Hello, everyone, andwelcome back to a brand new episode of TheFinancial Confessions. This week we havea guest who came on the show onwhat I have to say for TFC might be a landspeed record in terms of short notice. I reached out to hima couple of days ago. He’s sitting down today. And then in a fewdays you guys will be seeing this liveon your YouTube or wherever you listento your podcasts. And usually, we don’t reallyrun on that side of a timeline. We tend to talk aboutmore evergreen topics, and do deep dives into thingsthat are not necessarily based on what’s trendingin the news right now.However, the topicthat I’m going to talk about today with ourguest is one that I really felt deserved as much timelinessas we could give it. Most of you whohave even a passing interest in personal finance– which if you watch apersonal finance channel or listen to one isprobably all of you– have been aware of the meteoricrise in popularity and interest and in use ofcryptocurrencies and NFTs or non-fungible tokens. We get asked about them everyday multiple times a day on this and other platforms. Also, on our YouTubechannel you may frequently see bots pretending tobe our channel trying to spam other people intobuying various cryptocurrencies and NFTs.Those are not us. We block and banas fast as we can. But we can’t get tothem all right away. Suffice it to say, it isvery much in the zeitgeist. And my guest todayrecently made a video that is just absolutelyblowing up on YouTube, which I think is quite anet good for society, breaking down these concepts,exploring what they are, why they’re so popular, andto be perfectly honest, why they’re bad as hell. My overall stance on theseissues really aligns with that of our guest, which is thatthese kinds of financial instruments– and Ithink in some ways, it’s even sort of dubious tocall them that because it lends them more credibilitythan they deserve– are incredibly toxicfor reasons that are financial, technological,and also societal. While his video does, I think,an absolutely masterful job at breaking all that down.And, yes, you shouldinvest the 2 plus hours it takes to watch it. We’ll link you guys to itin the description below. I want to dive a little bitdeeper on some of the topics that he covers inhis video as well as talk about what it’s beenlike in the very short time since his video has causedsuch a considerable amount of conversation on the topic. Without further ado,I am joined today by Dan Olsen, who is the founderand host of the Folding Ideas YouTube channel, and the creatorof the recent viral video “The Problem With NFTs.” Welcome, Dan.Welcome. Thank you. Thank you. I don’t think it’s aparticularly useful exercise to outline whatcryptocurrencies and NFTs are in any great detail. But because thisis a financial show and the audience isfinancial, in terms of the very broad strokesof how you would define these things financially, do youhave a more bit-sized summary to contextualize someof this conversation for people who may be alittle more new to it? Oh, I mean, cryptocurrencies area speculative financial asset that has a lot of myth-makingand narrative surrounding it that would take hoursto fully unpack. Yeah, I guess that’skind of you almost have to summarize it basedoff of its complexity. Yeah, I totally agree. And I think that part of whatis so important about your video is it does manage tomake what is ultimately a very, very complex andintricate explanation of the thing interestingfor two hours. But one of the arguments thatyou kind of make in your video, and correct me if I’mwrong, is that the reason these NFTs, these digitaltokens essentially– because it’s not really theartwork that you’re buying.It’s sort of a proof ofownership of that artwork. Although even thatis kind of tenuous. The reason thatthey’ve become popular is because they’re effectivelyoutside of drugs, basically, the only thing with ademonstrated sort of use case for spending cryptocurrency. People spend theircryptocurrency to buy these NFTs. So they’ve becomepopular because they’re a reason for people tobuy into cryptocurrencies.Obviously, therefore to enteractual dollars into that market and move the moneyaround, essentially. Is that fair to say? Yeah, a lot of what– they’rethe first actual native use case of cryptocurrency thatgives holders something to spend it on that’s, Iwas going to say legal, but that ends up being abroader sort of question mark. But, yeah, it’sthe first thing– crypto has been plaguedfor a decade with just a lack of stuff to do with it. And NFTs were largely inventedas a thing to do with it. So you made this videoa week and a half ago. It came out two weeks ago? It came out two Fridays ago. Two Fridays ago, andlast time I looked it had almost 4 million views. It’s creeping up there, yeah. So I haven’t checked. I’ve stoppedwatching the number. It got overwhelming. But it’s somewherebetween 3.5 and 4. Now, for those who may not befamiliar with YouTube numbers, unless you’re like Jake Paulfighting a professional athlete or like a child playing witha bunch of play-doh goo, those are someincredible numbers to be putting up on YouTube.Is that? It’s a notable number, yeah. I’m not complainingabout, I’m not complaining aboutthe number at all. Well, part of the reasonwhy I’m highlighting it is because I thinkthere’s something really interesting about howquickly it gains steam with what you say is sortof an exterior audience, and how much it became apart of the conversation. Not just because Ithink it’s important that people are engaging withthese ideas at that scale, but also because, from whatI’ve seen, the response to it seems to be quitepositive in a space and about a subjectwhere criticism is often met with extreme hostilityand even aggression. So have you felt that theresponse has been largely quite positive? Or have you been receivinga lot of that backlash? So when the videoinitially went out, the initial response for likeday, day and a half, two days was overwhelmingly positive.And that’s kind of expected. You know, it’s likemy immediate audience are going to be thefirst people