How money moves, with Erik Torenberg

Welcome to Complex Systems, where we discuss the technical, organizational, and human factors underpinning why the world works the way it does. Howdy-ho, everybody. My name is Patrick McKenzie, better known as patio11 on the internet, and I'm here with my buddy Erik.

Patrick, great to be here. Excited to get into money payments and some banking.

Yeah, we're recording this early on Election Day before anyone knows the major news story for tonight. So I want to discuss something that is thoroughly apolitical, like money. That's a joke, but not much of one. Like, regardless of what happens, the Republican derbies, money will still be spendable in a couple of days. And we want to talk a bit about what guarantees that.

From, from your lips to God's ears. I hope so. I'm just kidding. Yes, it will be. Well, let's, yeah, let's get into it. Do you want to start with maybe an overview of what money is and we can talk about how it moves?

Sure. So academics have written book-long treatises on the subject of what is money in this philosophical conception. Disclaimer, I used to work at Stripe, and Stripe does not necessarily endorse anything I say in my personal spaces. Disclaimer out of the way, Stripe is a large payments company. So I tend to be a little bit more on the practitioner than academic side with regards to money. And so the desultory version is like, money is anything that people broadly agree money is, but That isn't considered broadly useful in academia, hard to get a paper out of it. So they often say that there is three classic properties that money exhibits. One is that it's a stable source of value, stable over time. It's a source of value, and broadly that means that you won't see the ability to exchange that money for goods and services in the real world disappear over reasonable time scales. And the word disappear and the word reasonable have asterisks on them because inflation is a real thing in the world in most economies, and a much bigger problem in some. But Broadly, we expect money to continue working. We expect it to be a unit of account, which means that you can measure what you own and what you owe people in it and use numbers for that purpose. And then the third one, let's see, store of value, unit of account, means of exchange. So broadly, people in the community that are relevant for you will say, you have that money thing, I have goods and services, let's go. And so when you find something that has those 3 aspects, that thing is money, regardless of whether a sovereign has blessed it as what the cryptocurrency people would call fiat money or Or not. And indeed, in various times, in various places, private money has been the dominant form of money. And there is an entire history about that. But taking as written that we all know what money is because we have it in our lives, let's chat a little bit about how that moves between various places.

Sounds great. Let's get into it.

