37 - Crypto is Empowering | Phil Bonello

welcome to bankrupt where we explore the frontier of internet money and internet finance this is how to get started how to get better and how to front run the opportunity this is ryan sean adams i'm here with david hoffman and we're here to help you become more bankless david fantastic episode today awesome episode today what'd you think about it yeah this episode with phil was a big step back away from the intricacies of defy and the intricacies of cryptocurrency and into the world of

cryptography and how crypto as in cryptography is impacting the macro world right because cryptocurrency is really just one instantiation of the use of cryptography and something that the bankless nation i think really relies on are not just cryptocurrency but tools that empower the individual and all of these tools that we're seeing come out of the world in 2020 and even in and earlier than that are all based in cryptography and so this episode with phil is how crypto

is empowering and it's changing the world in so many different ways and we go into a lot of those ways here on this podcast it's really that's why we called like bankless you know a movement right because it's really a political movement that we're talking about here power to the people power to the individuals power to small groups to coordinate without necessarily the big heavy infrastructure of a nation-state that's a pretty powerful concept and uh phil wrote this fantastic paper um the sovereign individual investment thesis

paper i think he took a lot of the ideas that like were you more you made them more concise he applied them to crypto but from a book that both of us really enjoyed the sovereign individual a book that was written in like what 1999 1997 yeah wow okay yeah like maybe because we don't talk about a lot in this in this uh conversation with phil but maybe you should give folks an overview of that book the sovereign individual was written by these two guys that i think it's for a book of when it

was written was one it is one of the books with the most foresight i've ever read ever except for the fact how the first chapter is all about the y2k so you can if you guys want to read that just skip over that chapter you won't miss anything but in 1997 they talked about cyber currencies that are outside the purview of the nation state right and what the impacts that happen as a result of the existence of these quote unquote cyber currencies and so like they didn't know about blockchain they didn't know about satoshi but they they just figured out

that at some point there's going to be money on the internet and it's going to be outside of the nation state and so they use that and they also talk about just what they call changing returns to violence and what that really means is you know violence maybe puts that in a a violent image in in your head but it's really talking about who in society do we allow the privilege of having a monopoly on force and coercion and right now in our society that's the police and the military right and so we give over

the right to be violent to the nation-state and the nation-state coordinates us with that privilege right and what phil talks about in the his sovereign individual investment thesis which is based off of the sovereign individual book is that cryptography really reduces how advantageous it is to have this monopoly on violence and one way to illustrate that is that you know with your private keys no one can take away your ether right no one can take away your die no one can take away your bitcoin it

doesn't matter how much force how many nuclear bombs how many tanks a nation state has because cryptography doesn't respond to violence right it's in a different universe it's in a different paradigm and there's just a lot of different implications that results on just the invalidation of what makes a nation-state powerful and so that's what we get into in this episode with phil yeah we talk about some of those downstream implications of course we often talk about money printing and the macro landscape and we certainly touch that here but we also talk about

changing labor markets which is i think an interesting take about how education and population uh like labor in populations are going to change as a result of this power transfer to individuals so it's a fantastic fascinating discussion and we're glad you are joining us for it one really good example that ryan and i came across recently that is evidence of how this sovereign individual thesis is playing out is how we got a graphic designer for the bankless q3 token report which you

guys should totally check out by the way but we tweeted out we need a designer we need a graphic designer because we have this report coming out and we got people in our twitter dms you know askings peaked about the job and we ended up selecting this individual from nigeria who really worked hard to produce a really good template for how we wanted our token report to work the power of internet communications along with our ability to pay this individual and die

instantaneously without a wire transfer without permission of a bank without talking to any nation state authority we just sent him his die for his labor what this is really going to do is really even the playing field between labor markets across the whole entire world this is going to be a massively globalizing force and phil what phil talks about is how you know first world nations you know developed nations have have this advantage that he thinks cryptography is going to erode away and because

global labor markets are about to become far more equalized because you know somebody in in some developing nation can do similar jobs as somebody in a developed nation and likely do it for a lower cost than what was what would be the market rate in the developed nation and so phil sees this pattern playing out not just in labor markets but also in education and just almost almost every single industry has implica implicative changes as a result of cryptography the 2020s are certainly

going to be a decade of of changes and so will the rest of the century it's going to be exciting to watch so before we get into this conversation with phil we've got to mention an event that is coming up it is an opportunity if you are a defy developer to help make the world a bit more decentralized a bit more serverless a bit more bankless it's the file coin accelerator you have the opportunity to earn a 20k grant by applying to the accelerator along with a 1 million dollars in follow-up funding

