Crucial Conversations
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Crucial Conversations
Navigating the Currents of Digital Currency: Insights on Bitcoin, CBDCs, and the Future of Finance
Embark on an enlightening journey through the dynamic realm of digital currencies with our economist guest, Dr. Jonas, who's just returned from a Central Bank workshop in Bali and a FinTech conference in Singapore. The unique blend of experiences and deep knowledge of monetary policy and digital currencies shapes our episodes into a treasure trove of insights.
From discussing the transformative role of Bitcoin on our financial systems to the intricate layers of Central Bank Digital Currencies (CBDCs), we cover it all. Our guest pulls back the curtain on his personal descent into the Bitcoin rabbit hole, revealing how this groundbreaking digital asset is challenging traditional notions of value, privacy, and economic autonomy.
As we navigate the complexities of the global financial landscape, Jonas sheds light on Bitcoin's profound influence, debunking misconceptions and advocating for its energy innovation potential. We also scrutinize the emergence of stablecoins like Diem and dive into the evolving world of traditional banking as it intersects with the proliferation of bank digital money. This episode is not just a discussion—it's an exploration of the opportunities and hurdles that come with integrating cryptocurrency into everyday lives, as exemplified by El Salvador's unprecedented adoption of Bitcoin as legal tender.
Closing our extensive discussion, we weigh the prospects of CBDCs against the critical issues of privacy and control. The conversation takes a turn towards the technical challenges and political debates that CBDC implementation has sparked, challenging us to consider the future of our financial systems. While we dance around the idea of central banks utilizing blockchain technology, we maintain a healthy skepticism about the power struggles inherent in such a shift.
For those intrigued by the intersection of economic philosophy and technology, this episode is a vibrant tapestry that unravels the human element central to the evolution of currency.
Join us for a session that's sure to leave you contemplating the digital shift in our monetary world.
啊. So welcome to Singapore. Thank you First of all. I think very excited to have this conversation with you today, and you just flew in from Bali, correct, Correct? You got the Bali Glow.
Speaker 2:One week of beautiful Bali and now a different world here in Singapore.
Speaker 1:Tell me about it. How was Bali? Oh, really cool, first time there.
Speaker 2:Yes, it was also my first time, so I also haven't been to Asia that much. So I mean, this Asian trip was kind of not the first, but one of the first. And yeah, it was, I mean, pretty cool, because Bali is just very nice, you know, like Great weather in Germany. It's currently freezing. So I said, okay, I need to be gone.
Speaker 1:So you're originally from Germany.
Speaker 2:Yes, so I'm originally from Germany, I live in Germany, but yeah, it was pretty cool to combine Bali with Singapore because in Bali I was visiting or was presenting at a workshop from the Central Bank on, you know, on the topic of Central Bank, digital currency, digital currencies in general. And, yeah, now I'm happy to be in Singapore as well.
Speaker 1:That's nice, and you're here for the FinTech conference, correct? Yes?
Speaker 2:I'm following the FinTech festival all the three days and then I'm also part of a panel on. You know more compliance and privacy topics for some roundtables that have been organized around the festival.
Speaker 1:Okay, good, good, good, well, yeah, again welcome. I really wish you a eventful trip. I think Singapore will always treat you well. It's a beautiful experience, and I haven't had the privilege to spend a week in Bali yet, but I'll definitely take it off my bucket list.
Speaker 2:Oh, you definitely need to do that.
Speaker 1:Did you surf or anything like that?
Speaker 2:No, I watched the surfers. No, I didn't surf, but besides the workshop I did lots of like the cultural things there and nature. You know the waterfalls a lot of animals, drinking fresh coconuts, things like that, which make it also really a unique experience, nice, nice.
Speaker 1:Good. Well, you've already highlighted a few critical things. I want to kind of dive in with you today, specifically central bank digital currencies. And always creates a bit of a shiver down my spine and I'm hoping you can shift my perspective a bit. But before we dive into that, maybe for the benefits of the listeners and the audience, you can just give a bit of background to you, the work that you're doing, and we can take it from there.
