CW 478 – Jon Evans – Digital Currencies & How Bitcoin Block Chains Work, TechCrunch

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Welcome to Creating wealth with Jason Hartman. During this program, Jason is going to tell you some really exciting things that you probably haven't thought of before and a new slant on investing fresh new approaches to America's best investment that will enable you to create more wealth and happiness than you ever thought possible. Jason is a genuine and self made multimillionaire who not only talks the talk, but walks the walk. He's been a successful investor for 20 years and currently owns properties in 11 states and 17 cities. This program will help you follow in Jason's footsteps on the road to financial freedom. You really can do it. And now, here's your host, Jason Hartman with the complete solution for real estate investors.

Welcome to the Creating wealth show.

This is Jason Hartman, your host and this is episode 478. Our guest today will be John Evans, who is a journalist for TechCrunch. He wrote a really interesting article on the bitcoin war. I think you'll find that of interest. But first, wow. Well, gosh, wow. Where do I start? It is Sunday evening. I just arrived in San Diego, flew down here from Vancouver. By the way, folks, I guess you know that I'm still alive. Global warming did not. If global warming is even true and real. Whatever. That's a whole other discussion that we've had many times on past episodes. Whatever it was, it wasn't a very good ski season up in Whistler, Canada. And so I did not get to go heli skiing. So I remain among the living and you'll have to put up with me for a while longer.

So I guess that's a good thing.

At least for me. Hopefully for you too. And judging by the reviews, because Sunday, I think Sunday is becoming my favorite day of the week and here's why it is. It is becoming my favorite day because it is the day that every Sunday morning this little program that I use emails to me all the reviews on all of my different podcasts that The Hartman Media Company publishes. You know, we've got 20 shows now and I just love seeing those reviews come in. And I thank you so much for reviewing the show on iTunes, Stitcher Radio, SoundCloud, wherever you're listening and saying good things about it. Those, those really keep us going and make us want to just do better and better and more and more for you listeners. So we appreciate your.

If you haven't reviewed the show already.

Please take a moment and do that it is very, very much noticed and appreciated. That's why Sunday is my favorite day. I think, gosh, I'm here at a conference that starts tomorrow evening. I'm here in San Diego. I attended this conference last year and last year there were about 2,000 people. It's a big, you know, marketing, Internet marketing kind of conference. And when I attended last year, I just couldn't help but back to the old days when I would attend these real estate conferences and how, you know, these gurus, they get up on stage and they're usually selling a highly exaggerated product or service. That's that old saying. What is it? Caveat emptor. Right. Let the buyer beware. And you've got to beware because there is no shortage of snake oil salesmen out there. I just, you know, when I was at this conference last year, I don't know if it'll be any different this year. We will see. It was just amazing. There were like all these people and they were all coming in and, you know, you could tell a lot of them were just wannabe people. They were looking for answers and probably struggling financially. And, you know, it's. It's like we had the real estate gold rush. You know, that's been going on for decades, of course, because income, property does happen to be the most historically proven asset class in America. Oh, but wait, I repeat myself. And the Internet is kind of the same thing. You know, there's this whole group of really groupies, you know, that they go to all these conferences, they go to all these seminars and they buy all this stuff. And I don't have any empirical data on this. I don't have any numbers, I don't have any facts. I just have my impression, okay? And my impression is that just like in real estate, everything, you know, it's sort of this gold rush mentality. Bitcoin is like that. We're going to talk about bitcoin today. And it's like that. And many things are. Of course, I just get the impression that a lot of these people are just kind of wasting their money. They buy all these things and they don't implement them. And that's why when I got into this investor only business just over 10 years ago now, you know, of course, when I was in traditional real estate for many years, I worked with lots of investors, but not like this. This is just investors only, you know, financial services for real estate investors. The complete solution for real estate investors. I didn't want to do that thing. I didn't want to Be one of these hokey seminar company type of companies. Does that make any sense? I know it's kind of like a double. A double positive, I guess, or a double negative in this case, because I'm talking about the negative side of it. You know, I didn't want to charge $2,500 to come to a seminar.

Sell books and tapes or, you know, stuff at incredibly inflated prices. And oddly, it's not really even a bad deal if they sell these. Promoters sell that stuff at these incredibly high prices, and people pay those high prices. Because if people actually use the stuff and if the promoter is not massively exaggerating and if they're not lying and if they're not getting indicted by the Federal Trade Commission. Okay. Which, you know, the federal trade isn't always. Right. Okay. The government definitely makes its share of mistakes. And we just did a show on that, but we've done a few. The three Felonies a day guy was really interesting. We just had him on. And, you know, of course, we had that other recent episode about the Department of Justice and the corruption there. Every human organization is just plagued with this type of thing. And, you know, by the way, that's why I have a libertarian outlook on government. Because most people on the left and the right side of the aisle, Tangent warning. You know, we should have a sound effect. Hey, our editor, you're editing this show. Let's get a little sound effect for when I go off on a tangent.

It'll be like, tangent warning.