where huge supporters of what filecoin is doing with ipfs and with its standards to bring about a decentralized storage network so if you want to apply if you're a d5 developer or an entrepreneur you want to apply go to the link in the show notes and do that by the 15th of november david you're actually serving as a mentor for this too david you're actually serving as a mentor for this too right yeah i'm i'm really excited about the development and growth of filecoin and i'm looking forward to seeing what value i can add to this accelerator

for those that don't know filecoin is a decentralized storage solution so think dropbox think google drive but decentralized right and this is you know perfect time to talk about how cryptography is changing markets everywhere i wonder what happens when the world has you know just freely accessible and abundant storage in the cloud that is outside of the control of any one single individual right that is what filecoin is all about providing persistent and persistently available

data uh to the world i think that's a really cool thing to strive for and so i'm really excited to see what is going to come out out of this accelerator so to take advantage of this just apply for the filecoin frontier accelerator by november 15th using the link in the show notes all right guys we're going to get into this episode with phil about how cryptography is changing the world around us and empowering the individual but first we're going to talk about some of our sponsors that are also empowered by cryptography

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that the revolution is here search monolith in the app store all right guys let's go ahead and get right into this episode with phil vannello all right bankless nation really excited to welcome phil binello who is the director of research at greyscale he was formerly at ikey asset management and before that missouri so he's been around the block in crypto really knows

his stuff we're going to talk with phil today about his sovereign individual thesis paper in in general how crypto empowers the individual this is a technology for the people by the people as david and i have talked about so many times this is a central theme of the bankless nation and we're really excited to have phil join us to talk a little bit more about it phil how are you doing today i'm doing really well thanks uh thanks for having me ryan dude oh it's super exciting i think we are uh kindred

spirits um specifically after like re reading some of your writing i want to start with this question do you think cryptography is inherently an anti-authoritarian technology you know i'm not sure if it's anti-authoritarian i i would say that it's uh it's a very empowering technology um and you know vitalik i think put it probably best the best that i've seen and i'll just quote him here is that cr cryptography is truly special in the 21st century

because cryptography is one of the few fields where adversarial conflict continues to heavily favor the defender so and then he goes on to say the average person's keys are secure enough to resist even state level actors you know and i think that's that kind of sums it up really well um throughout history and we'll get we'll get um into this through the podcast but throughout history uh the leverage of violence has really favored their the attacker and so um it's cryptography has kind of been

this uh this balance for the defender let's get into the conversation of defensiveness versus attacking and i think a lot of people might not um understand where we're coming when we talk about you know the the leverage leveraging of violence uh because we you know we're not talking about like a bar fight or you know two people you know with bloody fists what what are we talking about phil when we talk about the uh monopoly over violence and being defensive or offensive in terms of technology it's helpful to take a step

back a little bit and look throughout history and this is kind of what the the sovereign individual uh does uh so you think back to hunter gatherer times no land no possession rule by tribe right there's no idea of personal property then you go to the agricultural age there's land possessions uh these are things that there's the idea of personal property there are things that you have to defend um and because of that fetal lords emerge

and there's this protection as a service that kind of rises out of this era and then you go to the industrial age and we see the rise of armies with guns and factories run by nation states you know so there's continuously consolidation of power uh and then we go to the nuclear age and uh even more leverage on violence right we see the development of superpowers in in today's world and then finally you ship to the information age which is kind of a big

shift in in the leverage of violence like we talk about um not only from the point of view of cryptography where it makes it it makes it easy for you to defend your personal digital property uh you know whether it's its money or you know your non-fundable tokens or um your digital digital assets that are accruing cash flow whatever it may be you know those things are now they can now be defended through cryptography um along those same lines we have global

access to information uh weapons really have become information we have virtual reality you know it kind of balloons from there and one of the things that i think is important for people to understand is is that you know who the the entity that is uh authorized by the people in the social contract to use violence is ultimately the the entity that we that we all trust to use that power correctly right but sometimes these structures these uh you know the

nation-state structure but also just like the power structures the the hierarchies that uh are generated throughout history that we give authority to sometimes they don't act in ways that we really ideally want them to and what cryptography is is doing is really giving a very strong tool that the individual can leverage against the power structures of authority uh in order to retain their freedom right and a good illustration on this is is you know a nuclear

bomb or nuclear missiles no matter how many nuclear missiles the world generates can't force anyone to you know give up their bitcoins from their private keys right it doesn't matter the strength of the physical power of an authority because cryptography is always more powerful than that so so understanding this fill how how does the world change as a result of the leveraging of cryptography yeah so you know i think there there are a few uh different vectors i mean