Speaker 2:Sure, so typically, from my background, I'm an economist, so the bachelor's, master's and also PhD in econ, in econ, so with a strong focus on monetary policy and digital currencies, basically. So what I did there is basically I fell, you know, in the Bitcoin rabbit hole. I remember this was like, I think, 2017, beginning when I've read, like a newspaper article about that one ounce of gold, you know, has now the same price as one Bitcoin, and I was so passed like how can something you know which is backed by nothing you know ha, didn't?
Speaker 1:make any sense to me.
Speaker 2:The usual response okay, this cannot be true. But the good thing was I was there as a master abroad in Denmark and I had some time, so I really went into the rabbit hole of Bitcoin, of course, first. And then, you know, seeing all the crypto, blockchain, all of these things and this was, by the way, during my master's program and when I've seen that, I was like, okay, I need to do something around digital currencies. You know the future of money and blockchain technology on the one hand side, but also monetary policy on the other side, because that you know the money topic. This was always interesting and very relevant for me. So this is that. I was the point where I decided I want to do my PhD exactly at this intersection.
Speaker 1:And yeah, what I did. What a beautiful intersection.
Speaker 2:I think it is. I think it is, yeah, and I mean what I did then is did lots of research on the crypto side, also on the stable coin side, like in the days the Libra project was announced from Facebook. So that was like a massive thing, I think, for everybody. But the main focus of my PhD thesis was indeed central bank digital currencies. So research, basically the impact on the financial sector and also the role privacy can play, because that's I'm sure we will talk about that and I hope we talk about that.
Speaker 1:Definitely. I mean, there was the release this last week from the EU governments, I think it was. There was a release around. Was it digital identity?
Speaker 2:Oh yes, digital identity. So I think it's a segue.
Speaker 1:It's a bit different, but it's kind of converging.
Speaker 2:It's a bit different, because that's like, really, that every member country needs to have a digital EU wallet. But the thing is how this relates is that also in the regulatory proposal on a CUDC in Europe, there is basically a statement that this wallet also needs to be in trouble with the euro. So this means you, at some point in time, you will have a way to use this wallet also for digital euro payment.
Speaker 1:And this is where the interlock will happen and exactly puzzle pieces being laid down. Okay, this comes together, that's great. Well, I want to. Before we get into the controversial stuff, I'm really interested because it's not often I get to meet someone who has studied Bitcoin, and Bitcoin has fundamentally changed how I see the world, how I engage with the world, I see through all the fun. I found that it started changing me without even realizing how it was changing me when it came to a low time preference way of living versus a high time preference way of living, the content that I absorb, decoupling from mainstream media, and really to this day, I think it's still changing me in just what I envisage for humanity going forward.
Speaker 2:And that's super interesting because when I often talk to central bankers, they often think the Bitcoin are the ones that buy Bitcoin that wanna have the Lamborghini at some point in time that they buy with the Bitcoin that just went to the moon. So they don't know that the other side exists.
Speaker 1:Yeah, I would say that the shit coin is the Lamborghini type and the Bitcoin is tend to be. They can come across as toxic, but I think that sentiment derives from them not taking any nonsense and cutting through the bullshit excuse my language, or the fluff and really the approach to kind of having a different way of living compared to the status quo.
Speaker 2:It's definitely one point, and I mean what I'm also often seeing is that when I, for example, one point in time this was this year, actually I was speaking at a Bitcoin conference, one of the largest in Germany on the digital Euro topic which was super interesting.
Speaker 2:But I think I'm always not so sure because I think that often people that are very deep into the Bitcoin are just very much ahead in some kind of thinking and very more open to all these innovative topics and all that. But often for my side also, it lacks just the understanding of some principles, of how the system currently works. So I was always trying to position myself kind of in the middle and to educate, you know, kind of both sides, because at least in Germany in the community, there is also a lot of nonsense going on against fiat, which not always makes sense.
Speaker 1:Yeah Well, it doesn't make sense.
Speaker 1:And I think people that have started studying Bitcoin for the first time can see the wood from the trees.