And anyway, here's one. That's why I really like the libertarian ideal. Because government, or any human organization, as it grows and gets big, it becomes more inefficient. It becomes more corrupt. And people on both sides of the aisle agree that. Yeah, I mean, they mostly pretty much agree that government is inefficient. Government is corrupt. So look, if we just agree that that is true, and most people do on both sides of the aisle, then we can agree that if you make it smaller, the amount of inefficiency and the amount of corruption will also be smaller. It will shrink as the size of the overall entity shrinks or it will grow as the size of the entity grows. And obviously, for the last five decades, we've been in massive growth mode. I think we're starting to see and suffer from the weight of that massive growth mode. Okay, so what were we talking about? Oh, yeah, Seminars and snake oil salesmen. That's right. But that's the thing about information. It really can be incredibly valuable if used. And you know, back when I was 17 and I discovered the people who, in a way, raised me or, you know, at least in a way saved me, probably Dennis Waitley, Zig Ziglar, Jim Rohn, Earl Nightingale, and, you know, there were others, but those were the. The big four, we'll say. That first $9.95 cassette tape I bought at Walden Books in Cerritos Mall, walking through Cerritos Mall, California. Well, actually, I bought two of them at the same time. I bought the audio of Zig Ziglar's See youe at the Top and the audio of Dennis Waitley's Psychology of Winning. Those were information products. They were $10, adjusted for inflation. Of course, there are more today, but much cheaper than the kind of stuff you see sold at these really slick programs. The marketers have definitely learned that there is a certain methodology, a certain thing that works and triggers people to buy. And so we as consumers need to know their game and we need to be aware of it. And we need to not just, you know, necessarily throw our money at everything. Okay, and I guess what I'm. What my point is here is that don't be the seminar junkie person. Don't be the person who spends all your time going to everybody's seminar buying everybody's info product or educational product. Don't be even the person who's listening to everybody's podcast. And, you know, that person who knows all the stuff about all of these gurus. I mean, it's better than not knowing for sure. It's certainly better to be informed and educated and engaged. You know, it's better than watching tv. It's better than a lot of things. But action has its own wisdom. As I've said before, kind of that concept of the Michael Masterson book, Ready, Fire, Aim. And I've talked enough about him in that book, which, by the way, that's a pen name, not his real name on the show, that I do need to actually get him on the show. I haven't gotten around to that one yet, so I'll let you know how this goes. I'm here until Friday for that. And then I go home for one whole night. I do my laundry, I repack my suitcase, I go to bed, I get up the next morning, and I fly off to a mastermind meeting in Florida. And I gotta tell you, this masterminding stuff I love is really, really, really powerful on so many levels. So more to come about that in the future. But Napoleon Hill, he just. He was so right about masterminding and the power of masterminding. So Apple, it looks like Apple is very likely working on an electric car. And of course it'll probably be self driving too. And you know how much I love the idea of autonom and self driving cars. And of course that means that the three big cardinal rules of real estate might be renegotiable. What are those three rules? Of course you all know that they are location, location and the last one is location, location, location, location. So with an autonomous self driving car being commonplace, that rule might be renegotiated, but it also depends on the price of oil. So I want to talk about that for a moment and a really interesting article here that was. It's not a like a real journalism type story, I guess. I want to say my friend who I met years ago in Young Entrepreneurs Organization, yeo, now known as EO because they didn't want to lose their members as they aged out. So instead of calling it Young Entrepreneurs, they just called it Entrepreneurs Organization.

Anyway, he is a, is a very successful attorney who is very engaged in the automobile industry and represents clients in that field and in the auto world. And he wrote this interesting article about how electric vehicles drown while we swim in a sea of oil. And why am I even talking about this? This is a real estate investing show, right? Why are we talking about oil? Why are we talking about alternative currencies? Why are we talking about bitcoin? Why are we talking about politics? Because it all relates to our real estate investing. So we cannot be so myopic that we just think about which house do you buy in the neighborhood or which apartment building do you buy. We've got to look at the big picture stuff and the small picture stuff. And by the way, we're going to look at some micro stuff here in just a moment because wow, have I ever got a deal that, by the way, I'm going to buy this deal. I just posted it on my Facebook page, my personal page, as well as the jasonhartman.com Facebook page, the business page. So if you haven't liked that on, on Facebook, which I know we just take it for granted that most everybody's on Facebook. Like most everybody has a smartphone and a computer and a telephone. Well, maybe you don't even have an actual telephone anymore. The plugged in type, you know those. Anyway, I posted it on there and it's already getting tons of interest. This will probably sell tomorrow or the next day. So by the time you hear this, it's, it may well be gone. But I'm Going to talk to you about a really good looking property here in just a moment. So the oil, why does oil matter? Well, because what's going on with oil right now may be the sign of a deflationary spiral. I don't know. I'm listening to Ray Kurzweil's audiobook of the the Singularity is Near. I was listening to that on the plane today. As well as some music. You know, one great. You know, there are some songs that just, you know, you just never get sick of them and they're just so good. I highly recommend that you go listen to. You can look up the video on YouTube, buy it on iTunes, whatever. The song one by U2. Oh, that's so good. I wish I could play music for you on the show without getting sued. I can't, Sorry. That's the way that is. Anyway, I. So I was listening to that on Ray Kurzweil's audiobook, he talks about how the price of integrated circuits, of course you all know about Moore's Law and basically intel, you know, the biggest manufacturer of integrated circuits or chips, they don't even call them integrated circuits anymore. When I was a kid, that's what they called them, okay? And it was like a big deal to have an ic, an integrated circuit.

