This is Bloomberg Crypto, a daily Bloomberg I Heard podcast, and I'm Stacy Marie Ishmael, Managing editor of Crypto for Bloomberg News. Let me cut to the chase. Matt Levine, my colleague on the Bloomberg Opinion side of the house, is perhaps the greatest finance blogger ever to do it, and in what is both a flex and a service, He's just written tens of thousands of words on the subject of crypto for a special issue of Bloomberg Business Week.
Matt's gone deep into the blockchain to break down its origins, it's possible, futures, and the current state of a technology that's showing up everywhere in industries ranging from finance to shipping too, of course video games. And we're going to be bringing his exploration to you in audio form thanks to the talents of Bloomberg editor and professional voice actor
Mark Ledoff. You'll get weekly chapters of the special Crypto issue of Bloomberg Business Week, written by Matt Levine, narrated by Mark Ledorff, coming to you each Sunday through December eight. And now here's the first chapter of the special audio edition of the Bloomberg Business Week Crypto Issue. The crypto Story, Where it came from, what it all means, and why it still matters, by Matt Levine. One ledgers, bitcoins, block chains part a life in databases. Modern life consists in
large part of entries in databases. If you have money, what you have is an entry in your bank's database saying how much money you have. If you have a share of stock, what you have is generally an entry on a list kept by the company, or more likely some central intermediary, of who owns stock. If you own a house, things are slightly different. There's a house involved, but your ownership of that house is probably written down
in some database. In the US, this often means there's a record of you buying the house, your title in a filing cabinet in the basement of some county clerk's office. It's not a very good database. In many ways, the important thing here is the house. You have a key to the front door, your stuff is there. Your neighbors will be unsurprised to see you leaving the house in the morning, and would be surprised to see someone else coming back in. But in many other ways, the important
thing is the entry in the database. A bank will want to make sure you have the title before giving you a mortgage. A buyer will want to do the proper procedures to that record before paying you for the house. The key will not suffice. Plus lots of other stuff, Much of modern life occurs online. It's not quite true that your social life, and your career and your reputation consists of entries in the databases of meta platforms and Google and Microsoft. But it's not quite false either. Some
of this stuff has to do with computers. It's far more convenient for the money to be computer entries than sacks of gold or even paper bills. Some of it is deeper than that, though. What could it mean to own a house? One possibility is the state of nature. Owning a house means one you're in the house, and two if someone else tries to move in, you're bigger than them, so you can kick them out. But if
they're bigger than you, now they own the house. Another possibility is what you might think of as a village. Owning a house means you live there, and your neighbors all know you live there, and if someone else tries to move in, then you and your neighbors combined are bigger than them. Home Ownership is mediated socially by a high trust network of peers. A third possibility is what
you might think of as a government. Owning a house means the government thinks you own the house, and if someone else tries to move in, then the government will kick them out. You don't need to live there, because the government's knowledge is sufficient. You can rent out the house. Someone else can move in with your permission. If you revoke the permission, you can go to the government and it will subject to landlord, tenant law, etcetera. Kick the
person out. Home Ownership is mediated socially by a government. The database is a way for the government to keep track. You don't have to trust any particular person. You have to trust the rule of law. Money is a bit like that too. Sacks of gold are a fairly straightforward form of it, but they're heavy. A system in which your trusted banker holds onto your sacks for you and writes you letters of credit, and you can draw on those letters at branches of the bank run by your
bankers cousin. That's pretty good, though it relies on trust between you and the banker. As well as the banker and the banker's cousin. A system of impersonal banking in which the tellers are strangers and you probably use an a t M anyway, requires trust in the system, trust that the banks are constrained by government regulation, or reputation or market forces, and so will behave properly. Saying that modern life has lived in databases means most of all,
that modern life involves a lot of trust. We trust the keepers of the databases. Sometimes this is because we know them and consider them to be trustworthy. More often it means we have an abstract sense of trust in the broader system, the system of laws and databases and trust itself. We assume that we can trust the systems we use because doing so makes life much easier than not trusting them, and because that assumption mostly works out.
