, how many loans they'd sourced, what their default rate was, etc. So their performance was known. If they were corrupt and they were going around and finding bad businesses that didn't have a viable business case, they would have a higher default rate than the next guy.
That was something. You can't replace that. Otherwise, you'd just have people in developing countries borrowing money unsecured, anonymously and never paying it back. That's open to abuse. That's why Kiva exists, to do that curation job.
But that's the kind of thing that was enabled by fintech. This sort of stuff is exploding when you open things up. When people talk about the only way crypto and DeFi is going to work, if it's on open, permissionless, decentralized networks, it's because when it's open, everything and everyone can connect to it and do lots and lots of innovative things like that.
The reason I'm going through this process of thought is to demonstrate to people how DeFi really isn’t that revolutionary. Now, that sounds terrible coming from someone like me who's dedicated the last seven or eight years of his career to it.
But it isn't. Right? It's the perfectly logical next step given the evolution of the financial system. Most people just don't have the perspective that I have, which is watching it go from the personal service model to the self-service model, fintech and then to DeFi.
It really came together when I spoke to Kenny because he explained to me how decentralized the existing financial system is already. He worked on the floor of the New York Stock Exchange for like 40 years, and the New York Stock Exchange used to be the only place you could trade stocks. That was totally centralized. All that liquidity went through there.
But that, as of 2001, I think he said, is no longer the case. There are now hundreds of exchanges, or hundreds of places you can buy Tesla stock. From the CME to the CBOE to the New York Stock Exchange to the Nasdaq. It's very decentralized in that way.
That opened my eyes up to when we're backing on in DeFi about “oh, it's decentralized, it's decentralized” — to someone like Kenny, it's like, well, that's not that revolutionary because the existing system is already pretty decentralized. What else have you got, right?
Alex:
A major difference, then, is custody of the assets.
Chris:
That is it. That is basically where I ended up. It turns the system inside out because, like I said earlier, the existing banking system is still a service-based model. They have custody of the assets, and you request certain things to be done with those assets. That request can be denied.
In DeFi, it's the other way around. Right? Well, this is getting a bit further down the rabbit hole. Because everyone holds their private key, and it's the private key that controls the asset. The person that controls the private key controls the asset. There's no one else in the entire network [that] can command that asset.
It's based on smart contracts. They're autonomous and cannot say no. They can only do what they're programmed to do. If you ask them to do something they're programmed to do, they can't say no.
Alex:
The power and the trust is in the individual in the DeFi system.
Chris:
It absolutely is.
Alex:
Whereas an individual needs a lot of trust and holds little to no power in the current traditional system.
Chris:
Mm-hmm (affirmative). Do people care about that, though?
Alex:
That's the million-dollar question.
Chris:
Right? Because we've nailed it down. What's the killer app of DeFi? If it isn't the decentralization, if it isn't this, if it isn't that, if it isn't the other and the existing system can copy a lot of what DeFi does, where's the rock bottom?
Like you said, it's the customer.
Alex:
The way that I see it, Chris, is that as soon as people are paid in cryptocurrencies, they’ll no longer favor the traditional system.
Chris:
Okay.
Alex:
If you're paid in cryptocurrencies, if your money starts flowing to you, it starts flowing to you in crypto, why would you take it out and put it somewhere else? There's a ... we already have platforms that have high yields; you have lending platforms, an entire tradition, an entire financial system duplicated through DeFi.
The main roadblock, I think, is the inflow of the money. If I’m paid in cryptocurrencies, then I no longer need that first step of converting my crypto.
Chris:
Yes. You don't need an on ramp. I wrote that down: If people are paid in crypto, question mark. Isn't there a step before that, though? Which is, why would someone want to get paid in crypto? Right?
So what? I don't get it. All money is money — that's like a 50 Cent quote. That's why he accepted Bitcoin (BTC, Tech/Adoption Grade “A-”) for payment of his album in 2016 and then made a ton of money off of it when it went up in value.
But unless you've got that attitude, that all money is money, you got to sell it to me. That's what I was trying to do with Kenny, as a Wall Street guy.
Alex:
All money is money. I'd rather hold my money and not let that entire other system benefit off of my asset.
Chris:
Well, there you go. You've gone back to the same value proposition, which is custody. That seems to be what it comes back to.
Alex:
Yes. I mean, it's custody. Simply put, it's custody. When someone else holds my assets, they're not just sitting there. They're doing plenty of other things with my assets.