to view it. And then they’re going to shareit with people close to them. And then it spreads out. But it took a couple ofdays before it really started getting intothe crypto space, and I started seeing a lotmore hostility towards it. But it has been interesting. Because there has been alot of sort of positive. There has been a lot ofpositive response to it within the crypto sphere. But then also a lot oflike begrudgingly positive. I think it’s– I don’t want to ascribeoutsized influence to the video. But I think it landedat the right moment where it’s kind of causinga shock through the system. One person described it asa sobering, one heavily, heavily pro cryptoperson described it as a sobering put upor shut up moment. Pro crypto peoplewho are like I don’t know how to dealwith this, because I agree with basically everything,I just don’t like the tone. Well, isn’t thatlike the material content of 85% ofinternet comments? Just responding to the toneand also whether or not it applies to their life directly.You obviously, so you madethis video really deep diving into both, you know, whatcryptocurrencies and NFTs are. And again, I think everyoneshould really go watch that if you haven’t alreadybefore even really listening to this, honestly. It’ll help you get moreout of the conversation. But you made this video kindof explaining what they are. And from my view, explaininga really high sense of moral financialtechnological urgency to understand whythese things are bad. And obviously, it’sa nuanced answer. But for someonewatching casually who doesn’t know much aboutthis, why are cryptocurrencies and NFTs so dangerous, so bad? Cryptocurrency is a sociallydestructive experiment in financial reorganizationthat serves the needs and whims of some very scarypeople who already really have too much power. And NFTs are just kind ofa extension onto the side of that that existto create legitimacy for the overarching thing. And this was thething that actually– this is the thingthat I struggled with a lot in writing it, whichis that the whole ecosystem is so complex that it’s almostnecessary when engaging with it to compartmentalizeall of the different things that you’re talking about andall of the different things that you’re dealing with.So you start talkingabout NFTs, it’s very, very easy and tempting tojust start talking about NFTs in their own little bubble. So you end up talkingabout, oh, well, you know, is digital ownershipa bad thing? Are digital collectibles bad? And it’s like, well, no, digitalownership isn’t a bad concept. Digital collectiblesaren’t a bad thing. Well, is it bad forartists to get paid? Well, no, it’s greatfor artists to get paid. But that’s missingthe bigger picture. I’ve been accused of missingthe forest for the trees, but that’s literally missingthe forest for the trees. That’s saying that it’slike, oh, well, like this one application concept for NFTshas good and legitimate roots, therefore like it’s all OK.I said, well, no, becauseit’s in service of this bigger thing, you know. In order to getinto that ecosystem where you’re doingthe harmless thing, you’re legitimizingthis experiment that is attempting todismantle social, that’s attempting to like dismantle ouralready fragile social systems. It’s attempting tostarve out public works. It wants to turneverything into– that it’s like, oh, well, whatif we replace mayors with CEOs? Like what if cities hadCEOs instead of mayors? What if we had a CEO of thecountry instead of a president? And it’s likewhatever opinion you have about the structureof our political of our politicalsystems, it’s pretty easy to say that it’s like, OK,presidents might be a bad idea.CEOs are a worse one. And that’s kind of where– Oh boy, I don’t know if I’msumming that up adequately. Because it took– probably themost flattering response that I got to the videowas somebody who said that, “It’s tellingof how circuitous the system is thata 2 and 1/4 hour video doesn’t feel padded.” Yeah, no, no, no. In fact, it feelslike at certain times you could have gone way, waylonger on different subjects. I could have. It could have been10 hours and I still wouldn’t have run outof things to talk about.So I’m not sure ifthat’s a good summary. But the why arecrypto and NFTs bad? It’s like they’resocially destructive and they represent crypto. I really want tostress that NFTs are an extension of crypto. And crypto is a sociallydestructive experiment that goes to greatlengths to concentrate even more wealthand even more power into the hands of the few. They’re deflationary bydesign, which traps– So the long-term outcomeof these would be that late comers, which– you have to considerthat, oh, well, what does a late adopterlook like in crypto? And it’s like well if we’retalking on a timeline, it’s people whoare kids right now. So let’s imagine thishypothetical future where crypto becomes like mainstream. Let’s say it winsand it takes over.Well it’s like, oh, well, youshould have bought in early. It’s like, well Icouldn’t buy in early. I was five. Right. I now have to buy in latebecause the passage of time dictates it. And it’s like, OK, how isit going to behave when those people have to buy in? And it’s like, oh,not good, not well. It’s going to be terrible. And deflationary economiestrap ordinary people into irrecoverablecycles of debt that just leads towards serfdom. That’s why under the gold basedeconomy of the Middle Ages we had a whole lot of serfdom. We know how this unfolds. We know how theGilded Age unfolded. And is fiat currency great? No. In terms of historicmonetary systems, it’s actually pretty good. It actually legitimatelysolves a lot of problems. There’s some badexternalities for it. But we have history books. The railroad robber baronsexist after the invention of photography. We know what theseguys looked like.It’s not ancient history. It’s not that far back. We know how itplays out when you have economic systemsthat are based off of deflationary currency. And it’s real bad forthe average person who is forced to engagewith it on a debt basis. And it filters wealth upwards. And so that’s