Sure. So I want to take people through the kind of like basic version of this and then gradually build in more complexity. So, Erik, we are exchanging goods and services, and I owe you for doing a favor for me today, coming and doing a podcast on short notice. I would like to pay you for doing this favor. And that is like an illustration of 2 very important concepts. One, the agreement to exchange goods and services generally involves a debt at some point, and money is used to settle that debt. Money debts themselves are also money in certain times and places for particular categories of debt. When that debt has those characteristics we talked about of money, that it will keep its value, that other people will accept it, And it can broadly be exchanged for goods and services. And one kind of like special case of debt that we have in society is a debt that is owed by a bank to a person or to a business. That debt is called a deposit. And often non-specialists have this idea that, wait, no, a deposit isn't a debt. Deposit is something that I own. Like, I go to a bank and I give them my currency and they put a number in a spreadsheet and then— Sometime later, I come back and I get my currency and maybe a little more for my trouble. But all that deposit is, is a debt from the bank to you. So let's say we're both podcasters. We both bank at the Bank of Podcasters. I want to pay you $5 for the service of coming on the podcast today. I could instruct the Bank of Podcasters, look, Bank of Podcasters, you owe me money. You owe Erik money. Well, I want you to owe me $5 less and owe Erik $5 more. And so from the Bank of Podcasters perspective, this doesn't change their balance sheet. On the asset side, the things that the bank owns in the world, nothing has changed. On the debt side, the bank owes the same amount of money total as a result of this transaction, but just who it owes it to has changed. And so as a result of me sending a message to the bank with regards to status of a debt the bank owes me and the status of a future world state that I want, I have moved money to you. And how do you actually get that money? You go to the bank and ask them for $5 and they'll give you $5 in the simplest case. But because we're— it's a deposit, because it's at the bank, it's not merely the case that you could go and get $5 of physical currency. Most money in the world is not physical currency. That's a small portion of all money. You can convince anyone else who banks at the Bank of Podcasters that via the same magic, your $5 at Bank of Podcasters is worth $5 to them. But hopefully most people in the world don't bank at Bank of Podcasters. And so there are many banks in the banking system. But before we get to many banks, maybe we should discuss the case where there's just 2. Let's extend this to a somewhat real example. I'm doing something with contractors this week, and oh man, the less said about house construction projects, the better. But pretend all the contractors bank over at the Bank of Home Improvement and all the podcasters bank at the Bank of Podcast. The And I owe a debt to a contractor. He has done work for me. The hammers have been swung. I need to settle this debt by moving money to him. The thing I can do, and typically will do in the world, is say, look, what do I know about money movement? I'm a podcaster. Bank, handle that for me. And the bank will provide some magical mechanism to handle this, and now it's their problem. And one way historically that the bank could manage this with the other bank is to have what's called a correspondent account. This is something that is often underappreciated in the world. Banks are also companies. Companies can have bank accounts. Banks can have bank accounts at other banks. And so the, you know, Bank of Podcasters can have its own bank at the Bank of Home Improvement bank account rather, and say, okay, I need to move $1,000 from Patrick to this contractor. I'll take care of moving the, moving the money from Patrick. I've, you know, I've stopped owing $1,000 to Pat— to Patrick. Now, I need you to stop owing $1,000 to me in my correspondent account at your bank and move that debt to this particular contractor. And thus, by this series of offsetting transactions, I owe— the bank owes me less money, my bank owes me less money, their bank— my bank's bank owes them less money, my bank's bank owes the contractor more money. We've effected a payment. And this is how banking was conducted for many, many years. And then as the number of banks increase, the notion of like, okay, to move money between any 2 banks, the banks need to have a trusted relationship with each other directly starts to break down. Because when there are 2 banks in the world, that's, you know, one bilateral relationship to keep track of. When there's 3 banks in the world, that's, let's see, 1, 2, 3, 3 for the triangle. When there's 4 banks in the world, it's now 6. And then like life gets very, very complicated, very, very fast in what technologists would realize is close to an n squared relationship. So if there's 1,000 banks, there's like a million bilateral relationships. Doesn't sound fun. So the order of a million bilateral relationships, you can do the exact count by drawing a diagram with a million nodes in it. Well, 1,000 nodes and then a million. A lot of lines on that diagram, very unfun. So we came up with this notion called clearinghouses, and this is a technology that has been invented over and over and over again with respect to different payment methods. Back in the day, it was originally for check payments, but we have a clearinghouse in the middle of a lot of electronic payments as well. The notion of a clearinghouse is relatively simple. We're going to put an intermediary in the middle, And say, in lieu of having all the banks bank at all the banks, we're going to have each bank have a relationship with an intermediary, and the intermediary have a relationship with each bank. And when you want to move money to another bank, rather than instructing that bank to move money out of your account with them directly, you pass a message to the intermediary, and the intermediary is going to do the magic of netting for all these messages. And netting simply means I'm going to take a list of how much I'm debiting you and how much I'm crediting you in a day. Like some of those are going to cancel each other out in aggregate, and either at the end of the day, you'll need to post more money or you're going to get money from me. And then, so instead of there being like many, many thousands of transactions, we're going to keep it to a very small number every day, maybe one, for example. And so, and then I, the intermediary, I'm going to give you like one request for the the net settlement at the end of the day or in a couple days. The timeline doesn't really matter. This is the magic of this technology. You can literally make it work before electrons and wire— well, not before electrons are a thing, but before electronic transmission of information over wires is a thing. You can do this entirely on dead tree. You say, okay, net for today, you owe me $1 million. You owe the intermediary $1 million more than you have on deposit right now, so make good on that. On some timescale. And also, here's a long list of like things that you need to take care of on your end of things to effect these end transfers on your own books. And then same as case where there was just one bank involved, just an internal movement of money at the bank at that point. And so that is the way that, you know, that decreases the computational complexity of sending checks around. It also increases the logistical complexity. We don't often think about the logistical complexity now that it's just, you know, messages bouncing around the internet. But back in the day, it was literally the case that every check had to get physically shipped, potentially across the country to a bank. And the history of this is wild. Wells Fargo is named after a stagecoach company, which their main line of business was moving physical pieces of paper representing other physical pieces of paper from one side of America to the other. And that was hugely important national infrastructure back in the day. And the amount of loss and fraud and cost, et cetera, with regards to moving all those pieces of paper around, hoping that everything arrived on time, et cetera, et cetera. It was both like a theoretical worry and empirically in times of disaster, during stock market crashes, et cetera, that the hinks in the system became much more apparent. And can we physically deliver this check or this packet of checks by the end of the day to a particular location in New York, or can we not? Results in people jumping out of windows, the inability of firms to make payroll, et cetera, et cetera, et cetera. So that's the kind of like trusted intermediary in a nutshell.