Chris:
That's a good point.
Alex:
I don't want them to have that power.
Chris:
That's a very good point.
Alex:
I don't even care if they give me the same rate that I get when I'm getting it myself. I don't need that entire other system to benefit off my assets.
Chris:
Yeah.
Alex:
It's simpler. I have custody of my own assets, I know what my money is doing. I know it's not flowing all over the world. I think people will eventually start to value that.
Chris:
Mm-hmm (affirmative).
Alex:
If they truly understood what the current system was like, what people were doing with their money, I think they will value self-custody a little bit more than they do right now.
Chris:
Well, okay, do they care about that? You make a good point there. I keep making notes because you make good points.
Banks are investing our money for us. And you said, "If they're going to give me the same returns that I could get myself, then I don't need them." My thought there was they won't give you the same returns that you can get for yourself because that extra layer is an expense. They've got an entire business infrastructure to pay for.
They're going to have to take a margin.
Alex:
That's my point. I can, right now, earn more with my money, my own money, than they can earn for me. But I'm saying even if they could match the rates I could get on my own, I would rather hold my own assets than let them benefit from something I worked for.
Chris:
There we go.
It's the returns plus the custody; that's the thing they can't copy. So here’s a question for you then: How much higher would the returns have to be for you to give that up? This would be the banks offering you a better return than you can get yourself, but you've got to give up your custody.
Alex:
Right. Now see, there is an argument to have. Then, I would start to value what they’re going to do with my money — do I like what they're going to do, do I like this company? Then, it turns into a competition for them. Then it becomes a free marketplace.
Chris:
It does. That's beautiful, that is totally beautiful. That is totally compatible with the DeFi model. Because by default, you've got custody, and they have to then seduce you into giving them your assets by saying, “Alex, we'll do this, we'll invest in green energy, we'll mine Bitcoin with it, we'll save the rhino, we'll do whatever it is,” then they have to sell to your values. If it doesn't turn you on, you're like, “Nah, no thanks.”
Alex:
Right. Well, how was that system born in the first place? That's —
Chris:
Which one?
Alex:
Let's dig down to the root of the issue here.
Chris:
The banking system?
Alex:
Tradition. Well, the banking system and the entire ... in this conversation, you've laid out entire industries built off of certain aspects of the financial system. We have SWIFT. Why do we need SWIFT when funds can be transferred on the blockchain, without a third party, for a much lower fee? There are entire offshoots of the financial system that were born out of an initially inefficient system. Now we have a much more efficient system. Why do we still need those offshoots of the old traditional financial system? I don't think we do.
Chris:
It's legacy, isn't it? You said why do we need SWIFT when we now have payment rails that [are] on far superior technology? Why bother using SWIFT when you could just send stablecoins over the Ethereum (ETH, Tech/Adoption Grade “A”) or Polygon (MATIC) networks? It doesn't make any sense anymore.
This is what'll happen to Gen Z; they'll come into finance in the DeFi system. They'll look back at the old system and go, “That's terrible. Why would anyone use that?”
Alex:
Do we owe it to the old system to carry it on? Do we owe it to them to continue to use their services? I think not.
Chris:
No. I don't think so.
Alex:
Well, this is the whole “too big to fail” argument, really.
Chris:
Well, hmm, okay. There are two things there. What did you say? Do we owe it to them, the old system? Is that the way you said it, right?
Alex:
If it's a question you're asking me, I say no, we don't.
Chris:
But that was the question you posed, right? Well, absolutely not. That's not the free market. The free market is competition for the best value to the consumer.
As soon as something, Bitcoin, DeFi, comes along that competes with that model and offers a superior service — faster, cheaper, more reliable, more convenient — the consumers switch. They have no loyalty because humans don't have any loyalty.
That has been the most gut-wrenching thing about my business experience, how ruthless customers are. You have to keep on it all the time to keep pushing that value.
Alex:
There’s no loyalty in a free market system. In a free market system, they will choose the best, most attractive services.
Chris:
They will.
Alex:
But I would argue that the legacy financial system wasn't really a true free market system.
Chris:
True. That's a good one.
Alex:
You can't choose how your bank moves your money, if it goes through SWIFT or some other party.
Chris:
Because? There was no alternative. Right?
Alex:
There's ... you didn't hold your assets.