why I keeptrying to pull it back to that big picture. It’s like why are NFTs badif they’re paying artists? Well, NFTs are badbecause they’re a tumor, they’re a growth on theside of cryptocurrency.And cryptocurrency is an attemptto destabilize our economy and society evenfurther in order to implement a power systemthat is deflationary and rewards the wealthy and theearly with explicit political and monetary power. And kind of your closingargument in the video is really comparingcryptocurrencies and NFTs, in particular, as effectivelyvery similar to an MLM, which is a subject that we coverquite a lot on our channel. And our audience, whichis primarily women, are very interested in. Because women are veryheavily targeted by MLMs. This obviously, seemsto skew much more masculine, hencepeople referring to it as kind of an MLM for men. But effectively,the driving sort of dynamic behind both ofthose things and the comparison is that, ultimately, becausethese are totally speculative, and because they reallyhave very limited real world application, if any, thevalue of these currencies, the value of these tokensdepend on owners convincing another person that theyhave a higher value than they themselves purchased it at.Is that also fair to say? Yeah, that’s fair to say. And also, the a big thingwith the similarities is that they utilize alot of the same rhetoric. Like the myth-makingand narrative surrounding theproducts themselves are very, very similarbetween multi-level marketing and crypto. There’s adaptations fora specific audience. But when you pick them apart,it’s the same promises. It’s the same myths. It’s the same anxietiesthat are being tapped into. It’s the same psychology. One of the things that I thinkmakes the entire phenomenon of cryptocurrency so dangerousfrom a financial perspective– and I mentioned inthe intro that this is something we getasked about all the time.And it’s somethingthat even, I mean, our audience is prettydiscerning and savvy about personal finance. And I think many of them,even myself formally, kind of operate on this assumptionthat there’s something to it that we don’t understand,and therefore it must be legitimate. There must be somereal value to it. And I think the termitself, currency, is part of that misleadingnature and part of what makes it so dangerous.Because in effect,it hasn’t really demonstrated itself tobe an actual currency. No it’s very, verybad as a currency. And the last week and a half ofwatching kind of the valuation and spending power ofthe two most popular, well, actually, I mean likethe 5, 10 most popular coins– though Bitcoin and Ether havesuch an overwhelming market share that you canbasically just talk about them as thoughthey’re the economy, and it’s functionally accurate. Watching those swings, and theswings over the last year, year and a half, and I mean, thelast decade of this stuff, it’s basicallynonfunctional as currency. And the rapid fluctuationsand spending power would make it insane to tryto actually use it fully as currency. It’s just it’s so unstable. And part of the problem that Itried to dig into in the video, but it’s hard to squeeze itall into a mere two hours, is that if you actually lookat like the needs of users, like buyers just goingabout their lives– So if we think about atheoretical mass adoption scenario where it’slike, all right, what would you and I, andmy mom, and my brothers, and my dad, and myuncles, and everybody I know, what would weneed in a currency, in a digital currencythat we use to do just our daily interactions? That version of ahypothetical digital currency bears basically no resemblanceto what crypto coins actually are and how they behave.And the incentive setsfor the people who run, build, manage, launch,sell cryptocurrencies are antithetical. They’re completely different,like completely incompatible paradigms. Because what Ineed in a currency that I’m going to spendevery day is stability. I need it to bevery, very boring. I need it to be so almostabsurdly safe as a thing to have value in that I canjust stop thinking about it. I can just use it. Because it’s likethe value needs to change so slowly that I needto worry about it on timelines of years. If I need to worry aboutthe value of my currency on a timeline ofeven weeks, that’s already like nonfunctional. That’s going to completelyscrew up all of the incentives around using it. And it’s just goingto mess everything up. But the incentives ofpeople selling crypto is they want itto go to the moon.They want it to be volatile. They want that line going up. They want it to be exciting. They want it to be ahigh pressure investment scenario where it’s like,yeah, it’s like big risk, but it’s also huge rewards. You’ve got just these completelyirrational swings in numbers because that’senergizing to them. And that’s whatgets them excited. That gets the blood flowing. And it’s like, yeah, butthat makes it not a currency. You can’t– if it’s doing that,if it’s behaving that way, it’s nonfunctionalas a currency. So it’s just not a currency andnobody treats it as a currency.Everybody treats itas an investment. Because tick OK, likethat’s what it is. I love the idea ofwalking into a 7-eleven to buy some milk with yourcrypto, and by the time you get to the cashregister they’re like, that’s a milliondollars, effectively. And you’re like, what? Yeah, one of the things that I– it just ends upbeing a small detail. Even just as I was pullingall of these examples, so when Jack soldthe first tweet, it took them like11 days or something to actually settle the auction.And in that time, thedollar value of the Ether– So the initial bidwas for $2.5 million. And by the time the auctionwas settled two weeks later, it was now $2.9 million. Awesome. Don’t all currencieswe know and love do that in a twoweek span of time? We just love it. One of the things that Ithink is really keeping people on this sort of what Iwould call middle ground, there are people whoare all in on crypto. There are people whoare very against. And then there, Iwould say, most people in the middle who, again, feelthat there