It's my understanding that there's this, there's this school of thought called the Austrian, sort of the Austrian economy school of thought, who, and this group of people is upset that we both left the gold standard and also that banks have this thing called fractional reserve banking, and that in their minds leads to this unstable Or instability, introduces the instability in the system and is the cause of booms and busts. But my also understanding is that they've been sort of thoroughly discredited in that, you know, most economists think it's great that we left the gold standard and that has enabled all of this intervention or sort of manipulation of the economy in a good way. And that also fractional reserve banking has enabled lots of growth as well. Feel free to edit my characterization, but I'm curious if you can sort of respond to that.

Sure. So let's talk about what the gold standard was back in the day. First of all, we're most familiar with dollar bills that are printed notes from the government. And before they were printed notes from the government, they were printed notes from individual banks back in the quote unquote wildcat banking days, where all a note is, is evidence of indebtedness, just like all a deposit is, is a debt. And the individual banknotes, which is also what you call a dollar, but the banknotes back in the day was just a like physical transferable token that said there is a deposit at Bank of Middle America, to use a fictional example, worth $1, and we will surrender that deposit to whomever comes in bearing this note. And so in lieu of writing a check to transfer deposits around or calling up your banker or going down to the branch, you would just hand out these mass-produced pieces of paper and people would take them down to the bank and get paid. And we went away from private bank physical currency, private bank specie, for a variety of reasons. One of those was that the bank's gotten down to the logic of like, hey, if we've convinced people that these pieces of paper are worth money, who's like keeping a running tally at the end of the day of how many pieces of paper we have printed? Because like being in the money printing business sounds like an excellent idea to end up very rich very fast and deal with the consequences of that next week. That proved to be kind of untenable. The banks had sort of individualized credit risk. And so the deposits of various banks would trade at discounts to each other. And indeed, a thing that the business newspapers started doing, the main reason that America had a culture of business newspapers for so long was that they would publish a daily list of sort of like the consensus viewpoint of what deposits at various banks were worth. And try to imagine the complexity of this in the current day, because it's one of those pieces of history that we've forgotten, thank goodness. Like, if a Bank of America dollar and a Chase dollar are not the same dollar on any given day, and it's like, okay, since yesterday, like, the Chase dollar is up to, you know, 2 basis points. The Bank of America dollar, like, they had a bad quarter and it's down 3%. There's a run on, you know, the Bank of Bigness dollars, yada, yada, yada. Absolute madness. So we have government-issued banknotes. Now, back in the day, those government-issued banknotes said, just like the original private-issued banknotes were, come down to the branch, we'll give you something in return for this piece of paper that you wouldn't otherwise trust is worthwhile. The government-issued banknotes said, come down to your friendly local branch of the United States federal government, and we will give you gold in return for this banknote, and it will be $1 worth of gold. That's how you can trust that this bill is worth $1. History happened. One thing that happened during history happening was essentially banning the private ownership of gold for a while. And one thing was going off, and the gold standard says essentially going off the gold standard said the United States is suspending the convertibility of dollars. Those dollars are still worth a dollar. You can pay your taxes with the dollar. You can convince most people in society to give you things for the dollar. They're useful for you. Thing you can no longer use them for, you can't come in and give them and have us give you gold for them anymore. We're going to keep the gold. We're going to do various things with gold. The United States still owns a lot of gold, and various sovereign nations still own a lot of gold, but they broadly don't have a retail-accessible window anymore where you can transfer the gold into dollars directly. And yet the system continues upon its merry way. Now, the Austrian School of Economics, there are many people kind of intellectually committed to that. They have prominent detractors in the economy, or rather the economics profession. I shrug my shoulders at this. I have seen exactly this much gold in my entire life. And the abstraction layers built on top of gold to transfer monetary value around have some pluses and minuses associated with them. Gold is heavy. Moving it around the world is kind of difficult. People try to steal it, yada, yada. And abstraction layers around the full faith and credit of the United States government also have some detractors. pluses, minuses to them. Like, it's this amorphous concept. It's easier to move around on ledgers, et cetera, et cetera. You don't have to keep it in a vault. It's tough to steal. And on the other hand, there, it is less the case that it is kind of as difficult to manufacture more of it as well with gold. And so often the people who are copacetic with this point of view will say, well, we had much less inflation back when we were doing the gold end of things because you can't simply like Magic up more gold. Shrug. Like, you can mine up more gold. There's an exchange of, you know, rival, like, expend resources in the real world, and with some effort and some ingenuity, you'll have more gold than you started with. The big issue that economists would generally point to is that it's not a guarantee that the amount of, like, gold that is physically present and available to you necessarily tracks the amount of value that's in your economy. And so, you know, an ounce of gold, like, it'll still weigh an ounce after 100 years. Wonderful. But you're, you're not guaranteed that that ounce of gold means what an ounce of gold meant 100 years ago, because if your economy is creating more value over, over time and your ability to mine and mint gold doesn't keep pace with that, then necessarily the amount of the economy that 1 ounce of gold speaks for changes over time. And so the creation of the money supply, which is a public-private enterprise, which we don't have to go into, but it's both something the government does and something that commercial banks do. does what most economists think is a better job of like kind of redenominating the dollar on an ongoing basis to say like when we have massively more things that are wanted in the world, the dollar expands to meet that need and we can contract in the other direction in places where we do not have that resourcing available. And then inflation Bit of a can of worms. No one really likes talking about it. Well, economists do, but people don't. But we'll avoid the political football on Election Day.