Now it's just a chip.

These incredible, incredible devices, they basically Intel's product deflates by 50% every year.

And that's basically the effect of, you know, Gordon Moore.

Moore's Law. Right. It's just amazing. So we need to look at these big broad trends and then we also need to look at the micro as well as the macro. So we're talking about some macro stuff here for a moment. So a couple of things in this article, it says that for every $20 decline in the price of a barrel of oil, consumers should expect to see a 50 cent decline in the price of gas at the pump. So now you know, you know, when oil goes from 60 to $40 or from 70 to 50 when it goes down, that equates to about 50 cents per gallon in your pocket. And it says the national price of gas hovering around $2 per gallon. And the Energy Information Administration estimates that the average U.S. household will save $750 per year because of lower gas prices. Hmm. So you see how this starts to tie in. If the average household, which by the way, I think the average household makes about $54,000 per year, okay, they are your renters. If they've now got another $750 per year in their Pocket. What does that mean? Well, heck, means you can raise the rent, right? You know, maybe not exactly maybe, but it might mean they look for a nicer place to live or they start spending money on some other things or maybe they expand their family and need an extra bedroom. This has far reaching effects. Okay, the article goes on to say, as Goldman Sachs chief commodity analyst Jeff Curry stated, the oil crash is the most startling and far reaching market development unquote since the financial crisis. So that's referring back to, you know, just seven, seven, eight years ago, right? This is a big, big, big deal. What is going on with oil and you know, we've talked about it before, so some interesting stuff there. We are swimming in oil in this world. So it's just amazing that in the 70s we had the peak oil theory that was very popular, all this massive like conservation movement. We've got the coal burning Tesla car, which is beautiful by the way. I love that car, but I do think it's very overpriced. And now I would imagine, and I do not know this, that Tesla sales have declined significantly. I mean that, you know, I remember walking into the Tesla, they won't let you call it a dealership, but the showroom, whatever that distinction is, because of course the government over regulates that business and you got to have a dealer's license and they don't want to let you sell the car in certain states, which is absurd. Another example of, you know, lobbying and corruption and too much government interference. But walking into that Tesla showroom in Scottsdale, Fashion Square in Scottsdale, Arizona, and they have these big calculators, you know, how many miles a year do you drive and what's the price of gas? And here's how much you'll save having the Tesla which is powered by 50 or 60% coal because where do you think that electricity comes from anyway? You know, it mostly comes from coal. Granted, if we had our head on straight in this country, which we unfortunately don't, we would have nuclear power because that's the safest, cleanest thing going. Now granted, solar is catching up, it's getting a lot more efficient, but it's still not even close to, you know, what happens when you deal with nuclear. Maybe as I talked about on a prior show, Lockheed Martin will have the nuclear fission reactor, right? No, fusion. Oh, I always get that mixed up. Gosh, I know your host is really just not that sharp, especially at 10 o' clock at night on Sunday evening anyway, they're gonna have that new one that's really cool and Produces no waste and super clean, unlimited free energy and it'll fit on the back of a pickup truck in 10 years, they say and be portable and totally safe. So pretty awesome. It's an amazing time to be alive. It is an amazing time to be alive. A lot of great stuff to look forward to. So let me talk to you about a few upcoming episodes here before we get to our guest, John Evans from TechCrunch and talk about the Bitcoin war. Okay, well, before I talk about that, actually, you know, I'm always going back and forth here. I want to talk about this, this property I just saw today. Wow, we have got some good looking properties in Chicago. Well, not Chicago proper, but in the Chicago metro area. Okay. This one was of course, you know, redeveloped, which I, I don't like that word that her provider is using on there. Our local market specialist, I would say rehabbed redeveloped in 2014. I, I'm gonna ask him to change that. Okay. But anyway, it's in the 60425 zip code, which is Glenwood, Illinois. This property is beautiful. It is gorgeous looking. I'm gonna buy it myself in a day or two if one of you doesn't buy it, and I probably won't have the chance to buy it, but run out and get this one if you can. 1742 square feet, $140,000. Yes. Illinois is not my favorite place for landlord friendliness.

I'll give you that appreciation potential.