Chris:
It's a monopoly, exactly. There was only one system to choose from. What are you going to do, buy gold? That was the only other thing you could do, I suppose. Put it under your mattress. Not a very good solution.
Alex:
No. No.
Chris:
Now, the final epoch that we're currently in, according to financial dematerialization, is DeFi. Which could only happen with all the stuff that came before, as is true with evolution, and now we've got the three killer components: private key cryptography, smart contracts and blockchains.
That's the killer trinity right there, facilitated by the internet that allows communication across those networks.
In the same way that fintech did to banking and all the rest of it, this has made [the system] even more open. Even more decentralized, even more permissionless. Even more open.
At least, the fintech thing made it more open in developed economies. I'd say that now DeFi opens it up to the internet, which is a continent in and of itself. It's an entire geography that isn't based in land, but rather cyberspace. It spans anywhere with a cell phone signal where phones are available.
That just goes ballistic. Right? Just it's exponential growth. The notes I've written down are things like blockchain accounting. Total accountability to where the money's flowing. The evolution of companies going public in IPOs, which became ICOs, initial coin offerings, which then became IEOs, which are initial exchange offerings.
But they were sort of like hybrids. They were cryptos that were being offered on centralized exchanges. And now what happens more often than not are IDOs, which are initial decentralized offerings where you have people creating tokens and then listing them for sale on DeFi exchanges like Uniswap (UNI) or on QuickSwap (QUICK) with no middleman whatsoever. They're totally empowered.
Someone can start up, create a token, get word of mouth going. And that has an element of the crowdfunding that is from the fintech era. But in the fintech era, the internet was used to get the word out ... but it was still the credit card networks and the banking system that were used to collect the money.
That could only work within the SWIFT system and the pound, the dollar, the euro, maybe the Canadian dollar and so on. But what happens if someone in Bangladesh wants to invest? They can't. Maybe with PayPal. It's just so clunky.
With an IDO, someone in Bangladesh that uses the Polygon network, who has a dollar, can invest in an IDO and double his money. Nothing has ever worked like that before. It's because the infrastructure is already there and provided to everybody.
That startup that creates the token and lists it on a decentralized exchange (DEX) is leveraging the DeFi infrastructure. I can't remember who said this, but recently I heard someone say, “If you're going to start a business, why would you compete with the internet?”
You've got this multibillion-dollar infrastructure called the internet that's right there for you to use. Why would you ever want to compete with that? Why not just build something on that, because that's where all the value is and that's what Ethereum is becoming in my opinion. I don't know what you think to that. It's the place to be.
Alex:
It is. If you're competing against the internet, you have inherent inefficiencies at that point. Cutting out that old system with those inefficiencies, with decentralized finance, there's so much less clutter. There are less fees, there's less waste.
The sooner we shift decentralized finance, the less waste we'll be generating.
Chris:
That's a good call.
Alex:
Even more money for everybody else. Not to mention the fact that we'd likely be cutting out some of these old legacy financial systems with rich bigwigs that don't need any more money.
I just think the sooner society shifts to decentralized finance, the more empowered the everyday layperson will be. It's important. Sometimes I think that certain aspects of finance are only necessary for rich people or people with a lot of money.
No. I personally think knowledge of DeFi is more important for people with not a lot of money.
Chris:
It's fundamental. Absolutely. How are they ever going to get ahead? It was Bob Proctor that I learnt this from. He said, "Most people work to make money. First of all, working is the worst way of getting money and no one ever got rich from working. Because you just cannot work enough. You're going to have to get paid $1,000 an hour, then $10,000 an hour. There's a limit to that because it's still time for money. They only way wealth is built is if you invest."
Which immediately severs the relationship between the amount of time you spend and the amount of money you make. Because it's money earning money, not time earning money. Right?
This is crucial for anyone. The less money you've got, the more crucial that is. You know? Especially if you're a low-skilled worker, it's crucial. Bob Proctor makes this example.
He says, "You know, you could work. Chips” — he lived in the U.K. for a while, so he means fries — “at McDonald's and become a millionaire." He stands this kid up in the audience and he goes, "Scott, did you blow one of these every week?" He holds up a $20 bill. The kid goes, "Very easily."
He's like, "Do you know if you invested one of these a week at somewhere like 12%-14% interest, you'd be a millionaire in like 20 years or something? Due to compound interest." Bob Proctor is saying you'd never ever have to read a book, get a degree, have to up-skill yourself in any way, except keep making chips at McDonald's and you become a millionaire. Purely by the power of investing.