must be something I don’t understand. There must be some kindof legitimacy there. Which by the way,let’s be clear, is also endemic to theoverall financial market. But we can get intothat another time. But I think part ofwhat is keeping people in that middle groundis the participation of a lot of techleaders, celebrities, notable figures, billionaires inthese various cryptocurrencies.My question to you,I mean, I view this, as I’m sure you do as well, asa pretty obvious pump and dump of like, Paris Hiltongoing on Jimmy Fallon to talk about howcool her ape is. I love the hat. Like that happening clearly– [INAUDIBLE] tried tocrawl out of my body. It’s so hard to watch.but yet, in some ways, kind of cool actually. It’s very lynchian. So that is– Sunglasses. [CHUCKLING] Yeah, sunglasses. So she’s obviously trying tosort of pump the value of it. Now, between thesecelebrities, like I’m sure Paris Hiltonhas no clue what an NFT is and someone’sselling her on it.And then I’m sure someonelike Jack Dorsey, who has all kinds ofinvestments in crypto, he’s more activelysort of understanding what he’s doing himself. But for the bigpeople who are in– –getting into slap fightswith other crypto people. It’s very funny. Love that for him. Just our little Rasputin outhere always causing drama. So amongst all ofthese big figures who are in it, how many do youfeel are in it because they’re true believers? And how many arein it do you feel just because they’regetting swindled by someone who’s into crypto? Oh God, that’s a hard,hard number to pin.Of like celebrities, of likepop culture celebrities, I would put scant few of theminto the true believer camp. There’s a few ofthem that I don’t know if they’re true believers,but they’re definitely in it authentically. Like Waka FlockaFlame posts about it all the time in a verypersonal like vlog-ish way. So it’s like, all right, he’sin for a penny, in for a pound. I think Elijah Woodis into it as a hobby. But Jimmy Fallon doesn’t– Justin Bieber has noclue what MetaMask is. He doesn’t knowor care, you know. Like somebody approached hismanager with a business deal and is like, hey– or got a hold of hisfinancial investor, whatever. It’s like, hey, we’ve got areally good opportunity for you here. And it just goes on thepile of meaningless pitches that big name celebritiesdeal with every single day.It’s effectively treated nodifferent than any other brand endorsement deal. Yeah, yeah. In the tech sphere I think itI think it skews a lot more. You’re going to end up with– I would say in the tech sphereyou end up with a lot more true believers because they’reequipped with a very specific self-inflicted conditionthat enables them to convince themselves of all sorts ofintangible things as being– Like that you’re able totreat these intangible things as being effectivelypresent and real. And that’s being– we’veconstructed this monstrous machine where like ever since– I mean, it happenedin the dot com boom, in the dot com bubble wherecompanies would pop up and they would talkabout their plans.And it’s like, oh,we’re going to do xyz. And then regardlessof whether or not xyz was a good idea, a feasibleidea, or even physically possible, they would getvaluated based off of that. And they would sellstock based off of that. Well, they had a singleempty, like a single office with three desks in it, and theywould move all of this money. And we’ve got two decades ofbasically that environment where tech industries,tech people can make grandiose claims with no end. And connection toreality is unnecessary. It’s secondary. It’s optional. And I think afterthose two decades, they’ve just gotten very,very, very used to it. And it’s enabled them to– because in a lot of cases, Idon’t want to say it works out, but somebody ends up winning.You end up with an Amazon. You end up with a Google. You end up with a Zoom. You end up with a Discord. You end up with whatever. You do end up with winners. And so there is not somevast systemic punishment for ridiculous overpromising. And that’s created a acceptablepsychology of like, oh, yeah, you can just make thesegrandiose completely confabulated claims, andquestion mark, question mark, question mark, it’llprobably work out.So I think the techsphere is better equipped to disillusion itselfand just convince itself that like, yeah,it’ll absolutely work. In the financialhalf of side, that’s where I think you find thereally, really hard core grifters. That’s where you findthe Jordan Belfort’s who are just straight up,like they do not care. They don’t believe in any of it. And they just no commitment,completely mercenary. It’s just like, hey, theseare the magic words that you need to say in order to get$150,000 views on YouTube to get like 2000 people showingup to your Twitter spaces and to get 50 of themsigning up for your workshop.Man alive. Just there’s something soundignified about NFTs. Like the idea of a completelymercenary Goldman Sachs executive like justbasically having to make this pitchto his bosses about we got to go all in onthese disgusting apes. At least with otherhorrible financial swindles, there was, I don’t know,I just felt like there was more dignity to it. This is just sobase and childish. And so contemptuous for thepeople who are actually– because the thing is that like,yes, the comparison to MLMs is very apt. And, yes, it is verybad when women end up with walk-in closetsfull of moisturizers that they can’t sell. But at least thosemoisturizers exist. At least you canactually put them on skin and maybe be a littlemore moisturized. With these there’s nothing. You end up garagequalified in Herbalife. And you have a storage roomfull of awful supplements, but I guess they at leasthave some caloric value.Yeah. There’s your silver liningon a very dark cloud. Where if you end up garagequalified in crypto, you might as well have gothad by a wallet inspector. True. So this is a more ofa political question. But we’re very open at TFDabout our progressive political values. Because obviously, allof our financial choices exist in a much greater economicand political framework, and