I'd say it's pretty darn good. And the rent to value ratios are awesome. They're awesome. So check this out. This property is $80 per square foot. If you were looking at the picture of it right now, you would be amazed. The projected rent is sixteen hundred dollars per month. Now you do have higher property taxes here, but again, just like most of the Texas markets and most of the Texas properties, at least the ones we try to recommend, your rent offsets the higher taxes. I've always said that in Texas the tenants think they're getting away with murder because they don't pay. There's no state income tax, so they don't pay income taxes. And if they don't own a property, they don't pay property taxes because they're just renting. But that's such a silly idea because we know, because we have a brain that a business, a corporation in income property, all these things are simply pass through entities. So when the expenses are higher, then the landlord gets a higher rent. As long as the overall economy is healthy and the population is either Stable or increasing. Of course this does not. Don't try this in Detroit. It doesn't work the same there. Okay. And you know, by the way, I might, I might get a little more open minded to Detroit someday because believe me, I've been following it. You know, I love to, I love to tease Detroit. Right. And I'll be there in about a month and a half. I think it is maybe two months. I'll be checking out some real estate deals and reporting back to you on it. So this one back to Chicago area, $1,600 projected rent and your overall return on investment should you qualify for the financing that is in the performa here on and you can find this exact property@jasonhartman.com in the property section of course it's a deb coverage ratio with 20% down of 1.58%. That is excellent, excellent cap rate. Even though we don't really care too terribly much about cap rates because they don't really tell the full story. But I know the commercial real estate people always like to talk cap rates. So I'm going to give it out. It's 7.9% the cash on cash return, 13% and and most importantly because income property and you just heard on a very recent episode before my Valentine's Day special episode with Dr. Gary Chapman on the five love languages that was out yesterday for Valentine's Day. The one before that was a flashback Friday of the three dimensions of income property or the three dimensions of real estate as I call it. There are really more than three, of course, but that's what we love is that income property is a multi dimensional asset class. So with all these dimensions considered except one by the way, because our pro forma does not account for one of these and you could have some arguments as to whether inflation induced debt destruction that is not quantified on our pro forma. If that is really just the sort of the byproduct of leverage and depreciation. I argue that it's not. I think it is different and it does actually juice the return even more. So we're not including that or we are. You decide for yourself. I'm not a mathematician or a theoretical physicist who could actually figure that out. The overall return on investment here, 46% annually. Yes. That is not nuts. It's not snake oil salesmen. 46% annually. And like I always say, even if it only goes half as well as expected, 23% annually. And you can see the projections are all very reasonable. The whole performer with all the numbers jasonhartman.com or right on the Facebook group, the jasonhartman.com Facebook group. So you just go to Facebook and type jasonhartman.com in the search bar and like our page there so you can get all kinds of cool updates and stuff. So, so upcoming episodes on Wednesday, we'll have Dr. David E. Goldberg talking about a whole new engineer, the design of innovation and genetic algorithms. On Friday, flashback Friday, which also happens to be a 10th show. Sometimes they just hit both at the same time. We're going to have Jeff Myers back on talking about leadership and communication. He did a great interview, so I think you'll enjoy that one. And then on Monday, episode 481, we'll have Garrett Sutton back on the show. He's written a couple of the Robert Kiyosaki Rich dad advisor books. He talks about loopholes on real estate. He talks a lot about asset protection and tax. And then on the Following Wednesday, episode 482, I think we're just gonna have yours truly and we're gonna do a market profile. Maybe we'll do the market profile on Chicago because we haven't done that yet. And then 483 will be a flashback Friday episode of me talking about the ultimate investing equation. 484, I think we're going to do some listener Q and A, some questions and answers. And by the way, thank you for going to jasonhartman.com or to hartmanmedia.com and using that handy little speak pipe where you can just leave a voicemail message right from our website. So it's really super convenient. And Karen, I've got your questions. Steve and I had yours. We'll get to those. I know it's been a little bit slow. We don't really have a system for that. But we'll get your questions all answered for you. So please do leave questions and comments on the voicemail, which is right on the website. It takes a second. It's easy. You don't even have to make a phone call. You're just at the website. You click go, you make a recording, and boom, we'll play it on the air for you and answer your question. Okay? And then after the ultimate investing equation, we're gonna do a little more Q and A. We're gonna talk about getting paid to borrow on upcoming episode. And then finally, episode 480 will be Peter Sage. We had to kick him back a little bit with our new format, unfortunately. But I'm really excited to bring you that Peter Sage interview. He was really an awesome guest. So lots of great stuff coming up. Lots of great properties@jasonhartman.com in the property section we do have just a few more of those meet the Masters home study courses. And I know a bunch of those just got delivered because I get the delivery confirmations. They just got delivered I think on Saturday. So that kind of was a Valentine's Day gift for a lot of people. How do you like that? Anyway, please order those while they last. They're almost gone. They're super cheap. We make like a whopping, I think 30 bucks on each of them. So we're definitely not doing this for money. It's just to get them out of my storage unit. So you can get those at the store@jasonhartman.com and let's get to our guest, John Evans from TechCrunch. Here he is. It's my pleasure to welcome John Evans to the show.

He is a novelist, a journalist and a software engineer. Now, if that isn't a crazy combination for you, there's more. He wrote a really interesting article in TechCrunch a while back about bitcoin Battle is brewing and I want to talk to him about that and some other things today.

John, welcome.

How are you?

I'm doing very well. Thanks for having me.

Good.

Give our listeners a sense of geography.

Where are you located?

I'm in Berkeley, California. Though I'm originally Canadian.

Yes.

Okay.

Berkeley.

My mom's alma mater.

Bastion of liberalism.

It's a natural place for a Canadian to come to in California.

Yeah, and a journalist too, I would say.

Huh. Now, is TechCrunch based there?