One thing we also wanted to make sure we got into was stablecoins. Why don't you describe why they're impactful and what's all the hoopla about now?

Cool. So before I get to stablecoins, just a brief aside. Once you have the notion of a trusted intermediary, and that trusted intermediary could be a government entity in the United States, it might be the Fed. It could be a central bank in another country. It could also be a consortium of banks acting together. They stand up an entity. You can build what the industry calls rails on top of that individual central entity. And it's not necessarily the case that there is only one set of rails to transfer money over in the banking system. In the United States, you have the Fed, but you also have the ACH system, and they operate 2 different sets of rails. which I'll be a little bit hand-wavy here and say some of the underlying settlement procedures are similar, but payments across them have different characteristics in the same way that messages across, like, text message versus email versus DM on Twitter versus, you know, slacking someone, et cetera, have different characteristics, but ultimately have very similar social purpose of, like, communicating text between party A and party B. So, if you're wondering how, you know, credit cards, bank Interbank payments, check transactions, etc. Work in the world. It's generally speaking going to start with that trusted intermediary model and then layer on various complexities that we sadly do not have enough time to talk about today. I think the acknowledgement of an ad read sounds cooler in Japanese. この番組は次のスポンサーの提供でお送りします。Cool, right? 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That's checkhq.com/complex. Add payroll to your platform today with Check. Let's talk stablecoins because they're in the news recently. And I will say something of a crypto skeptic. I think stablecoins are the most interesting projects that the crypto community has come up with yet. And who knows, some people have bet big that they are going to be a major portion of how the world does these like physical movements of money in the future. So let's start with the notion of like there is a Evidence of indebtedness that can get exchanged in the world. And that's a somewhat magic phrase, partly because the SEC defines that as a security, but be that as it may, those banknotes back in the day, that was just an evidence of indebtedness, right? Where you pass these around and they are evidence the bank owes whoever is the current holder of this thing money. And so a stablecoin is also an evident— well, there's, let's say, 3 models of stablecoins. In the first model, you are trading around moving around evidences of indebtedness of some central organizer. And that central organizer has said, pinky swear, there's this blockchain, math, math, math, public-private key encryption, blah, blah, blah. Nobody cares about these details. You can move evidences of indebtedness around this blockchain and use that for payments. And then somebody can, at the end of the day, come up to us and ask us to make good, typically via a transfer within the regular banking system of those evidence of indebtedness. But it's so freaking convenient to move these over computer systems that in practice, most people are going to do that. Just like most people don't choose to go down to the bank to withdraw physical currency every time they get money. Just like back in the day, even though the currency was theoretically backed by gold, that was more in theory than in practice. But in the first model of stablecoin usage, that issuer of the stablecoin is doing it as essentially a money market fund. There are these tradable instruments that track a money market fund, and the money market fund targets a particular value per share of the fund. We're going to keep it close to about $1. We're going to keep it close to $1 by when we create new shares and take in $1 to create those shares, we're going to buy very, very low-risk securities like short-term commercial paper of high-quality issuers, short-term notes of the United States federal government, which definitionally in this model has zero credit risk. And when people come, come to us with one of the shares of our money market fund and say, I need the money back, somebody is going to buy back from them for a dollar at basically all sizes at basically every day. And that, that is the stable part of stablecoin. It's like we're going to eliminate the word shares. We don't say shares anymore because those are regulated in the United States. We don't want to be regulated in that fashion. We're going to call it a coin. It's a coin on a database because we've never put shares on a database before. That's not true. But the model 2, so in model 1, there's