Speaker 1:And you're an economist, right, and I can say that I had zero interest or understanding in economics until I studied Bitcoin, until I understood the core principles of value, until I understood, when we decoupled from hard money, the impact that had on the fiat currency system, the unrelenting printing of money, which has caused many social ills. Most of all, the continuous and perpetual war machine, because in the past to find a war you had to have gold, and you know, you can see today that since we've decoupled from hard money, the war machine has not stopped and the impact that that is having globally and these debt bombs that are being created all over the world the global. When we were going to do this podcast, I said to you that one of the things I wanted to dive into is the global financial system and the house of cards, and you had a good chuckle at that. So to frame my question for you is did you study economics before Bitcoin or after Bitcoin?
Speaker 2:Well before and during. So I was basically when I explored a first, when I went deeper into Bitcoin was the end of my master's program, so it was basically before my PhD thesis, but at the end of my econ you know degree, my master's degree, so do you, did it fundamentally change your view of economics or did you already have core base principles that you understood?
Speaker 1:Yeah, one that jumps out is Austrian economics, for example.
Speaker 2:So for me, to be honest, it didn't really change a lot because I was in my study program. I know a lot of you know stuff is like a Keynesian economics, you know, which you know is is the things that I think a lot of Bitcoin has criticized. But I was always open for other things right. So I also had a course about. It was just a blog course, but I had a course about Austrian economics, for example, and I also, you know, I think I bought. I bought like gold, for example, when I was via my parents when I was 15 or 16, you know so I was always was always appreciative of like hard, you know hard gold.
Speaker 2:So this is why, to be honest, it didn't change. It changed my you know my way of my thinking a lot on econ generally, but, of course, about the monetary system, if you think about it. So I also wouldn't say that everything is bad related to fiat. So I'm not, you know, on this side, but of course you realize that there are some, you know some some issues, of course, apparent, and also Bitcoin has definitely a role to play in the system.
Speaker 1:Yeah, and I would like you to challenge me that let's straw man and steel man any concept that we raise today, because I think it's important. It's always good to have opposing views, and I may be very pessimistic about the fiat currency system. I would like you to restore some level of faith, if there is any. But okay, so, so you go and you do your PhD. Talk to me about your PhD and the journey that you followed, because that's that's the topic of all topics and way ahead of its time, and it's probably served you well to do the work that you currently do 100%.
Speaker 2:So I mean, when I started four years ago, I remember I was very proud that at this point in time I had summarized all the paper that existed around CVDC.
Speaker 1:I think it was 1560, 50 to 60 and I was like cool.
Speaker 2:Now I know you know all the status quo, which was pretty cool. And I mean one turning point obviously was that when Libra DM was announced as a project, so this Facebook led stablecoin project because at this point in time suddenly everybody was interested in the topic of CVDC. So I mean, if you look at CVDC projects generally, there was like a few from starting 2013 and also few in 16 and 17, so it was already increasing. But just when this announcement came, basically, you know, when Facebook said we want to reinvent money, which was kind of the bold statement, this got people interested, right.
Speaker 1:Probably panicked, got people to panic because that that I mean Libra. It was called Libra, yes, yes, so flat on its face, right? Yeah, I mean it didn't take off. I think that was at the peak of Facebook as well, and I mean Mark Zuckerberg was meeting with all the presidents and it was like just flowing through the different regions as the platform, and there was lots of data privacy concerns. So I think that, coupled with him wanting to reinvent money, must have really created panic at the disk, or lack of a better term.
Speaker 2:Yeah, I mean panic, panic, for sure, but also it also got the people thinking, right, okay, I would not just say panic but also, you know, say, okay, now this company wants to issue, like an own form of money, what do we do? Right? So it was also about the reaction and this was actually why CVDCs have increased in importance. And, of course, for me personally, it was great, you know, also like career-wise, because I was just, you know, I was a young researcher. I just, you know, studied a topic which I thought was just very interesting to double down on. And then suddenly everybody, everybody, you know, was interested.
Speaker 2:So I was, of course, giving lots of presentations, even with my academic background, was invited to some seminars to present, like at the ECB, for example, you know, and this was also when I, with a few friends, basically, and colleagues, founded the DeGiura Association, which is like a nonprofit association, so not related to the ECB or any institution, but which is basically you can think about this as a FinTech, about or like not FinTech a think tank about innovative forms of fiat currency.