obviously are very subjectto regulation, and tax policy, and all of these things. It appears to me, and thiscould be my Bernie bias showing, but it appears to me thatthe entire ethical and philosophical underpinningsof the cryptocurrency world of NFTs, et cetera,is fundamentally libertarian and a fundamentallyright wing ideology. Do you think that that’s true? And I guess morepertinently, is it possible to be aprogressive crypto person? So, Yes.So the first part,yes, absolutely. I think the connections, likethe philosophical connections between Bitcoin and soundmoney, between Bitcoin and gold standard,it’s weird that this seems so disconnected– Back in 2009, 2010 when I wasfirst like following Bitcoin, this was just all on the table. This was out in the open. It’s like the comparisonsbetween Bitcoin, it’s like Bitcoinis digital gold.We need to go backto the gold standard. And the overlap between Bitcoinenthusiasts and gold bugs, the overlap betweenBitcoin enthusiasts and just like sound money, kindof like really scary weirdos, you know– And even just the factthat fiat currency has become so pervasiveas a framework for talking aboutcentralized finance. It’s like that was allvery out in the open. The roots of thatare super exposed. But I think there’sbeen a lot of recruiting done over the last, particularlythe last five years, to really try to get in aliberal, if not socialist, sort of wing to all of this. There’s been a lot of pitchingtowards them that has focused more on the smartcontract layer of things, like the governance layer, thatis used to basically left wash the deflationary sound moneygold bug roots of the system itself. One of the other ways in whichI think the MLM comparison is very apt is that MLMssort of notoriously take a lot of materialrealities that women experience, not a lot of jobopportunities, especially for stay at home mothers,military spouses, et cetera, socially isolatedin a lot of cases, experienced genderdiscrimination, discrimination for being mothers, et cetera.It sort of presents them withall of these problems that are true, and thenoffers them a solution which usually ends byputting them in debt and making all oftheir problems worse. And similarly, alot of the discourse that I’ve seen from someof the people who seem, if not more politicallycenter or even left, at least savvy atpretending to be, is this real sort ofmeaningful sounding gesture to how predatory,and how unequal, and how insufficientlyprotected and regulated the overall financial system is. It sort of has thisoverall tone of the way the economy runs is really bad. And their answer toit is to exacerbate all of those problems. Like here’s thisalternative system that’s worse in all of theways that we described above. And when you watch– You could be,Yeah, but you could be the co-owner of that newthing if you get in now. Pay no attentionto the people who won’t have an opportunity to getin until five years from now.Right. Don’t think about them,just think about now. Yeah. Do you feel that theresonance that it’s having with people comes fromjust sort of a desperation to find an alternative system? Is that it? Yeah. Yeah. Like the narrative ofcrypto is absolutely touching on veryreal pressure points that exist in our society,very real inequalities. And it’s promising tobe a solution to those. And the issue,the umbrage that I take is that not enoughpeople are asking, one, is this actually goingto solve those problems? Is your proposedsolution even going to work in the first place? And two, are youeven working on it? Because the thing isthere’s a lot of people.There’s a lot of peoplewho are willing to start up a crypto fund promising,like, oh, we’re going to be a bold experiment in UBI. And then it’s just apump for some Bitcoin. Now, this is a question thatprobably no one can answer. But I feel obligated to askwhat you’re, even surface level, response to this is. When you have so many people whorightfully feel that they have very little kind of upwardmobility or possibility of achieving their even kindof modest financial goals, they feel the system is brokenbeyond repair, et cetera, and this is offeringthem an alternative.What do you say to those people? Like what do yousay to someone even, for example, in our own livesthat we would want to get out of that system while stillvalidating what are very real concerns? What else can we offer? God, I really wish Ihad an answer to that. Because I have a tremendousamount of empathy for anyone who just ends up like completelyblack pilled on these subjects right now, just goeslike full into doomerism. It’s like, oh, isthe system, in fact, so utterly brokenthat it becomes just a completely rationalchoice to go all in on crypto? Because it’s likenothing matters. Who cares? If nothing matters,then what does it matter what poison you pick? I mean the– It feels super weakto just be that it’s like the arguments inthat kind of localized personal conversation justend up being like, yeah, everything sucks. But this is super risky. Even by the standardsof risk, you’re probably going to get betterreturns at a roulette table. And you get free drinks.Plus you can smokecigarettes inside, which is rare these days. Yeah, that ends up– I mean, that’s the hard part. Because it all tiesinto systemic stuff. So if you’re talking about howdo we like defang the crypto movement, particularly defangthe predatory arm of the crypto movement, which is the largest? The answers to that are thingslike, well, fix minimum wage. It’s like, OK, tieminimum wage to inflation. Correct wage stagnation. Build affordable housing. Forgive student debt. Fix the medical debt,the medical debt economy.Make people’slives less chaotic. And that right there islike the greatest inoculate against predation. People become resistant topredation when they feel safe. Because what thesegrifters rely on is having a steady streamof desperate people who are in legitimatelybad scenarios where their riskevaluation gets completely out of whack for utterlyunderstandable reasons. I mean, the long runningthing over the last few years, like the whole