So, I'm really pressing your point now, Alex, by saying it's that important. The less money you have, the more important it is.
Alex:
Right. Right. And it's easier with DeFi.
Chris:
It is. It's on your phone. You could do it on your lunch break if you’re working. If you were working chips at McDonald's, you just check your phone. That is so cool.
Alex:
Exactly.
Chris:
Beautiful stuff. I just made myself laugh.
Anyway. The final piece to this then is now we've got this brilliant infrastructure with the holy trinity: private keys, smart contracts and blockchains. We've now, and I didn't see this coming, have native digital assets, like non-fungible tokens (NFTs). They’re almost like this brand new creature that has been born in cyberspace.
The assets are digital, the tracking of the ownership is digital and the buying and selling of them is digital. And so is the currency that you use to buy and sell them with.
The entire native digital asset space exclusively is immaterial. In the case of digital art, it’ll never be built, never be material. The exception to that might be, that I've already seen, a television that doubles up as a painting you can put on the wall that displays digital art. It's like a digital canvas. Then, Juan [Villaverde] went and sent me a link. He's like, "Oh, do you mean like this?" You might've seen it in the chat group.
It's called the Samsung Gallery. It's designed specifically for that. It's a screen that's designed to be stuck on the wall and display digital art. It's automatic.
Alex:
Any screen can display digital art.
Chris:
Yeah, I know, but this was an optimized one that's really thin, that looks like a picture frame, and of course all that is WiFi.
Alex:
I've seen one of these before. I don't think it was advertised, display digital art, but it was very good-looking, framed in TV.
Chris:
Exactly.
Alex:
Which our TVs have looked the same for like 10 years now. My god.
Chris:
Well, because they've got that use of displaying movies and so on. But when you ask them well, what can you do if you want to use them to display art, and then you've got the whole gallery industry revolutionized. Because now they're replacing physical canvases in some parts of them with these digital displays.
You've got the NFT wing of the art gallery and then you've got the classics. The Van Goghs and the Mona Lisa’s and so forth.
That's a very interesting crossover. The art there, though, it still immaterial. But it's almost like you're using that display to look at it. Which is bizarre. That is too bizarre.
Alex:
I think it'll be more common, too. Physical art, physical assets, they'll always be important. They're never going to go away. We're always going to have a need for shelter, homes, real estate. Specifically, when it comes to arts and NFTs, I think that physical art will still always be popular. I don't think that will ever go away.
Chris:
Do you mean sculptures and things like that? Physical metals.
Alex:
Right. Well, there's certain things you can do with physical medium that you can't do with the-
Chris:
Yeah, fair enough.
Alex:
I think ... but I think that the art industry will grow along with the physical and digital side, and I think NFTs will become more popular. What I think would honestly be much more interesting than the current art process ... Right now, if you make an original art, you also make what are called prints. Right?
Chris:
Yeah.
Alex:
Prints aren’t the original piece, but they’re—
Chris:
Authorized copies.
Alex:
Exactly, authorized copies. Then I guess you technically have unauthorized copies as well. But what I think would be much more interesting is you have an original and then you have NFTs.
Chris:
Yeah. Okay.
Alex:
The NFTs are like a print. It's not the original, so you don't have ownership over the original image. But you have an authorized version of the artwork.
Chris:
It's autographed, right? Because it's literally digitally signed by the artist's private key.
Alex:
Right. Right there, that's exactly how you grow both the physical and the digital side of art. You still have the need for physical art. Someone somewhere will always prefer physical over digital. I'm sorry, that will never go away.
But now you have people that — on the screen in their house — can display this NFT print. I think that's cool.
Chris:
That is cool, because the bragging rights. Right? Your guests come around, there's a little QR code in the corner and you scan that and it pulls up the Ethereum blockchain and says Alex Benfield owns this print, 67 of 100. And they go wow, Alex, you really do own this one.
You go yes, it’s not phony. Because anyone could display it. But that QR code looks the transaction up on the blockchain and it's like oh, three years ago Alex Benfield paid 25 ETH for this print by Chris Coney. Right? They go damn, he's one of the owners. Right?
Alex:
We're in the infancy of this digital asset epoch, especially when it comes to art and NFT. In the very infancy of this. I think it'll grow, it'll improve significantly, in a short period of time.