Speaker 2:So this includes stablecoins, this includes CVDCs, this includes tokenized commercial bank money, which is currently the whole topic, right, so it's a think tank where we educate people around that, where we bring, you know, like-minded people together that are just interested in that. We also talk to politicians, to regulators, to central bankers what our perspective is, and when I say our, it's basically a community of 60 companies, so it's banks, it's industrial companies, but it's also FinTechs. You know, like Circle, as a member also German Association of Banks, yeah, and now basically across the world, you know, discussed with central banks and even you know this was also one reason why I was in Bali at the workshop to discuss these topics.
Speaker 1:I think let's, if we can visualize a timeline. So 1971, was it? Reagan Decoupled the dollar from the gold standard, which meant that, all of a sudden, the value of a dollar was not directly linked to a value of gold, and there's many reasons why that happened. It was meant to be temporary, it became a permanent feature and it allowed the central banks to print money unabated. Fast forward.
Speaker 1:I can't think of a financial crisis before that. Maybe I was too young to understand it, but the first one that jumps to mind is 2008. And 2008,.
Speaker 1:We have this financial crisis that emerges in the US and starts having a contagion effect around the world.
Speaker 1:It's very quickly managed with bailouts for the banks and the institutions that had these bad debt housing bonds, I think it was and something sparks there and Satoshi Nakamoto emerges as an individual or a group of people, starts releasing this white paper on a thing called Bitcoin, which is a decentralized ledger that is centered around, I think, five different principles, which is game theory, cryptography.
Speaker 1:Maybe you can list the other ones that are relevant to try and prevent this repetitive cycle that we're going through. When it comes to the fiat debacle, can you just talk to me a little bit about your knowledge around that and then how we've gone from that. And the reason I want to establish the timeline is because that would have led to the thinking that is, to where you are today. So you have this decentralized ledger, this blockchain, this Bitcoin capability. Then there's this massive J-curve of Libra and all these other coins that people are trying to create on the back of that type of thinking and CBDCs. But before we go down that far, crystallize that 2008, satoshi Nakamoto, anything you want to share around, to educate the people there, before we go forward in the timeline.
Speaker 2:Sure, yeah, I think, of course, that was very closely related, as you said, to the financial crisis. So we even see in the first blog of Bitcoin the reference to the newspaper article back in the days. So of course, satoshi created this to have to just have another option to propose a system that is again kind of being linked to or is kind of scarce, so again creating a money that is scarce, as it was back in the days, if you think, this was linked to gold, where you could not increase money supply as you wish, basically.
Speaker 1:So I think that was really a and the scarcity is linked to the fact that there will only ever be 21 million Bitcoin. Each Bitcoin is made up of Satoshis. How many Satoshis per Bitcoin?
Speaker 2:What is it like one, is it 100 million or something like that? 100 million?
Speaker 1:Satoshis per Bitcoin, which allows you to buy fractions of a Bitcoin. What is the message that he built into the first block again? Do you remember? I?
Speaker 2:don't know the exact. It was an article for the 2008 financial crisis Correct so that was a reference and this is why it's not just speculating that you say maybe he did this as a reaction to the financial crisis. No, it's basically clear he did it because this was really the headline of the newspaper at the one day I think it was September in this time to see the reference.
Speaker 1:And I mean for those that study Bitcoin I think that you start realizing the purity of the design. It almost sometimes feels like it's not human because it's so flawless in this design, but in saying that there's not, there's pulled together concepts that have been around for a while, such as cryptography, game theory. What are the other principles of bait in there? Do you have that orphan? No, no, not this precisely.
Speaker 2:But I mean it's all the elements like decentralization, independence, self-sovereignty. So I don't know if you refer to these, but that's definitely core elements you have in there. And I think what for me is very, very impressive is there are a lot of. I mean the paper just I think has like nine pages or something. So if you think about it.
Speaker 2:it's crazy. It's crazy how compact and I agree it's. In the end, not every component in there is novel, but the combination is novel. So, using proof of work, consensus that you had before, right With time stamping, you know.
Speaker 2:So this mix, I think that really makes it unique and I mean, as I said, there are lots of projects out there also in the crypto space. But the thing is and it's actually quite funny, because I released a podcast episode about this yesterday is where I looked at Bitcoin is now 15 years old, right, and for crypto, 15 years, oh my God, it's so long right.
Speaker 1:But if you look into, should have really been rug pulled twice Exactly.