this issuer and one, that issuer has to be quite trusted because, you know, there, there, there is this part that's in crypto and crypto people have a community belief where the crypto code is all visible. We can audit this code. Everything is tracked on these public ledgers. We can trust that stuff. But after you have like a bunch of bankers in a building together, they could do all sorts of nonsense. And the sponsor of one of the stablecoins in Model 1 can do all sorts of nonsense if you don't trust them. So Model 2 says we want to decrease the amount of reliance on a sponsor. Why do we want to do that? Because we don't trust the sponsor, and in particular, we don't trust who could force the sponsor to act on their behalf. So in model 1, a well-regulated sponsor who wants to continue existing in a high-quality jurisdiction will often be, you know, imposed upon by that jurisdiction to enforce the various laws that it has on things like anti-money laundering and know-your-customer regulations. The degree of enthusiasm and degree of compliance to this varies greatly between sponsors, but the crypto folks are like, no, no, no. If we can punt out of that entirely, we want to. We want to keep all the stuff in computer code and then only have to trust the math and not have to trust any individual organising entity. And so you're going to synthetically manufacture a dollar-like claim out of some algorithmic hocus pocus. I say hocus pocus. There are better and worse ways to do this. A lot of the worst ways have collapsed catastrophically. But the notion of being able to magic a dollar out of a pot of valuable things that does not contain a dollar is like a perpetual motion machine. And so a variety of smart teams have taken a whack at this, and many more will in the future, because the ability to magic up dollars is an extremely lucrative business to be in. And particularly, well, it's an extremely lucrative one if it's a fraud, sort of by nature, until the fraud collapses. But people think like, this is a perpetual motion machine that we, you know, we can actually make it work. And I won't read out an entire white paper here for people, and I won't point at any like particular examples, but, you know, let's say, okay, we put a bunch of collateral in a pot, we mix in like 2 tokens, we put the risk in one of them and put less risk in the other one. That less risky one is like stable at about a dollar. And then like, we're going to use a bunch of ratios and math, then it'll all be described, and those dollar-like claims will be satisfiable in almost all future world states. And maybe that'll work out. Then there is stablecoin model number 3. Stablecoin model number 3 is you say that you are a stablecoin issuer on a money market style stablecoin, and you're lying. Like, the reserves are whatever the hell you want. When people give you money, what do you do with it? Whatever the hell you want. When the federal government investigates you, like, 15 years down the road, That's a problem for later you. And yeah, that model has been the dominant one in the stablecoin industry for a very long time. I'm subtweeting someone. I'm subtweeting Tether. Tether is— I've called it in print, it was at the time the largest financial fraud since Madoff. It's now substantially larger than Madoff. And Tether is backed by who knows. And they have a documented experience of lying about that. They're probably lying less now than they were at various times in the past. Although, you know, spectrum, spectral ranges exist. We, we now know them to have at least some assets within the regulated perimeter in New York City. And then there was a bunch of other weird stuff in there too. But now, you know, who knows about the future? But anyhow, that's stablecoins. We, there's kind of like 3 ways to secure the underlying value. They have various, various sort of physics of money associated with them, and then we give people tradable tokens on blockchain that computers can move around more or less at will. So I've mentioned some of my crypto-skeptical things. I'll give the brief optimistic take. The brief optimistic take is that the financial industry did not cover itself in glory with regards to its technical modernization strategy for many years. And I will say, to its credit, like, the financial industry was an enthusiastic early adopter of computers, Mainframe systems, et cetera, et cetera. They went all in on that, and they were very all in on mainframe systems and continued to be all in on mainframe systems for a very long time. And in the interim, the financial industry had said, like every couple of years, those geeks say they're really interested in like this personal computer thing, this mobile computer thing. I've heard the word API a couple of times.