Where's TechCrunch located? I've never known that.

Actually TechCrunch is across the bay in San Francisco proper.

Now, it's interesting you're really not interested.

In bitcoin in terms of an investment or anything else, but the technology is quite fascinating and with your, your background as a software engineer, you're probably one of the most qualified people to write about this.

What is the battle that's brewing in the bitcoin world?

Well, bitcoin is based on a pretty interesting tech breakthrough called the blockchain, which is now, I think fairly well known. And one interesting side effect of blockchain is that the more people use one and the bigger the network that is connected to one and is verifying one, the more powerful and effective they are. So on the one side you have the bitcoin blockchain, which is enormous and is a multi billion dollar industry, sorts in as much as it's an industry. But on the other hand you have all these people saying, hey, we have this cool new software thing, a blockchain. Why don't we experiment with it, see what else we can do with it, look at all the other potential applications.

Naturally, people who have collectively put billions of dollars in bitcoin are a little less enthusiastic about sort of random experimentation on the structure. So as a result you've gotten all these so called altcoins, I think 543.

Last I checked, of alternative coins.

You're talking about dodge coin and Kanye coin and all the others.

Is that what you're talking about?

Precisely. I'm a big fan of those two in particular.

Well, Kanye coin I heard went away, but yeah, interesting. So 500.

And how many alternative currencies did you say? 541?

Yeah, something like that, last I checked.

Wow. Wow.

Well, you know, Robert Metcalfe talked about the network effect.

That's really.

That same thing applies to the blockchain, doesn't. I don't know if it's the same exact math, but I think he said something like, you know, it's the square of each node on the network is the power of the net or I can't remember, but something along those lines. And you know, when it, when a network grows, it really does become a lot more powerful. Is it related to that or is it different than that?

It's related to that. It's also that, I mean you are talking about currencies and you know, conceivably other form of financial instruments. And so you want to be sure of the security. And so the more people that are working on a particular blockchain, the more confidence you could have in its security. And also the more people that are looking at the code and ensuring that there are no bugs. You know, there were a couple of fairly significant bugs in the early days of Bitcoin which were hunted down and eliminated early on. So the risk with altcoins is that someone could come along and just take over the network because there aren't a whole lot of people using them. Or that someone could come along and discover a hole in whatever is being experimented on technically by that altcoins.

So.

So, you know, I've never held out a lot of hope for bitcoin. I would love to be wrong about that. I just think that any currency that is a competitor to the central banking, government complex is just not going to have a great chance of succeeding because it's, it's competing with a fiat currency. The government issues and, or well, the Federal Reserve government. That's a murky difference. By the way, I would love to see something like this take off.

It would be it great.

It would give the power back to the people.

But you know, maybe just take us.

Through and we've, we've done shows on this before, so it's not like the listeners haven't heard about the blockchain and a lot of people are hearing about it from other places.

But just give us the really high.

Level of how it works and why it matters. And when you talked about those, those bugs that were discovered early on in the, in the world of bitcoin, they were discovered because the code is open source, Right? So just, just the open source community just hunted down these bugs, right?

Yes. Although I think in both of those cases it would be a small group of people who are intimately involved in bitcoin and are doing a lot of development on it, more than somebody randomly wandering by and discovering the whole. But yeah, the fact that it's open source does contribute immensely to.

But when you say they're doing development on it, what are they developing?

You mean developing wallets for it exchanges other software to do things like what.

They'Ve tweaked the protocol to make it more efficient. And in fact a number of bitcoins core developers have just founded a company which was funded to the tune of $21 million, $1 for every Bitcoin that will ever exist, which I thought was nicely symbolic, called Blockstream, which is expressly devoted to making changes to expanding the core bitcoin software.

So John, give us some of the.

Examples of the world of bitcoin software development and why someone would choose to spend their time on this.

Well, there's a very large number of startups that are being built around bitcoin. In particular, I think the world of REM people transferring money from the US to other countries, it's an enormous market, it's highly inefficient and it has high fees. And these are all things that bitcoin can actually quite natively address. And so there's a lot of work in people building relatively simple interfaces that people can transfer money from US dollars to Bitcoin to a currency somewhere else, say, I don't know, Malawi or the Philippines or what have you.

And so do they take a commission on that, just like Western Union or the bank would charge a wire fee or how do they make money off of that?

Yes, precisely. The current fees for remittances can be fairly crippling. I mean people quote 10%, which is actually really high. No one actually pays that, but Western Union, I believe is 2.5 to 3%.

Or credit card fees and payments. Amex can charge up to 3%, visa and Mastercard up to 1%. So the current business model for Bitcoin is in large part undercutting the fees from other money transfers.

And how big is the market?

Yeah, I don't have it to hand exactly, but I think it's in the. Well, it's well over 100 billion a year. It's a significant fraction of the GDP of a large number of countries. Nepal, for instance, 25% GDP is remittances. So.

Wow.

Unbelievable. That's amazing. That's an amazing number. It really is.

So you say that there's a war of the blockchains.

Is someone trying to introduce a new blockchain or is it just a different kind of a blockchain for a different currency? What do you mean by that?