Speaker 2:And that's the thing you know. The infrastructure is solid. I think it has like the highest uptime, also, if you compare this to other monetary systems, which is just crazy. Right, a new asset class has emerged. Right, it's now.
Speaker 1:Yeah, I think it's important to emphasize that. So what you're saying is Bitcoin's 15 years old and it's running as a decentralized protocol. It's obviously got a core base of people that ensure that the development and enhancements are there, but without changing the core fundamentals. I think that the true amazing thing about Bitcoin is that it's truly decentralized, which it's like the rabbit is at the hat. It's almost impossible to contain at this point. And you mentioned an important element in Bitcoin which is proof of work, where you have what we call Bitcoin miners that use hash compute power to basically process the cryptography and are rewarded with Bitcoin. And I think next year April, we're going into the third halving, so we're still early. Everyone's like God's too late. I should have bought it when it was cheaper. It's early, it's early days, it's super early.
Speaker 2:And what also intrigued me, to be honest and you mentioned mining is that we know that from I personally am not looking a lot at the Bitcoin price because you know I'm personally convinced that I do my stuff very independent of the price, but we see that from the all-time high and we are down 50%. Of course we have been up 100 this year but down 50% generally. But, and that's the important part, the miners so like the hash rate. So basically, you know the support of the miners.
Speaker 2:it's on the all-time high, and that's insane, because you often read that. And, of course, if you think about when would you provide your resources to support the system? You would generally do this if the Bitcoin has like the highest price, right, because then you have the highest return.
Speaker 2:But, the thing is, bitcoin is not even close to the all-time high, but the amount of the miners at the max, and I think that's super interesting because it makes the system now basically it's the time where this Bitcoin system is most secure in the last 15 minutes, and I think that's also very interesting to look at. You know, it's not all about criminal activity, waste of energy. It's a super resilient payment system that basically is up and running right for 15 years now.
Speaker 1:Yeah, I always find it interesting when anyone from the feared world talks about Bitcoin being used for criminal activity. When it's an open ledger, yes, you can see where the money is flowing, where you know the status quo from a financial perspective. Things are easily masked or manipulated.
Speaker 1:The most transparent monetary system actually. So that is quite an interesting one. The energy debates a lot of people still think that it has a high carbon footprint. But I always say, compared to what? First of all, because of the nature of game theory, proof of work. It's forcing the miners to find the cheapest source of energy, which is catalyzing an energy revolution for renewable energy sources, whether it's hydro gas, taking the flaring and finding the cheapest source of energy to run the mining for the Bitcoin, which is creating energy sources in areas that typically wouldn't have energy, which is enabling development in those areas that typically didn't have energy. So that is an interesting development on its own, which I could spend an hour just talking about what that's doing to society in decentralizing our energy sources and catalyzing the smart city play or community play in those respective regions, tapping into volcano energy, hydro thermal. So that's an interesting one for me.
Speaker 1:And then, compared to what? So if you compare Bitcoin as a decentralized ledger that's with the likes of a Lightning Network, enables payments across borderless, where people say it takes long, takes a few minutes to process a transaction versus what? So all of the infrastructure in the banking sector to move money? You try and move money from one country to another, you in three days at least, turn around time. You've got so many middlemen and so many costs in between you and that endpoint that you cannot compare the two from an energy perspective, from a lift and shift perspective, to move the same amount of value.
Speaker 2:So people never compare apples with apples 100%, and I also made this statement very often. And the thing is, what's the solution? What to compare it with? So for me it's always to look at different indicators. So I think the closest, for me, the closest comparison that is still best is the one of really mining gold. It's not perfect, because Bitcoin is more than just a digital form of gold, but I personally use it more as a digital store of value and less as a means of payment. But I know lots of other people do. They are use cases about cross-border payments and even if you look at gold, there are also lots of studies out there and depends on the source who sponsored some research. But there are really a lot of studies that say, hey, it's actually similar Gold versus Bitcoin, and sometimes Bitcoin is even better and some also worse. But that's interesting because that goes again into the comparison you just said.