Chris:
I think so.
That's the pinnacle of dematerialization of finance because it's all digital and all immaterial.
The last bit I want to talk about, which we almost got into before we started recording, was where this arc starts coming back down again. We just did start talking about that just then. By displaying the digital art physically.
But I want to bring that down even further and talk about using these technologies, like blockchain and tokenization, for physical assets. I'm talking about how, in the U.K., for example, we have the land registry, which is a government database, centralized, that has a list of all the properties and it has a list of all the owners.
Every time you buy or sell a property, you have to request the government update that database to transfer ownership of this house. But inevitably, I think inevitably, we're going to get to a point where you have an NFT that represents my house instead of the land registry.
Then all I would have to do to transfer ownership of that piece of real estate would be to send that token to your wallet. And that's it. If your private key has possession of that NFT, you then own that piece of real estate. Or the car or whatever. Right? Even physical artwork perhaps.
Do you see that happening? I see that happening.
Alex:
The digitization of ownership?
Chris:
Yeah, tokenization. Yeah.
Alex:
Well, yeah. I see that happening right now. Like you're talking about, with the title. You have a pretty old record keeping system of ownership for most things. I definitely think that that will be tokenized and put on the blockchain. Absolutely.
But I think this comes with everything becoming interconnected. I think we are eventually transitioning to an interconnected system that's operating on blockchains, where most data is held on a blockchain. So proof of ownership of my house, I think, will eventually ... I'll have some sort of non-fungible token that represents the ownership of my house.
There will be record of my ownership of my house on a blockchain. And then instead of ... I get mail from the last four owners of my house right now. Why is that? Because people don't know who lives in the house anymore because they can't get the data.
I think that problem's eventually going to get solved when that data lives on a blockchain. It's constantly updated. No one's ever going to have a false record. We just search the blockchain for who has ownership of the house currently. You're never going to get the wrong information, because it's updated on the ledger.
Don't mean to go off on a tangent there. But I think that that's just an improvement of the current system.
Chris:
No, I'm totally with you.
Alex:
Which it's just another example of how there's a network effect with this blockchain technology. The more often it is used, the more widely blockchain is used across all different systems. There's more benefit to everyday users.
Chris:
It does. Especially with cars, because you want to verify if it has two owners, three owners, four owners, and if they kept the service history up to date.
Alex:
You like Carfax, or would you rather have a blockchain documented system of any time this car was involved in an accident, or every time it was brought to a mechanic?
Chris:
Which you can totally count on being verifiably true.
Alex:
It could be free as well. It would be free. You're not going to need to pay $20 to run a Carfax report.
Chris:
Very true. But you'd read the data for free, like you can on any, in a public block explorer like Etherscan. You just look it up.
Alex:
You could, I guess. This could become privatized a little bit. But there's no need to go down that route.
Chris:
No, because if it's on the blockchain, you just look it up. Like you said, free. Free to look it up. Anyone can read it. Right?
Alex:
Yeah. Although, who's going to incentivize the mechanics to record that information when that car went for an oil change? There might be private aspects to this.
Chris:
That's a very good point. That actually leads me to a different question. Which is how are the controllers of these existing databases going to let go of that power?
Alex:
Maybe they can adapt. Who knows?
Chris:
Yeah. What's the benefit, though? How am I going to sell it? I walk into the land registry's office, how am I going to sell them on—
Alex:
Look at this, look at this. Carfax. Let's stick with this example, Carfax. Obviously, this is a lot different than traditional banks or how are they going to adapt, but I'm just, in a general example of how a current company operating in the current system is going to adapt to the digitization and the tokenization of blockchain, the adaption of blockchain. How's Carfax going to benefit the most?
Well, say that they create a system where they can implant QR codes on each car and they have a QR code reader and a QR database, like a user interface for the mechanic to then input the information on what he's done to the car and have that upload to the blockchain.
The mechanic isn’t going to learn how to write smart-contract calls. But they could obviously use a simple app on their phone to update that information. Carfax can charge for that and mechanics get a benefit from that system because now people will trust that mechanic more if he's updating his system on the blockchain.
Now everybody is incentivized to adapt to that system, and some people are benefiting from it. Carfax is making a little bit of money selling that app.
Chris:
What information is available? What's it called, Carfax?