The core Bitcoin developers I referred to earlier, the blockchain people, they are trying to introduce a slight technical tweak that will allow people to generate different kinds of blockchains that are tied to the bitcoin blockchain. So you can move a bitcoin to some other structure, something with different rules, something that can handle more transactions, something that could be used for say, stock certificates or conceivably options or puts or calls, but it would still be a fully valuable bitcoin transferable back to the standard bitcoin blockchain, and you can spend and use it there as you like. This is sort of diametrically opposed to the notion of building your own blockchain that is entirely separate and using an alternate system there. The most visible of the examples on that side is this really interesting project called Ethereum, which is a blockchain based startup which wants nothing less than to decentralize the entire Internet.

That's really kind of an interesting paradox. You want to decentralize something that's already decentralized. That's the beauty of the Internet, isn't it?

Well, the Internet's not as decentralized as it used to be. I mean, your email provider may be Google, your search provider may be Google. You know, Bruce Sterling refers to the stacks as he refers them the American companies which have taken over a really significant fraction of Internet traffic. He means Amazon, Microsoft, Facebook and Google. And when you think about it, the Internet is not actually as decentralized as it used to be. A lot of the actual behavior and the actual traffic is controlled by four or five companies.

Yeah, right. Well that's what always happens, doesn't it? The corporatocracy comes in and they offer something really cheap or convenient and they sort of take all the freedom out of it, which is ultimately. And then they all cooperate with the nsa.

Right.

So it's a real bummer for sure. So how would they decentralize the Internet more?

Well, consider your email right now if you're using Gmail, your email actually lives on Google's servers somewhere on one of their massive farms, scattered away. But conceivably your email could live scattered in pieces all over the Internet and reconfigured when you need it. And the distribution of this could be controlled in a sort of trustless, decentralized. No one actually has control over it except the person that has the signature authority, which is you via something like the blockchain.

So that would be applying the blockchain concept to data traffic rather than a currency, because all the currency is data anyway, right?

That's correct. And to be clear on a technical level this is still somewhat hand wavy. People are experimenting with it, the Ethereum so called Genesis block. The launch of the project should be in the next couple of months. The blockchain is not a very efficient database. What you gain in decentralizations you do lose in efficiency. So a lot of work is going to have to be developed before it's remotely as competitive as this standard centralized websites that we're talking about. But it's an interesting possible direction and an example of one of the things that might be possible with blockchain development and research.

Okay, so we kind of got off.

Track a little bit.

I want you to just sort of explain from a high level the blockchain and how that works, if you would.

Alright, so a block is a group of transactions, say Alice has sent one bitcoin to Bob, that sort of thing. And you know, you might get 100 or a thousand of those which are grouped together in a block and then a block is cryptographically signed. The trick is that the signature and the validation is performed not by any one person that you have to trust, but by an enormous network which is consuming vast amounts of electricity at the moment, scattered all around the world. And as long as the majority of those people agree, these are the transactions that happened an hour ago, we are all going to say yes, these transactions are valid. Then they are signed, sealed, delivered, put into the so called blockchain and can be relied upon in the future. And so you have a distributed Ledger, if you will, that everyone agrees on, but no one controls, which describes all of the transactions in Bitcoin. And the remarkable thing about this is that there's no central bank, there's no central authority, there's just a distributed edge network that's controlled.

Yeah, fascinating. I'm not a fan of central banks or central bankers, so I love this idea. And that's why I say I'd love to be wrong about Bitcoin and I'd.

Love to see it succeed wildly.

I bought one Bitcoin so I could try it, and I purchased something and I put in a big long code, big string of numbers, and then I completed my purchase.

What happened?

I mean, did somehow people around the world agree that that transaction's valid? Somehow? I don't understand what happened in the blockchain when I did that.

That's exactly what happened. In fact.

The big long code of numbers, the address and your signature was sent out to some end point on the network. I'm not sure which service he used. I'm fond of Coinbase myself, but behind the scenes, yes, someone received this little package of transaction, maybe 700, 800 bytes or thereabouts, and then it was passed around the entire network. And then those people said, okay, the money that's going in is valid, the address is valid, we accept this transaction. No one is trying to spend this money twice, which is the key thing for digital currency, preventing that. And then the miners, who are the people who are expending vast amounts of electricity, solving the problem of validating the information, packaged it into a block, signed the block, agreed with each other that this block is valid, and then sent it back out into the network. It sounds complicated because it is, but on the end all it simply is, is, you know, you just saying, okay, I'm sending Alice a Bitcoin.

But no human being had to affirmatively do anything for that transaction to happen. Does it happen on anyone's computers or.

Does it happen in the example use Coinbase. How is that really happening?

I mean, I just don't understand the mechanics. It's sort of very ethereal.

Eventually there would have been one computer which solved a particular mathematical problem in such a way, with such an enormous amount of difficulty that everyone could agree that this is something that's not going to happen very often. Thus we can trust it as a reliable source, and that was passed around. I mean, that's a high level approximation, but essentially everyone is, is trying to solve encryption problems that are extremely difficult, to the point that if you get a solution. You know, an enormous amount of work has gone into that solution.