one you can you can have a lot of things that really happen outside of the purview of governments and i don't mean this in like an anarchistic or libertarian way it's it's it's really just empowering right you can you can conduct transactions without any but anyone's permission which literally was impossible before you know from around the world right and i i think that's been really evident in the past six months with the rise of defy kind of the rise of decentralized autonomous organizations where

people can actually transact without a middleman and there's there's really bountiful you know transactions occurring and people are organizing themselves through discord uh so so you know not all of this not all the communication not all of the organization has to happen in an encrypted environment but the uh the power of encryption and the recent rise of you know these cryptographic networks uh has allowed for value transfer in a way that we haven't seen before and

i think that's pretty powerful i think you know one one question that's been on my mind recently phil with all of kind of the has it been an increase in regulatory actions uh lately i'm not sure but it seems almost like it so fincen uh with bitmex we talked about that on a previous uh you know state of the nation uh fincen also um you know actually the doj um fining coin ninja which is a you know privacy technology on bitcoin for 60 million dollars i mean

do you think that nation states will be okay long term with their citizens retaining this powerful technology this this cryptography technology there was a time where as i understand it cryptography was was sort of a you know just a um a national security sort of technology only nation states uh could actually use it wasn't necessarily legal for individual citizens to use it now now anyone can use it at this point in time but are we in this special era of history where you

know maybe it's okay and could nation states suddenly change their mind and outlaw cryptography do you do are you concerned about that you know i think there is some concern there there's been some recent guidance on uh the worries of end-to-end encryption and i think with uh some of the upheaval that's been going on in society and online specifically and how much power is aggregated in a few media platforms in in the hands of a few companies

i i think the public starts to look towards uh you know central governments to say you know protect us fix this and that that's a kind of slippery slope because when you start to ask the government to fix these things you then place more power in the hands of the government um and you know that's not necessarily a bad thing all the time but it uh you know absolute power corrupts absolutely and so i i think this the whole trend of uh

encryption and censorship resistant applications is a really important one and i think probably a year or two ago when if you're talking about censorship-resistant applications i you're pretty much going to get blank stares nobody's going to really understand the the reason behind it and and that was true throughout the 2017-2018 you know crypto market uh where you try to argue for you know why these applications may or may not be valuable and you start to

get into censorship resistance and it's like well people just don't care um and so you know in the sovereign individual investment thesis that i put together one of my thesis was people won't care until they have to so you know it it's as bad as it sounds things have to get worse before they get better and uh i think we've been kind of lulled into this uh idea of um you know outsourcing our defense right and now

we're entering a period where it's easy to defend yourself from outside attackers so now with this restored power i think people are going to start to take take control for themselves right um and and so i've been really hopeful in the last year to see developments with some some of these censorship resistant uh technologies uh different parts of the web 3 stack so to speak you know whether it's uh kind of

d5 growing up a bit on ethereum or you know live pier doing uh doing some really good work and like getting some strong adoption or like file coin and sia and these these cool products is building out different parts of the web3 stack and i think that'll be really important you know ari paul um recently put out a tweet and i you know i've been saying this kind of thing for for a little bit in different words but but he put it like this he said that he thought the right to cryptography should be a constitutional right

basically so you know in the u.s of course we have you know freedom of speech the right to assemble that sort of thing uh we should also he says have the right to cryptography that should not be illegal banned by the government uh would you take it that far do you agree with that take yeah and and honestly i think part of what's so powerful about cryptography is at some point it won't matter whether it's um legal or illegal it's just uh people will be able to

uh transact and use this technology because it's available because it exists that that's that's part of kind of like why i i think cryptography is so important it just it it doesn't matter what you think what doesn't matter what i think it doesn't matter what centralized organizations think uh it has the power to exist outside of their purview you're saying they can't a lot to assert yeah to a certain extent and i do want the listener to understand that we're not just talking about cryptocurrency we're not just talking about bitcoin and

ethereum we're talking about the technology that enables these really these things which is cryptography uh which enables a bunch of other things that are highly relevant to what we're talking about and what we're going to be talking about in this podcast where uh communication nowadays you know and even when we roll back the clock uh where communication was like a a letter in the mail right where you would need government infrastructure a government utility to communicate uh across any

distance that's you know you know any any further than a human to human uh conversation right so if you want to communicate with somebody across the nation you would need government infrastructure to um to facilitate that by sending a letter right and you know with the uh growth of the internet we no longer needed the government but we still needed central uh centralized intermediaries uh you know facebook messenger for one or sms text messaging is still using a data provider uh and and so even as with the growth of the internet