Alex:
It might be a thing only in the United States. But yeah, it's just a record keeping system that you can see that used car you’re thinking of buying was involved in an accident. The thing is, it's not even 100% accurate.
Chris:
I was going to say, how does the data get in there? Because the mechanic might not put in.
Alex:
It's reported sometimes. But sometimes it's not.
Chris:
Right.
Alex:
It's an imperfect system. It's a good system, but it's imperfect. But it would be considerably better on a blockchain. In a system where everybody is incentivized to hold the best records.
Chris:
Well, it sounds like it was conceived in, I don't know, let me see, in the second epoch. Because it's called Carfax.
Alex:
Yes.
Chris:
It sounds like you used to fax it in, like with a fax machine. You know what a fax machine is?
Alex:
It could be, because ... but their logo's a fox. So I don't know.
Chris:
Oh, Carfox? Not Fax.
Alex:
No, no. It's Carfax, F-A-X.
Chris:
Well that's confusing. Well, it still sounds like a fax machine.
Alex:
I don't know the history of Carfax. All I'm saying is that there are ... there will be companies that will choose not to adopt to this new. They'll try to fight this tokenization of assets and the adoption of blockchain.
Then there will be companies that push towards that epoch. They'll be creating and developing and trying to get us there. Then they'll obviously benefit the most.
But there will be another tier of companies that choose to adopt through this new generation — new epoch — and they'll still benefit.
Chris:
Everyone sits somewhere on that bell curve. That didn't actually come up with me and Kenny, but the difficulty in me explaining DeFi or Bitcoin or whatever, it basically boils down to whether you've got vision or not. If you have a lot of vision, all you need to do is read the Bitcoin whitepaper from 2010 and you see the whole thing open up.
A lot of people like Andreas Antonopoulos describe this happening. The minute you get what blockchain technology is, you immediately see in your mind's eye NFTs, tokenization of assets, decentralized money markets, digital identities. You see it all, right? But people like—
Alex:
I would preface that by saying there're certain extremely smart people who happen to have stumbled upon this information early on, that were then able to then see how everything would unfold.
Chris:
That's what I'm calling vision.
Alex:
There is another tier of people that slowly start to eventually get to that point. I wouldn't say it's instantaneous for everybody.
Chris:
No. But that's the point I was getting at. Those visionaries, they have to see it before it's real, so they can build it to show it to the next lot of people. Because people like Kenny might be the person that's like well, can you show me it?
And then you go well, download this one app and I'll send you $5 in Bitcoin. They go, oh that's amazing. But they won't get it until they can see it. But you won't see it until someone's built it and you won't build it until there're visionaries. Right?
How long does it take you to get it? Does the entire world have to convert to blockchain before you go oh, now I get it. Everything's tokenized, you finally get it. You're way, way behind by that time. Where people fall on that bell curve is anyone's guess, really.
Alex:
Right. Yeah. I guess I like to say the “S”-curve of adoption. Bell curve is the distribution of the people that adopt Bitcoin. It's not a timeframe. Are you early, are you late to adoption of Bitcoin? “S” curves time, the series of adoption.
Chris:
I'm with you. There's the saturation and where's the high point of the graph pointing? I'm totally with you on that one, totally.
Alex:
I would argue that we're getting closer and closer to that inflection point. After which it doesn't matter if you're early or late adopter blockchain or cryptocurrencies, because it will happen with or without you.
Chris:
And you will benefit, ultimately, from a faster—
Alex:
Even a late adopter benefits.
Chris:
That's what I mean. When the system's transformed, even if you're last at the party, you'll still end up with a system that's faster, cheaper and easier. You're going to win either way.
Alex:
Maybe not these legacy financial systems. I don't know. Depends.
Chris:
No, I'm talking about the users really.
Alex:
Right, right. If you fight the adoption of this system, it might not work out well for you.
Chris:
As ever. Just depends whether you think it's inevitable or not. I happen to think it is.
Alex:
Well, some people might think ... some people might know it's inevitable and still try to-
Chris:
Be in denial, yeah. Well, we'll see how it unfolds as this plays different ways within there to look at. And still, early doors really. So we'll see, we'll see how it pans out. There'll be plenty more Sunday Specials between now and then.
Alex:
Of course. Thanks for having me again, Chris.
Chris:
Thanks for being on. That's going to do it for today's edition of the Weiss Crypto Sunday Special with me, your host, Chris Coney. Until the next one, it's bye for now.