What do you make of the different.

Frauds that have gone on in the world of bitcoin so far? People disappearing with money and so forth?

I mean, I suppose, I suppose it's.

Just to be expected in any endeavor, right? You know, you always have bad players, but any thoughts about those?

Yeah, it's fascinating. I don't think the whole truth has necessarily emerged about any of them. I mean, there was the famous Mount Gox collapse of almost half a billion dollars worth of bitcoin at the time, where no satisfactory explanation was ever actually issued. As far as I can tell. There was a great Tweet. Someone said Mt. Gox should pivot to a business model where for $5 they explain what happened to your money. Which I thought was pretty amusing. The interesting thing about these frauds is that bitcoins don't vanish and they're actually not hidden. People refer to bitcoin as anonymous and it's anything but. Every transaction that has ever occurred in bitcoin is publicly available on the ledger that to everyone.

So.

So how would someone look that up? For example, where, where can I go and can I go and find the transaction I did?

You can indeed. Blockchain.info is the resource I use most, but there are quite a few others. Some simple googling like blockchain research or blockchain transactions would let you track it without too much difficulty.

And I heard this is how the.

Feds got to Silk Road, is that.

People were thinking those transactions were private, but they're not private at all.

Well, I have a bunch of security friends and they were all pretty dismissive of the Silk Road operators, operational security as they refer to it. They made a lot of fairly transparent mistakes in my understanding. If you're going to register your Darknet site's domain name, maybe you shouldn't use your vanity URLs email address to do so. Was I think the most recent Silk Roads problem. But it is the fact that any bitcoin which is stolen is out there. People know which address it belongs to you. They may not know who controls it, but they know it's out there and they know that it's been spent. So you can actually track money which has been stolen and find out where it's going. Which is very sort of William Gibson cyberpunky, but may not necessarily help you actually get it back. I'm not sure. More reassuring to know that where your stolen money has gone.

So I'm@blockchain.info now, and I see all these transactions happening and they're clickable, so you can click on one of them and it's going to to tell you. Wow, it's going to tell you where that happened. That's fascinating. And then inputs and outputs and fees and. Huh. Oh, it's interesting. But this doesn't tell me the person who did it. Well, it gives an IP address.

No, it doesn't. You'd have to do some fairly sophisticated network analysis to find out who the person is. But as soon as you've connected the person to any of their transactions, then you can knock them back down. It's a pseudonymous network, it's not anonymous. However. However, one of the possible iterations, and one that I'm not sure how well it will be received by governments everywhere, is something called zero cash, in which it would be a fully anonymous monetary network, whereas the sender, the receiver, and even the amount would actually be hidden from most people.

Very interesting. Okay, so what else do you want.

Us to know about this?

You know, in your article you talk about onecoin to rule them all. I mean, do you think that's bitcoin? I mean, they're obviously the dominant player. They're the first mover too. I guess they are the first mover.

I think, personally, I think that's the case. So bitcoin right now is, although it's only five years old, is beginning to look a little long in the tooth, a little hidebound. There are changes that people would like to make, but I think this blockstream initiative will allow people to sort of gently, slowly modify the fundamental Bitcoin blockchain into sort of iterate from there.

I'm not a true believer in Bitcoin myself, necessarily, although its success is remarkable and has to be appreciated. But I do think that the potentials that it brings out, that the notion of programmable money or things like smart contracts or replacing stock certificates with bitcoin, like cryptocurrency, open up huge vistas of possibility. And whether it's Bitcoin itself or some Bitcoin variant or something else down the road, I do think we're going to be seeing a lot more of that time to come.

It may be less of a wild west world than bitcoin today is, but I think that's common with all sort of interesting transformational developments.

Oh yeah.

And when you say it needs to be appreciated, I mean you are so right.

It's truly amazing.

I mean, it is amazing that initially an unknown person could invent this currency and it could just become this global thing without a government, without a military, without a marketing campaign. I mean, that is, that is truly a phenomenal thing. And I think it just speaks to.

How much people are starting to understand.

The nature of currencies and how they want those currencies to be decentralized, independent, and they don't believe that one government should control them. And I think that's a wonderful thing.

Yeah, me too. I mean, I think, you know, central bankers generally may have a grasp of how things are going in the developed world. You know, people obviously will dispute this, but people in the US and Canada and Europe are not generally calling it for some sort of replacement to their money. But people in Venezuela, people in Zimbabwe, you know, possibly people in China, depending on what's happening there. There's a lot of bitcoin activity in China, which I think are people hedging against the possibility of a hard land landing there. Those are the places where I think bitcoin is actually going to be important and relevant. I mean, the inflation rate in Venezuela right now is hard to measure, but not great, regardless of who you believe. And bitcoin is looking like a less volatile and more stable store of money than the Venezuelan Bolivar at the moment.

Oh, yeah, yeah. And you know, the next time Argentina has a crisis, they're about due for one again. They have them on a regular basis pretty much. It may become a lot more credible there too. But gosh, I mean, those especially like Venezuela, you know, these dictatorship ish type governments, they don't want people trading in bitcoin. The whole. One of the big powers they have.

Is the control of the currency.