Whatever.

Like, I pay money to like the right number of geeks. I would prefer to keep that amount of money as low as possible. Nothing that geeks have ever said in a meeting is as important as, you know, my important meetings on a day. And say one nice thing about crypto this year is that the crypto folks said blockchain, blockchain, blockchain, and used that to get a bunch of meetings with like top leadership at banks to discuss the, with those banks how their back office operations were conducted in a way that like The regular geeks that were on the payroll did not successfully say the right series of magic incantations to get those meetings. And some things that were and are infelicitous around how money moves around, how securities are accounted for, et cetera, et cetera. There's just a coordination problem. There's thousands of banks in the world. There's customers. They need to have mutually agreed upon standards. The great thing about standards negotiations in industry is that if there's 13 standards and none of them quite meet your needs, then you just design one that does meet your needs. And now you have 14 standards, and there was no real pressure from a substantial, organized, kind of cross-functional, cross-institutional group of people agitating for, like, no, really, come on. We've got duct tape upon duct tape going back to the days where we used semaphore wires to transfer these messages to each other. What's the thing that we would do if we rethought from Quote unquote, first principles, how we can— we sent the messages that move money around. And the blockchain people, they had an answer to that question about to move the money around. And the answer is probably less important in this reading. The thing that's more important is they had a distributed advocacy campaign for the answer and got a lot of the financial industry to say, oh, wow, I've had geeks in the building for 50 years now, and they've done their geeky things over in the corner, but you're telling me that if I blockchain the blockchain on top of the blockchain, that my costs go down and my revenue goes up? Why didn't someone say that before? Obviously, I'm down with this blockchain. Yes, let's blockchain. I sound like I'm joking. Partially, I'm joking, and partially, this is basically every conversation that, without loss of generality, McKinsey had, without loss of generality, State Street, over a 10-year period. Some of those projects may eventually come to fruition, and who knows, like potentially this will be the technical substrate by which banks pass various messages regarding debts to each other. That is my, my brief take on stablecoins. Not quite an endorsement, but many smart people seem to like them.

How much of this is genuine technological innovation versus regulatory arbitrage versus are either of those too generous to even describe what's What's happening?

A lot of regulatory arbitrage slash evasion is going on. But let me say the positive version first. There are some innovations that, like, one thing that you can say about stablecoins that you can't say about most ways to move deposits between banks is that you can publish a specification about this to the internet, and then various people can, in a very permissionless fashion, start moving them around in You know, any way they want to. They can make their own wallets, they can make their own, like, user-facing experiences. They can, you know, automate a system that, in response to invoices, pays their contractor. And all of that is a very difficult thing to do within the traditional system. People sometimes say that crypto is obviously the future of money because it is programmable money for the first time.

Haha.