It's a towering and underappreciated achievement of modernity that we mostly do trust the database keepers and that they mostly are trustworthy. Part B, What if you don't like it? Section one Distrust. We don't always trust them, and they're not always trustworthy. Sometimes they just aren't. There are banks you can't trust to hold your money for you, and places where you can't trust the rule of law to
regulate them. There are governments you can't trust not to seize your money from the banks, or falsify election results, or change the property registry and take your house. There are social media companies you can't trust not to freeze your account arbitrarily. Most people in the US most days live in a high trust world, where it's easy and reasonable to trust that the or mediaries who run the databases that shape our lives will behave properly. But not
everyone everywhere lives like that. Even in the US, trust can be fragile. The two thousand and eight financial crisis caused huge and lasting damage to a lot of people's trust in the banking system. People trusted banks to do nice, safe, socially productive things, and it turned out they were doing wild, risky things that caused an economic crisis. After that, it became harder for many people to trust banks to hold
their savings. Also, though you might have a philosophical objection to trust, even if your bank has an absolutely unblemished record of keeping track of your money, that might not be good enough for you. Your bank is to you a black box. How do I know you'll give me my money back. You could ask the bank, and the bank will say things like, here are your audited financial statements, and we are regulated by the Federal Reserve and ensured by the Federal Deposit Insurance Corps. And we have never
not given back anyone's money. And you'll say, yes, yes, that's all fine, But how do I know you don't? Trust is built into the system a prerequisite. You might want proof. This is probably a modern desire, or at least a desire that's more intense and easier to satisfy in modern times. In a world without the Internet, without Wikipedia, without links, without open source software, et cetera, you had to take a million facts on faith every day. What were you going to do? Look them all up? Section
two compose ability. Even if you're generally cool with trusting the keepers of modern databases, you might have a more technical objection. These databases are not always very good. Lots of the banking system is written in a very old computer language called cobal. In the US, people still frequently make payments electronic transfers between electronic databases of money by writing paper checks and putting them in the mail. The
US stock trades take two business days to settle. If I buy stock from you on a Monday, you deliver the stock, and I pay you on Wednesday. This isn't because your broker has to put stock certificates in a sack and bring them over to my broker's office, while my broker puts dollar bills in a sack and brings them over to your broker's office. But because the actual process is a descendant of that, it's slow and manual and sometimes gets messed up. Lots of stock trades fail.
Don't even get me started on the property registry. If you buy a house, you have to go to a ceremony, a closing, where a bunch of people with jobs like title company, lawyer mutter incantations that let you own the house. It can take hours. If your model of how a database should work comes from modern computers, the hours of incantations seem insane. There should be an ap I. You might think. There should be an application programming interface allowing
each of these databases to interact with the others. If your bank is thinking about giving you a mortgage, it should be able to query the property database automatically and find out that you own your house, rather than send a lawyer to the county Clerk's office, and it should be able to query the Department of Motor Vehicles registry automatically and get your driver's license for identification purposes, and query your brokerage account automatically and examine your assets. Modern
life consists of entries in databases. What if we updated them? What if we rewrote all the databases from scratch in modern computer languages, using modern software engineering principles, with the goal of making them interact with one another seamlessly. If you did that, it would be almost like having one database, the database of life. I could send you money in exchange for your house, or you could send me social reputation in exchange for my participate patient in an online
class or whatever, all in the same computer system. That would be convenient and powerful, but it would also be scary. It would put even more pressure on trust. Whoever runs that one database would in a sense, run the world. Whom could you trust to do that. We'll be right back with more from Bloomberg Business Week Special Crypto issue written by Matt Levine a narrated by Mark Ledoff, partsy Digital Cash. What if there was one database and everyone
ran it? In two thousand and eight, Satoshi Nakamoto published a method for everyone to run a database, thus inventing crypto. Well, I'm not sure that's what Satoshi thought he was due ing. Most immediately, he was inventing bitcoin appear to peer electronic cash system, which is the title of his famous white paper.