Speaker 2:And one remarkable thing I just observed in Germany is that these energy debate around Bitcoin seems to start to shift a little, so I think in a positive way. So we have seen lots of research and you might have seen this as well. There was one by, I think, mkpmg, one paper by Roland Berger, which was of the positive role Bitcoin can play about ESG. And this is just, I think, about to start, and I have to say I understand that it takes so long, because for me personally, I think it also took one and a half years until I really understood this energy argument, because I was always thinking, yeah, you're right, but, as you said, it's the first time also to have access you to monetize excess energy, and if you think about that, if you get this from the ground like a geothermal energy, this can be a positive thing instead of a negative thing.
Speaker 1:I think it's about 100%, because the energy can be utilized for mining as well as other economic developments is directly proportional to energy availability. Any country you can look at any country. You're an economist. Look at any country that is poverty stricken and their cost of energy. There's a direct correlation or availability of energy. There's a direct correlation between that. So you're stimulating economic activity and the gold, similar to Bitcoin discussion. I kind of laugh at that, because try and move $100 million worth of gold from one country to another. One third of your gold stack is going to be used to secure and transport that gold across those regions, whereas Bitcoin it's at a fraction of the cost 0.0 something percent to move the same value.
Speaker 1:Okay, so back to the timeline. So this amazing invention that is Bitcoin emerges and it's taken a long time, even for you and for myself, if you think about it. Short in the bigger scheme of things, but from the birth to actually starting to play with it, to really understanding it. People are now starting to get to grips with it. The community is growing, but it stimulates a new way of thinking when it comes to monetary policy. You've got Libra, as you mentioned, facebook. Try to create their own currency. That didn't happen. What happened? Do you know why that failed?
Speaker 2:Yes, so I think the main reason was really how? So I think a few things. One is really that Facebook it was not just Facebook, but was a leading part of that and, as you said, it went back to the time where Facebook was heavily criticized for there Cambridge Analytica, what it was. Back in the days I'm always was wondering if, what happened if a very solid company like I don't know, bmw, siemens in Germany said they wanted to do that. I could imagine that this has been, would have gone through. But this is just some kind of scenario I play with in my head.
Speaker 2:But the second thing is really the thing that they wanted to basically reinvent money. So what Libra 1.0 wanted to do is really to establish a coin that consists of a currency basket, or that is a currency basket consisting of other fiat currencies. And if you think about this and you have like a currency basket which has a little bit of a little bit of dollars, a little bit of euros with Franks into that, this can transform kind of a lot of economies because that's super stable. So imagine you would have this form of money, this new coin, available in developing an emerging economies that would drive out all the people from their additional, from their national currency, and, of course, that's something you know, the governments, the monetary authorities, the regulator don't want, did not want.
Speaker 2:So I think it was really the thing, the message hey, we want to reinvent money. And this is also why Libra 2.0, so that was like the updated white paper looked very different, because then they just wanted to do a single currency, stablecoin, what it is called. So basically, you know, a Libra dollar token which is fully backed with dollars, or a Libra euro token which is fully backed with euros, and of course, here the impact is pretty low. Right, because we do have dollars and euros already, just on a different rail, namely as a stablecoin on a blockchain, right? I mean, isn't?
Speaker 1:Astoll trying to wrap my head around the fact and I didn't realize that with Libra that the first version was almost going to be a stablecoin that was aggregated across multiple currencies, given an average cost per coin, which would then be leveraged as a store of value and draft payments. That's interesting. The second option would have been easier to get across because there is a lot of black art and dodgy stuff going on when you talk about currencies and the value of currencies. Post World War II, the United States was made the global reserve currency because it had the most gold reserves and that is what every other currency was Tethered II, and correct me if I'm wrong here. I just find it so interesting that you can be in different countries and there can be such a different value attached to a currency. So there's definite political interest to maintain those variations.
Speaker 1:I mean and you've seen I talk about that House of Cards again the US is in a massive predicament at the moment with the amount of debt that has been printed. So the money printed goes, it doesn't stop. And then you've also got, I think, because of certain actions, a lot of countries are moving away from the petrodollar. They're trying to trade in their own currency. So I think the US, generally speaking, is at risk of being destabilized as a global reserve currency. So I do find that interesting and probably overzealous from Mark Zuckerberg to think that he could even play in that realm, because that's where people just start disappearing or democracy arrives on your doorstep right.