avocado toastthing, where it’s like, oh, look, millennialscan’t buy houses because they’re busy buyingavocado toast every day. And it’s like I’msorry, $4 a day is not going to buy you a house. Basic math here, how manyyears of avocado toast do you need to eatbefore you can afford a house that exists today? And it’s like, all right,people make these decisions because the numbers arestacked against them. And they realizethat the numbers are stacked against them. And it’s like does it becomerational to gamble when– it’s like, all right,you’ve got $5 a week in slack in your budget, whynot buy a lottery ticket? I mean, in terms of– I guess it’s probably onpar with where you’d be if you bought lottery tickets.But I do think the mostcompelling argument from just a sort of purely sortof personal finance view is you’re right aboutall these things. The system is bad. You’re dealing with anunfair deck of cards. Your choices are bad. But you’re almostguaranteed to be materially worse off if you putyour money in crypto, period. Yeah, you might win, butodds are not in your favor. I mean, I’ve had somepeople approach me like, OK, if you were going to do this,how would you approach it? What would be the mostethical way to approach it? It’s basically like, allright, you put a little bit in, just a bit.You set a benchmark for whatyou want to see on that. And the moment youhit that benchmark, you ignore everypsychological trick that your brain is going totry to pull on you in terms of sunk cost or like hot handfallacy or anything like that. If it’s like, allright, I put $100 in, and once that hits$200 I pull it out. You know, it’s likeyou kind of have to have these extremelystrict rules of engagement in order to preventyourself from getting sucked into thescenario where you’re going to convince yourselflike, oh, my 100 went to 200. It’s going to go to 400. Well if it’s goingto go to 400, then I should up my 200 to 2,000. I should up my 2,000 to 8,000. I should– Oh no,it just dropped 40% and is going to linger therefor the next six months. And Oh no, I actually just, Ijust put all my car payments into crypto. Interestingly,you’ve just described the process of someone ata blackjack table also. I mean this is exactlyhow gambling works.So you draw a very,very strong parallel in your video between the 2008crash, and what led to it, and what we’re seeing withthe cryptocurrency markets. I mean, put plainly, do you feelthat these digital currencies have the possibility of bringingus into another recession? That my gut tells me nopurely on the basis of I think crypto is soinsulated at the moment that for the most part, ifcrypto were to just basically zero out tomorrow,for the most part, unless you were invested incrypto, you wouldn’t feel it. However, there’s a littlevoice at the back of my head that’s like, yeah,but you know, Dan, you know factuallythat a whole bunch of investment banksand just regular banks they’re holding a lot of crypto.And you don’t know whatthey’re doing with it. You don’t know theirrisk profile is. You don’t know what theirinvestment in this is. You don’t know what they’vebeen borrowing against it. You don’t know what they’vebeen lending based off of it. Who knows? Who knows how muchlike, how many cards are stacked on top of that? So there is this worryin the back of my head that there’s a whole,that there’s basically a whole synthetic CDO situationthat’s just floating around out there that no one really isentirely aware that it exists because they’re notdealing with it directly that would cause the samekind of chain reaction. I hope that’s not the case. I have a strong, my gut tellsme that the conventional institutions– actually,wait, University of California actually has a very, veryuncomfortable risk profile in regards to their cryptoborrowing and lending that I don’t entirelyunderstand the numbers on.But that’s a little worrying. Because they have alot of then connections into pension funds that endup being the pressure point that ends up causingthe chain reactions of these financialmeltdowns to bleed over into the lives ofordinary people who have no directconnection to it. So I have some– yeah, I guess to tryto package that, I have some complex reservations. But there’s a hope in myheart that a crypto meltdown would largely just melt crypto. Well, I mean, it’stough to say, right. It’s also tough to sayif crypto melting down would be the end of crypto. Because the anti-MLM movementhas been incredibly popular for years. Yeah. In that regard I thinkI’m a realist about that. I don’t think crypto’sgoing away in our lifetimes. I mean, even if you believethat crypto is the future, there’s an observable bubble. The valuation of allof these crypto assets against their material productis just so utterly irrational that even if youbelieve in crypto, it’s not sane right now.It’s completelydisconnected from reality. There’s no reason, noreason at all for Ether to be north of $100. The actual value ofBitcoin is probably $200, and that’s being generousin terms of the material exchange of the actualpurchasing power and like equivalencyof those things. So even if you’repro crypto, there is a very, very obviousbubble that is just– a little bit of pressurejust got relieved out of it. But it’s still super inflated. So I don’t think crypto is goingto disappear in the same way that MLMs are never going to. It is now a thing that willbe with us for quite a while. But I strongly, strongly doubtthat crypto 10 years from now is going to look anythinglike it does now. I think there’s a majorpressure release coming, and it’s going to hurt alot of retail investors. Well, sorry guys,but you should have known those apes were abad deal when you saw them. I had one, I didget one bit of– the crew at the Defianceput out a video response where, one, they got reallyupset at some of the things I said about a fewspecific individuals.But also, they just hadthis really bizarre argument that if it was a scam,it would be dead already. Because scams only have a shelflife of like a couple of years. And I was just like, BernieMadoff ran his Ponzi