What Satoshi said he'd invented was a sort of cash for Internet transactions, an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party. If I want to buy something from you for digital cash bitcoin, I just send you the bitcoin and you send me the thing. No trusted third
party such as a bank, is involved. When I put it like that, it sounds as if Satoshi invented a system in which I can send you bitcoin and nobody else is involved. What he actually invented was a system in which lots of other people are involved. Section one, Before we continue a digression, What are you even reading? Why are you reading it? And why am I writing it? Hi? I'm Matt. I'm a former lawyer and investment banker. Now I'm a columnist at Bloomberg Opinion. In my day job,
I write about finance. I like finance. It's fun to write about. It's a peculiar way of looking at the world, a series of puzzles, a set of structures that people have imposed on economic reality. Often those structures are arcane and off putting, and it's satisfying to understand what they're up to. Everything in finance is a created on top
of a lot of other things. In finance, everything is weird and counterintuitive, and you often have to have a sense of financial history and market practice to understand why anyone is doing any of the things that they're doing. Now back to Mark Lidorff, a professional actor who, lucky for us, also happens to be an editor here at Business Week. Thanks Matt. For the past few years, the
most polarizing thing in finance has been crypto. Crypto is a set of ideas and products and technologies that grew out of the Bitcoin white paper. But it's also, let's be clear, a set of lines on arts that went up when Satoshi invented bitcoin. One bitcoin was worth zero dollars. It was just an idea he made up. At its peak last November, one bitcoin was worth more than sixty seven thousand dollars, and the total value of all the
crypto in circulation was something like three trillion dollars. Many people who got into crypto early got very rich, very fast, and were very annoying about it. They bought Lamborghinis and islands. They were pleased with themselves. They thought crypto was the future, and they were building the future and being properly and amply rewarded for it. They said things like have fun staying poor, and in g M, I not gonna make it to people who didn't own crypto. They were right
and rich and wanted you to know it. Many other people weren't into crypto. They got the not entirely unjustified impression that it was mostly useful for time or for Ponzi schemes. They asked questions like, what is this for? Or where did all this money come from? Or if you're building the future, what is the actual work you're doing, Or if you're building the future, why does it seem so grim and awful? And the crypto people often replied, have fun staying poor. And then this year those lines
on charts went down. The price of one bitcoin fell below twenty dollars. The total value of crypto fell from three trillion to one trillion dollars. Some big crypto companies failed. If you're a crypto skeptic, this was very satisfying, not just as a matter of schadenfreude, but also because maybe now everyone will shut up about crypto and you can go back to not paying attention to it. For crypto enthusiasts, this was just a reason to double down on grinding.
The crash would shake out the casual fans and leave the true believers to build future together. In a sense, it's a dumb time to be talking about crypto because the lines went down, but really it's a good time to be talking about crypto. There's a pause, there's some repose. Whatever is left in crypto is not just speculation and get rich quick schemes. We can think about what crypto means,
divorced a little bit from the lines going up. I don't have strong feelings either way about the value of crypto. I like finance. I think it's interesting, and if you like finance, if you like understanding the structures that people build to organize economic reality, crypto is amazing. It's a laboratory for financial intuitions. In the past fourteen years, Crypto
has built a whole financial system from scratch. Crypto constantly reinvented or rediscovered things that finance had been doing for centuries. Sometimes it found new and better ways to do things. Often it found word sways heading down dead ends that traditional finance tried decades ago with hilarious results. Often it hit on more or less the same solutions that traditional finance figured out, but with new names and new explanations. You can look at some crypto thing and figure out
which traditional finance thing it replicates. If you do that, you can learn something about the crypto financial system. You can, for instance, make an informed guess about how the crypto thing might go wrong. But you can also learn something about the traditional financial system. The crypto replication gives you
a new insight into the financial original. Also, I have to say, as someone who writes about finance, I have a soft spot for stories of fraud and market manipulation and smart people putting one over on slightly less smart people. Often those stories are interesting and illuminating and especially funny. Crypto has a very high density of stories like that, and so now I write a lot about crypto, including quite a lot right here. I need to give you
some warnings. First, I don't write about crypto as a deeply embedded crypto expert. I'm not a true believer. I didn't own any crypto until I started working on this article. Now I own roughly a hundred dollars worth. I write about crypto as a person who enjoys human ingenuity and human folly, and who finds a lot of both in crypto. Conversely, I didn't sit down and write forty words to tell you that crypto is dumb and worthless and will now vanish without a trace. That would be an odd use
of time. My goal here is not to convince you that crypto is building the future and that if you don't get on board, you'll stay poor. My goal is to convince you that crypto is interesting, that it has found some new things to say about some old problems, and that even when those things are wrong, they're wrong
in illuminating ways. Also, I'm a finance person. It seems to me that fourteen years on, crypto has a pretty well developed financial system, and I'm going to talk about it a fair bit because it's pretty well developed and because I like finance, but no one should care that much about a financial system. A financial system is well a series of databases. It's a way to shovel around claims on tangible stuff. It's an adjunct to the real world.