Speaker 2:Yeah, yeah, I think there are a lot of interesting, interesting movements there as well, and I think that they really underestimated the political impact and the kind of the political ness of this topic, because it was not, in the end, about how the stablecoin is designed. I mean, the thing is today what we see in Europe. We have now a stablecoin regulation in place, right, so you could have done this with Libra as well, you know, and then would be regulation that says what you can do and what you're not allowed to do. But I think this impact could have been massive because we know how many people Facebook, how large the Facebook echoes the story.
Speaker 1:They had the audience right.
Speaker 2:Yes, they have the audience. It's billions, you know, in kind of every country. So that would have put you know monetary sovereignty of the countries.
Speaker 1:Well, that would have created their own state. Essentially, Are they not creating their own? There's a term for this and it's eluding me now, but you know where, if you have enough people joining a concept, you're creating a new state. And what is linked to that? Well, it is a platform and there's a currency, so that would have made them extremely powerful politically.
Speaker 2:Yeah, I'm not sure if I would call it state, but from what you say, what you say I agree, I agree. And I mean the thing is also, if Libra had become very large? The thing is it was a stablecoin, designed as a stablecoin, so this means there would have been in the background, there would be, you know, dollar, euros lying somewhere on a bank, there would have been a government, bonds, etc. So, this.
Speaker 2:If this is massive, this would mean also Facebook would become overnight one of the largest, you know, government bonds buying company right and that also would have impact on the financial markets, right.
Speaker 1:Gotcha. So maybe with that, timing is everything and it was a bit premature for people to wrap their heads around that.
Speaker 2:And messaging is very important right. How you message and how you sell things Gotcha gotcha and this currency basket idea. Yeah, I mean, as an economist, I think that's super exciting because that's kind of the stable, the most stable form of money you can have, basically right.
Speaker 2:Because, it's not dependent on one currency, but on a bunch of currencies. So I think it's for stability perspective. It's brilliant. But if you think this and I think this through in a political context, it will just not come through because a few countries need to give away their power when it comes to money, when it comes to influence, right, and that's just not going to happen.
Speaker 1:Yeah, yeah, yeah. I think it's something that the Bitcoin maximalists always kind of hit the same drum, which is separate money and state, and then you'll see the world kind of automatically start rectifying itself. It's one of the key features that people want to see unlocked with Bitcoin, and I think for me.
Speaker 2:Just to add to that, I think for Bitcoin it's super powerful for me because it's a scarce digital asset, so it's a digital goal. It's a new asset class that has emerged and in Europe, as I said, we now have a regulation in place that basically completely regulates this. But personally, it's a good thing because you need some certainty around consumer protection. We see what happens with FTX and all that. Of course, I don't want to compare this to Bitcoin and open that box, because I think you cannot compare, but still, for people, that's crypto and that's crypto, so a completely new asset class is there.
Speaker 2:But, as you said, you can not just use this as a store of value, but also as a means of payment, if you like. But I'm personally skeptical, but it would be interesting to learn from you. I don't think that. I mean. I like the payment use case. For some use cases, like cross-border payments, currently it's super expensive, but I think their volatility currently is really an issue. So I'm currently not seeing that. I don't know. In three years we will pay here in Singapore or back in Germany with Bitcoin instead of Euro or Singapore dollar. I'm not seeing the scenario.
Speaker 1:Interesting point. I think I sit on your side of the fence when it comes to I don't transact in Bitcoin, I'm stacking sats. Bitcoin is my exit hatch from what I believe to be a corrupt, flawed system, and whatever extra money I have, I try and buy Satoshi's and stack them and just hold them. I still have one or two things I need to do to secure it better. I think there's a lot of learning. There's a steep learning curve there, but an important one. I saw an article someone that's quite well renowned in the fraternity that just had 25 Bitcoin stolen from their setup. I've also seen this on crypto Twitter. Yeah, so that's a bit of a scary situation. But to come back to the payments point slowly then suddenly right. So El Salvador has enabled it as a payment mechanism within their border for all retailers and has introduced a national app to provide the infra to make it work. In South Africa, I was very surprised and proud to see this year that one of the biggest retailers pick and pay.