scheme for 30 years. The fact that Bitcoinhasn’t exploded yet, like it hasn’t justmelted into slag, is not proof thatit’s not fraudulent. Also, there are somany like MLMs that have been around for decades. I mean even Lululemonsurvived the atomic blast of that documentary. Lulu, sorry, LuLaRoe. Although, yeah– LuLaRoe survived LulaRich. Amway still, I don’twant to say going strong, but like still there. Yeah. So some of you guyssent in some questions. One of my favorites was,”since the video has come out, have you heard any notablecriticisms or ideas that you have not consideredabout your original arguments?” No. But I want to puta healthy caveat on that, which is that therehave been some good criticisms. There have been somepretty valid ones, but they were all ones thatI essentially saw coming.Because there’s a lot thatI had to cut from the video. You know, and there’s a lotthat I didn’t necessarily cut, but I was like, OK, there’sthis subject, this subject, this subject, this subjectthat I want to talk about. But I need to get this doneand it’s already super long. And I just don’t knowwhere to fit it in. And I don’t know howto segue into it.And I need to finishthis at some point. And so I just need to takethat subject and shelve it. There’s a bunch of commentarythat it’s like, oh, this subject hasbeen simplified. And the person considersit an oversimplification. Or there’s specific wordingof a few of the examples that they’re just like, oh,his explanation of gas fees on Ethereum– I’m like, I don’tthink my explanation in the video is inaccurate. But I absolutelyunderstand why people who are trying to protectthe virtue of Ethereum are going to be like, oh,well it’s too simplified.And there’s a few, if Iwent back and revisited it, I’d probably rewordit a little bit. Because I think theexplanation that I put in maybe doesn’t do a greatjob of differentiating between block validationand individual transactions. That it’s like, OK, a blockis a bunch of transactions. And I also don’t bring up thesubject of how gas is basically two dimensional. So you’ve got both, there’sthe price of gas per unit, but then your transaction hasa variable quantity of gas.And so the price isfluctuating along two axis at the same time. And I didn’t mentionthat in the video. And so I could see howsomebody would be like, Oh, you didn’t, it’stoo oversimplified. And talking aboutone criticism that I was really empathetictowards is that it’s like you don’tspend a lot of time talking aboutwell-intentioned projects. And that was a thingthat I was aware of.Because like that gotcut from the video. But it got cut forspecific reasons, which is that it createdthis false sense of scale, this false sense of magnitudebetween the different arms of the space. That it’s like thefraudulent side of the space and the side of the space thatworks in service of the aims and underlying aims andgoals of cryptocurrency, which as we discussed, tiesinto all of the sound money, virtual gold stuff. It’s like all of thatjust utterly dwarfs the well-meaning weirdoart projects that basically exist in serviceof legitimizing the broader ecosystem. And then I found that if– Yeah, it can kind of justbe summed up in that line. That it’s like, yeah,there’s well-meaning, well-intentioned projects.But their existence servesonly to legitimize the broader system. And it’s a bad comparison. Because well-intentioned peoplegot involved with Bernie Madoff early on. And I’m sure the moneythat they got out of that went to wentto good purposes, went to well-intentionedpurposes. And they saw returns, youknow, air quote returns. Their investment got biggerand they used that money on something. But that doesn’t mean– Madoff’s Ponzi schemewas a Ponzi scheme. It absolutely was. That’s undeniable. So the fact that somebodyinvolved in that scheme probably did somethinggood with the money that they got out of it isI find it’s uncompelling. And focusing on it distractsfrom the bigger picture.You seem to, Imean, one walks away from your videowith the perception that a decentralizedfinancial system, like with no actual sortof structural oversight, governing body, etcetera, really can’t work. Is that accurate to howyou feel on the issue? That’s a trickyquestion just because it goes into the realm ofbasically sci-fi hypotheticals. So it’s like can weimagine a society where a completelydecentralized economy that functions at the scaleof our current global economy? Yeah, we could probablyhypothesize one. Is the trajectory ofcrypto headed towards that? No. How do we actuallysolve the problem of owning digital productswhile simultaneously not using DRM, butprotecting/helping the artist creator? That’s kind of a false question. Boom. Because, Yeah. No, there’s a problem in theframing of that question, which is that any system thatis going to regulate or that is going tosystematize digital ownership will by definition be DRM.Oh, and just for thosewatching who may not know, can you explain DRM? DRM is DigitalRights Management, which basically onceyou unpack the acronym it becomes obvious why. Anything that managesdigital rights is going to be digitalrights management. So you can’t reallyhave digital ownership without having a system of DRM. It is in kind of a perverseway effectively all or nothing. Either you haveprovable ownership and DRM or you don’t haveDRM, and thus ownership is effectively just avery vague trust mediated system that only functionswithin its local economy. So an example thatactually got cut from– I talked about this actuallya bunch in an earlier draft of the video. Have you ever heardof adoptables? No. So adoptables area subculture that’s been running forabout 20 years now. So it’s related tothe furry community, but they’re not likeone-to-one correlated. Where artists in this communitywould create characters, and then sell those characters. You could adoptsomebody’s character, and then that becomes yourcharacter that’s yours. And the ownership of all ofthese different characters inside the ecosystemis effectively just mediated just by social trust.That it’s like how do weknow that so-and-so