A financial system is good if it makes it easier for farmers to grow food, and families to own houses, and businesses to make awesome computer games. If it helps to create and distribute abundance in real life. A financial system is bad if it trades abstract claims in ways that enrich the people doing the trading but don't help anyone else. I yeh uh. A salient question in crypto for the past fourteen years has been what is it
good for? If you ask for an example of a business that actually uses crypto, answers you'll get are mostly financial businesses. Well, we built a really great exchange for trading crypto. Cool, Okay. Sometimes these answers are plausibly about creating or distributing abundance. Crypto lets emigrants send ribittance as cheaply and quickly. That's good. Often they're about efficient gambling. Gambling is fun. Nothing against it, But a financial system
that was purely about gambling would be kind of limited. Meanwhile, crypto's most ardent boosters say, crypto is about building real useful things. Crypto will redefine social relationships and gaming and computers. It will build the metaverse. Crypto is the vital component of the next leap in the Internet. Crypto will build Web three to replace our current Web two. Maybe if you ask for an example of a business that actually uses crypto, you'll get a ton of real lucrative financial businesses.
Then some vague theoretical musings like, well, maybe we could build a social media network on Web three. It's still early. Maybe someone will build a really good social media network
on Web three. Maybe in ten years, crypto and blockchains and tokens will be central to everything that's done on the Internet, and the Internet will be even more than it is now central to everything that's done in human life, and the crypto early adopters will all be right and rich, while the rest of us will have fun staying poor, and school children will say, I can't believe anyone ever
doubted the importance of doge coin. I don't want to discount that possibility, and I do want to speculate about it a little bit maybe sketch a picture of what that might mean. I'm not going to give you a roadmap for how we'll get there. I'm not a tech person and I'm not a true believer, but it is worth trying to understand what crypto could mean for the future of the Internet, because the implications are sometimes utopian and sometimes dystopian, and sometimes just a modestly more efficient
based layer for stuff you do anyway. Plus the finances cool and it's cool now. Coming up next, you'll hear more from Matt Levine's special Crypto issue of Bloomberg Business Week, narrated by Mark Leadoff. Section two a second diggression, Names and people. Before we go on, let me say some things about some names. First, crypto, this thing I'm writing about here, there's not a great name for it. The standard name, which I'll use a lot is crypto, which
I guess is short for cryptocurrency. This is not a great name because one, it emphasizes currency, and a lot of crypto is not particularly about currency. And two it emphasizes cryptography. And while crypto is in some deep sense about cryptography, more people in crypto or not doing a
ton of cryptography. You can be a crypto expert or a crypto billionaire, or a leading figure in crypto without knowing much about cryptography, and people who are cryptography experts sometimes get a bit snippy about the crypto people stealing their prefix. There are other names for various topics in crypto. Blockchain tokens, web three defy the metaverse, and they're sometimes used broadly to refer to a lot of what's going on in crypto. But it's not like they're great either,
so I'll mostly stick with crypto as the general term. Second, sa Toshi Nakamoto. That's a pseudonym, and whoever wrote his white paper has done a reasonably good job of keeping himself herself for themselves pseudonymous. Ever, since there's a lot of speculation about who the author might be, some of the funnier suggestions include Elon Musk and a random computer engineer named um So Toshi Nakamoto. I'm going to call Satoshi Nakamoto Satoshi and use he him pronouns because most
people do a related point other than maybe Satoshi. Basically, everyone involved in cryptocurrency is a hilariously outsized personality. It's a good bet that if you read an article about crypto. It will feature wild characters. One story in Bloomberg Business Week last year mentioned sending billions of perfectly good U S dollars to the inspector Gadget Co creators Bahamian Bank in exchange for digital tokens conjured by the mighty ducks guy and run by executives who are targets of a
US criminal investigation. Except this one, there won't be a single exciting person in this whole story. My goal here is to explain crypto so that when you read about a duck guy doing crypto, you can understand what it is that he's doing. Thank you Matt Levine, and thank you Mark Ledoff. As a reminder, if you're looking for these episodes in the Crypto Feed, will be publishing them every Sunday through December. If you'd like to read this issue in print form, you can head on over to
Bloomberg dot com slash the Crypto Story. This is Bloomberg Crypto, a daily podcast from Bloomberg and I Heart Radio. For more shows from I Heart Radio, visit the i heart Radio app, Apple podcasts, or wherever you get your podcasts. Send us your comments, questions, or suggestions. For the show to Crypto at Bloomberg dot net or find us on Twitter. We're at Crypto. The supervising producer of Bloomberg Crypto is Vicky Vergalina. Our senior producer is Janet Babin. Our producers
are Mohammed Faruk and Sharon Barriro. Our associate producers are Ty Butler and Moses on Them. Desta wonder At is our engineer. Original music by Leo Sidron. I'm Stacy Marie Schmal We'll be back tomorrow the a in Astan at the y sid