Money is programmable money, but money is not generally permissionless programmable money. If you want to get API access to Chase, that is certainly a thing that you can convince Chase to give you. But you have to convince Chase to give it to you. And Chase has lots of lawyers and compliance people who will say at no small amount of length, like, if you want to move money on Chase's systems, welcome to anti-money laundering and know your customer compliance, along with this other like 8,000 pages of documentation. And we will quiz you and there are wrong answers. And if you give us the wrong answer, we will shut you off. And the stablecoin issuers in the beginning, they like, Tether was extremely upfront around this is a way to transfer US dollars around without doing money laundering or know your customer compliance, and then they cottoned over the years to lying about that. Now they now they will lie and say no no we are active partners with the federal government. We you know freeze any suspected laundered money yada yada. Tether is lying. Some of the other issuers are like probably not lying in that they are probably about as buttoned up as the typical financial firm is. Which there are spectrum ranges there. But, you know, the permissionless bit, genuinely kind of inventory, and public key encryption is not exactly an innovation. You've probably been to a bank website before, SSL certificates exists. That's kind of a cool thing. But like the notion of using that explicitly on the rails and kind of like building the rails such that, you know, possession of the key is going to be assumed to be 9/10 of the law versus assuming that like a trusted relationship is 9/10 of the law is an innovation. That's kind of cool to have in the world as a model, at least in the same fashion. Like you can make a CPU in Minecraft and that CPU will be able to like execute general purpose programs. You probably don't want to like run the financial system out of a redstone CPU in Minecraft, but the notion that one could do it is kind of cool. So yeah, the, and then, you know, just like I was mentioning in a haha but serious fashion earlier that we're having conversations with, you know, bank management teams that didn't quite get it, but were flimflams a little bit with the blockchain stuff. I see more eye to eye with crypto advocates than, than many would suspect with regards to many of their criticisms about KYC and AML. Like KYC and AML, you know, disproportionately impact people at socioeconomic margins and do very little to stop fraud by the, without loss of generality, Sam Bankman-Frieds of the world. Those are absolutely true. The, and so just like, you know, blockchain, blockchain, blockchain, and suddenly get a meeting with the C-suite at a bank, like blockchain, blockchain, blockchain, and then suddenly we're actually having a conversation about KYC and AML. And in Washington is like potentially a path to, you know, getting some sort of legislative change there or carve-outs. The, you know, there are many people in the, in the world who would love to have access to the US dollar. Americans largely have high-quality access to the US dollar. The rest of the world largely doesn't have high-quality access. Unless they go through one of unlimited number of intermediaries. And the US has said pretty firmly that it is policy priority of the United States that we do not give everyone in the world access. We want to limit that quite a bit and use it as a lever for America's other policy priorities, which sounds kind of anodyne, but it is the reason that both Russian oligarchs and the typical person down the street in a less developed country cannot get access to the US dollar. Asterisk, in principle, cannot get access to the US dollar. Those are two sides of kind of the same regulatory coin. And so, well, with stablecoins and maybe a little bit like political activism, et cetera, et cetera, we could allow the deserving people in the rest of the world to be able to access the wonderful US financial system while still coming to some compromises society will accept with regards to Russian oligarchs. It is potentially a political advocacy campaign that could get something accomplished. So word is still, you know, like, again, it's election day. I, I'm true neutral with respect to— there are various memes floating around the crypto community about which party is better for their interests, yada, yada, yada. I think before the horse there, but I'm, I'm true neutral with respect to, you know, what, like, series of dominoes needs to fall in the future such that there is, you know, massive transactions in stablecoins between various parties in less served economies in the world. Which the crypto community says that there's a heck of a lot of it in the status quo. Advocates for change and entrepreneurs have been known to exaggerate numbers in the past. And, you know, the, I believe there are reports that it is the future of money, like not merely a future of money, but the present of money have been exaggerated for effect.

Yeah. Well, with, with that, we're, we're, we're at time, but this has been a great, great overview and discussion. And by the next time we chat, hopefully we will have a, you know, the election will be decided.

Less uncertainty about some things, the usual amount of uncertainty with regards to others.

Yes, yes, exactly.

Cool. Well, thanks very much, Erik. And for the rest of you, we'll see you next week.

Thank you.

Thanks for tuning in to this week's episode of Complex Systems. If you have comments, drop me an email or hit me up @Paddy11 on Twitter. Ratings and reviews are the lifeblood of new podcasts for SEO reasons, and also because they let me know what you like. Complex Systems is produced by Turpentine, the podcast network behind Econ 102, Drift with Burn Hobart, Turpentine VC, and more shows for experts by experts in tech.