we still didn't have a individual to individual conversation replicated over the long distance without having like a centralized intermediary facilitating this and so in addition to replicating cash transactions where bitcoin can replicate the handing of cash from one individual to another cryptography also replicates the instantiation of having one person converse with another person without any centralized intermediary and so what is

really interesting to me phil and i think what's something that that you've tapped into is that this uh cryptographic protocols be it a cryptocurrency system or cryptographic communication seems to be creating public utilities uh internet-based public infrastructure for replicating peer-to-peer behavior both as cash transfers and communication and privacy as well and we now are able to have internet-based privacy or secrets without an intermediary and so when this

world of public utilities that are cryptography based that are peer-to-peer based comes into existence in a world where the only alternative was a centralized intermediary and so so the the centralized world has everything to lose and the cryptography the new cryptography cryptography protocol world has everything to gain what happens when there is the ability to exit what is the the most the the through line behind the ability to exit into this system what happens to

our legacy systems from from an individual level i think it's just an equalizing force right uh everybody kind of has access to the same markets the same information uh the same uh job market and and and that that's gonna be a really interesting shift it could be a really great thing for developing countries and it may be a tough pill to swallow for developed countries right because developed countries have benefited from these asymmetries

for a long time and you know the developing countries have kind of suffered and so as as we as we kind of move into this this paradigm uh you know people from developing countries they may live in uh areas that are lower costs previously they may not have had access to higher education um previously they may not have had access to high-paying jobs um but now in this

world of uh you know you can call it kind of like a the crypto economy you know whether it's specifically talking about cryptocurrencies and things built on bitcoin underneath and uh so forth you you can actually transact uh in like this trustless environment and uh feel good that you're going to receive your payment and and that you can you can uh do work from anywhere in the world right and and so it's uh it's really interesting i think what you're saying is all of these uh developed

countries so-called all of the centralized infrastructure they've built no longer matters or it matters a lot less now that we have cryptography enabled technologies like cryptocurrencies like cryptographic communication that sort of thing right yeah yeah i mean it goes further than uh just cryptography which i you know i think we'll get into a little bit but i think cryptography is kind of the last mile for the execution right uh to actually be able to transact

and to be able to participate in these markets uh you know trust is trust is really the uh the backbone of of uh really uh flourishing markets and and now you can you can have trust on a global scale to me the big thing that i see is the relevancy of borders seems to just fall apart in this cryptographic infrastructure world where you know the border that separates the united states and mexico means less when i can you know pay uh pay money and receive

services from somebody in mexico or any other country like never mind any bordering country to united states i can immediately have a relationship with someone across the world and so you know kind of what ryan was getting into is the the countries that have all of this great infrastructure set up in order to you know promote the well-being of their citizens and perhaps have much better infrastructure than uh you know developing or third world countries that matters less because now third world countries and developed countries are

accessing the same infrastructure so i i know you pay attention to the subject of uh you know an internet-based economy where you know it's outside of any particular nation-states you know authority or regulation talk talk about a an internet-based economy that leverages these cryptographic protocols what does that look like and how is that different from the economies that we are familiar with today i i think the internet-based economy i really just allows allows people to uh let their skills flourish right they

um don't need to depend so much on uh accreditation and uh you know the four-year educational system they can participate in in something like a a dow like you know we saw with wi-fi and all these all these uh communities that arise on discord and you can become a community member you can you can help develop the protocol um and it doesn't matter what your background is right one thing one thing i find super interesting about this we

were talking earlier phil about like um cryptography and crypto crypto economies being the great equalizer right i mean thinking about like um have you ever asked yourself what's the value of assuming you're u.s citizen as well like what's the value of your u.s citizen right um it's interesting that's like you know primarily a product of of where you were born it's sort of a geographic lottery um and what are the benefits of living in the united states there's some drawbacks of course but over the years there have been tremendous

benefits right that's why um sometimes you have individuals immigrate here to the u.s and traditionally it's been things like well it's got a you know sound legal system that protects property rights and protects corporate law right so that's a benefit it's oh it also has a robust financial economy so it's a great banking system oh and you know it's got a good way to set up a business and create capital so you can create your delaware llc company and you can start

to raise capital from like wall street uh or silicon valley it's got all of these places well it's interesting in crypto and what you're saying with like these dowels and these internet communities all of that becomes flattened because now if i can i can set up a decentralized autonomous organization a capital pool on the internet uh using ethereum i don't even need i don't need uh you know the the us legal system to do that i don't need the us banking system to do that i