owns this blue jaguar character? And it’s like, well,because we know. Would that work at scale? No. No. Because it requiresthose tight, it requires that socialfabric of people actually knowing eachother in order to function. So can you have versionsof digital ownership that function without DRM? Yes, in very localized contexts. Can we have a massmarket solution to selling games or sellingin-game objects that doesn’t utilize DRM? No. On that note though ofownership of digital objects, as someone who is also acreator of content online I’m sure the fact that theinternet has made people, I think, much lessused to the idea or willing to pay for contentthat they consume online, be that video, article, art,whatever it might be, that is a real problem.People no longer wantto pay for the things that they consume online. Do you think that the riseof NFTs in any way help address that problem? Or do they aggravate it? How do you feel about that? The degree to which I’ve seenpeople involved in crypto become more willing to payfor content relies heavily on the fact that when you’reinto the crypto ecosystem the currencies themselves,the only way that you can stay sane while treatingthem as currencies, is to go to kind of extremelevels of depersonalization and distancingyourself from them.You basically need to putyourself into a mindset where it just becomes script,it just becomes tokens. It’s like, OK,I’ve bought Tezos. You know, I’vebought a bunch of tez because I want toparticipate on [INAUDIBLE].. And you stop thinkingabout your tez as having any dollarequivalent, and you just start thinking about themlike Chuck E Cheese tokens. Where it’s like, all right,I’ve got a bunch of tez that I can use insidethe tez ecosystem. And you know, if youtreat it as a one way purchase in the sameway that it’s like, OK, I buy bitsoff from Amazon so that I can use them on Twitch. And then it’s like, yeah,I’ve already bought the bits. I just give them to thestreamers that I enjoy. I give them to streamers forchannel rewards, for whatever.And you just stop, youdon’t consider at all that there’s any kind of likeexit strategy for those bits. They’re spent. It’s done. You’ve got them. They’re now inside this littlegame, like fun ecosystem, and you use them on fun stuff. And that’s basically, so thedegree to which crypto folks are more willing to spend oncontent comes down to the fact that they need todepersonalize the actual exit strategy of their cryptojust in order to stay sane. Because otherwise you payattention to the volatility and it drives you to madness. Right, I mean, theunderlying perception of this is not that, hey, theseartists are making great things and we should supportthem as individuals. Because half the time the artis stolen or repurposed anyway. The underlyingperception is more that we’re just collecting moreof these valuable tokens that will serve us down the road. Yeah, in a lot of ways, yeah. You do see some subcultures,some localized communities where it’s very much like,oh, somebody bought something from me for a bunch of tez.But because I don’t viewtez as being real currency, I have very littleemotional attachment to holding it ortrying to cash it out. And so it’s like I spendit very, very willingly. That it’s like, oh,if I see a token, if I see a piece of artworkon [INAUDIBLE] that like catches my attention,and it’s like five tez, it’s just like, allright, whatever. I’ve got 20. It’s like just, you know– It just kind of rattlesaround like that.But then you can’treally like get it. I keep coming back to Tezos. Tezos fascinates me becauseof its very peculiar history and the fact that it functions. Like that itactually almost sort of functions very tenuously,but then almost entirely by virtue of the factthat it’s unpopular. So forgive me if I keepusing this as an example. But we see this also in Ethereumwith Bored Apes and whatnot, you know, and Lazy Lions, anda lot of the PFP programs. Where it’s likeyou’ve got people who have been investedin Ethereum for five, six years now, seven years now.Where they’re sitting onjust irrational amounts of it that they can’t cash out. And so psychologically they’rejust playing with house money. It’s like 2 Ether,5 Ether, 20 Ether, like you see thesejumps in the prices, like the biddingprices, that are just sort of these bizarreleaps in bidding value that make a lotmore sense if you view Ethereum psychologicallyas a video game economy. Where it’s like, OK, if you’repsychologically just playing with game cash, if you haveso much Ether that it’s just game cash, it’s justChuck E cheese tokens, you’re just playing with housemoney, then it’s like, yeah, why not just add another10 Ether onto your bid? 200 Ether to washtrade something? Sure, why not. Well, I can already hear– OpenSea’s going to take a bigold cut of that wash trade. It’s like who cares? It’s all fake money anyway. I mean, I canalready hear someone who’s a big cryptoperson being like, well that happensin the real economy too with multibillionairesit’s like, OK.Which is why we knowthat it’s going on. Right, and it’s alsolike that also being bad doesn’t prove thatyour system is better. In fact, it actually, in someways, proves the opposite. It proves that you’re recreatingthe exact same incentive sets. Thank you so much, Dan. You know, I’ve so appreciatedthis conversation. Obviously, as I mentioned,you have a YouTube channel. And where can people go tofind more of what you do? You can find me on YouTube. Channel is Folding Ideas. Or you can find me on socialsunder the handle Foldable Human. Twitter is the mainone that I use, though I’m a lot less active onsocial in general these days. But that might turn aroundonce the heat dies down. I’ll probably beback to Twitter. I’m an addict. Can’t stay awayforever, but, yeah. Yeah, I can’t evenimagine what those guys are doing to you right now. Well, be strong. Ignore the haters. Ignore the trolls. And thank you guys somuch for tuning in. We will see younext week on a brand new episode of The FinancialConfessions.bye-bye, everyone.
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