I mean, why would they, why would.

They let it occur? I mean, aren't they just going to stomp it out?

Well, it's not clear to me how they would stomp it out. I mean, they could illegalize it, but unless they're actually willing to shut down the Internet, it would be extraordinarily difficult to actually prevent anyone from. I mean.

I know, I know, but look, I mean, if they make something illegal, you know, people will be concerned that every time they engage in a transaction, they're.

Taking a huge risk. You know, they don't want to do that. I mean, heck, people could use cocaine.

To do trade too. You know, I mean, maybe it's not as portable as bitcoin, but some illegal.

Drug could be traded.

You know, I mean, certainly people trade in gold and silver, of course, but those aren't very portable or handy or Divisible. So making it illegal is kind of.

A big deal, don't you think so?

That's true. I mean, I think the reaction to things being made illegal does vary by country. But you know, there are, there's, I think, a certain healthy disrespect for the law in places like Venezuela or Zimbabwe. Less so, more so than in, you know, say the USA or Canada. But I also think that the advantage Bitcoin has is that you don't actually have to necessarily own or keep anything. All you need to have necessarily is a password to a site that no one knows you have a password to, and you could be storing a store of value there. Now, like, I understand why governments are not enthusiastic about this. I was talking about this to a venture capitalist and he was suggesting that in the future the extremely wealthy could just maintain their wealth in cryptocurrencies and then not pay taxes on it, which would be unpopular among governments and, you know, pretty much around the world. But at the same time, I do think that there is a place for people to be able to control and store their own money and for people to be able to use currencies like Bitcoin as a way to transfer to other currencies.

So my thought is that you've got to get government buy in if this is going to work. And why would a government ever buy in?

I mean, you know, the U.S. is.

The most important buy in because, heck, the U.S. has the reserve currency. The U.S. has the biggest brand name around the world, it has the biggest military. You know, it's got the biggest economy.

Why would they ever buy into this?

I mean, I can see that maybe there will be a cryptocurrency, a cyber currency ultimately, and maybe it'll use blockchain technology that makes a lot of sense, but it'll be controlled by the US Government and its Federal Reserve. I mean, they, they can make their own. Heck, if Kanye west can do it. You know, Janet yelling sure can.

So I'm certainly ruling that out. And I think it'll be a very interesting development when the first sort of government that sort of does have its own fiat currency introduces some sort of experimental blockchain based quasi currency as an experiment, which I kind of expect to happen in the next 10 years.

Yeah, I do too. But the problem is it won't really solve any of the problems that Bitcoin.

Could address, which is the debasement of.

Currency and how governments just steal the wealth from people, not through taxation. The most effective way they do it.

Is through Inflation, Yeah.

Although, I mean, to be fair, economists frown on Bitcoin because it doesn't actually have any inflation. And there is a belief that there's an optimum level, which is probably more than zero.

They believe that we should have, you know, 2 or 3%, and they believe in the Phillips Curve and all of that stuff. I believe that it should be no more than the GDP and the population. That would be the only factors that should influence inflation. The rest of it is all just irresponsible government spending. Beyond that, they'll still have to have a way to debase the currency or they're never going to go for it. Right?

Well, I mean, that's true. At the end of the day, by law, you pay your taxes in US dollars, and the US Government determines what happens with those US dollars. And I think asking Bitcoin to deal with that is probably somewhat optimistic, but I do think that it is opening up the possibility of at least smarter and more efficient financial transfers and possibly, possibly applications and contracts that don't involve government intervention and so forth, but are enforced on both sides by the software, which don't exist today and will be useful in terms of independence.

The other thing that would be great about it is that you could really understand the money supply if there was a finite number of coins. You could know M1, M2 and M3, which they stopped publishing years ago, and really know what's going on with the economy. You could understand the velocity. Heck, going to blockchain.info you can see the velocity of money right there on your screen. It's amazing.

The bitcoin economy is also in some ways the most transparent economy by far.

Of course it is. Yeah.

Which governments and central banks hate that, too. But, yeah, this is a beautiful dream.

Which I think is a pretty good summary of Bitcoin. It is a beautiful dream, but it's. But it's one that's become much more real than I think anyone would have expected five years ago.

Yeah, it's amazing. It really is. Give out your website, John, or tell people where they should find you. Just TechCrunch or do you have something else?

Sure, I have a weekly TechCrunch column, so I'm there Saturday mornings and my authorial site is rezendi.com, r e z.

E n--I.com what does Rezendi mean?

It's actually the name of a gold mine in Zimbabwe. Appropriate enough that my grandfather once.

Oh, yeah. So are you a gold bug? That'll be interesting to know how it ties in with your bitcoin ideology.

That's too 20th century for me.

Too old fashioned. Oh, good. Good stuff.

Well, great.

Well, John, anything else you want people.

To know before we wrap up?

I think I would like to stress that I actually believe that we're just scratching the surface of the possibilities of, you know, digital currencies and smart money and programmable money. And the next five years are going to be awfully interesting whether bitcoin itself succeeds or fails.

Yeah.

Good stuff. Well, John Evans, thank you so much for joining us.

Thank you, Jason.

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