Speaker 1:Yeah, exactly. So on the back of the Lightning network, unlocked that payment capability. However, most South Africans aren't even Bitcoin, I would say, ready or enabled. But the railway is there, right.
Speaker 2:That's super interesting. What you say like this railway and what I could also imagine is that there is a world in a few years, decades, I don't know, I underestimated time.
Speaker 1:Time lines are difficult to predict. It's super difficult.
Speaker 2:Too many black swan variables, so that you see, the Bitcoin network is basically kind of the settlement layer and the value transfer layer in the end, but that people don't even realize that this is used. So what I mean is, for example, if I go to the supermarket and buy my groceries with that I think we do have pretty efficient systems with credit cards even for merchants that's expensive, but for us at retail it's not. So I do see use cases where, in the end, bitcoin is, so the Bitcoin blockchain is used to maybe also lightning, but where prices are still denominated in fiat. Because I don't see this that people start thinking in Bitcoin. So unfortunately it would mean a complete crash of fiat. I'm personally not seeing maybe people see it coming, but this is something. Yeah, why I have this perspective.
Speaker 1:I'm surprised you not seen it and I want to understand why, and why do I have a whole such a different view? I agree, I think the slowly then suddenly comment was exactly to that point, which is the infrastructure is being set up and there's adoption, especially in third world countries. You see a lot of adoption of Bitcoin because they understand the risk of hyperinflation of their currency. You've seen it in Zimbabwe. You see it in countries Venezuela, turkey you know there's lots of countries every year that are having these hyperinflation situations unfold. Their currency devalues, there's a bank run that can't get their money. We have had a few close calls with some of the bigger countries that were once deemed stable.
Speaker 1:I think the UK pension fund was almost margin called I don't know if it was this year or last year. Time moves UK. The US banks are falling off the bus every month, okay, and have kind of been put into a corner between interest rates, bonds, where they have taken their risk and are stuck in a corner. So I really believe there is a house of cards that's unfolded, that's waiting for the next contagion effect that will make 2008 look like child's play, and I think once something like that triggers and as part of what I wanted to get to with you is where has this all going to unfold? Are CBDCs being lined up as the pivot?
Speaker 1:I don't think gold and going back to a gold standard is possible. I don't understand how you would move from the status quo to a gold standard, especially with the value that's being created versus the value that there is, and then there's Bitcoin or other things that might exist in the market. So let's come back to the timeline just to ground ourselves, okay, because we can go down many different branches here. So we see the emergence of people understanding that you can create a digital transfer of money leveraging the blockchain. We spoke about Libra, and we've seen a proliferation of what I call ship coins okay, and people trying to do similar things, but normally it ends in a rug pool. The big one, and the one that I really want to focus on with you now, is CBDCs central bank digital currencies and this is the essence of your work at the moment. So help us understand what is a CBDC.
Speaker 2:So I think that the term itself is pretty good to understand what it is for people that are very familiar with payments and monies. Or it's basically a digital currency, so a digital form of money that is backed by the central bank. So that's all the magic. But of course, you need to go a little bit deeper into that and what this means. So if you look at today's financial system, there is cash, right, cash is still there. I mean, didn't see a lot in Singapore, but in Germany it's still there. I think 50% of payments are still done with cash. So it's a lot. This is around.
Speaker 2:And, of course, there are digital payment methods, digital forms of money around, which is typically the money sitting at the banks right, which you use for credit card payments, apple Pay payments, paypal, all of that. So these two forms of money we have and cash is issued by the central bank. So if you hold cash, this basically means you have a claim towards the central bank, right? So there's a legal claim that you can have this money. This basically in central bank money and for commercial bank money that's different, because what you have with commercial bank money is basically you can go to your bank and can say, I want to get this amount of money, like 10 euros, for example, and want to get cash out of that. So it's basically, and you can basically convert this commercial bank money into central bank money, namely in cash.
Speaker 2:And I'm mentioning that because on paper it looks the same, right, it's both the euro, it's both the Singapore dollar, so that doesn't seem to be a difference. But where the difference is that, as we know, like banks can become bankrupt, right. So I mean, I just had a discussion with somebody in the morning, where the parents are from Argentina, which had this twice in their life that they wanted, want to go to their bank and their money was just not there anymore. Because it's exactly right. So there is a risk that banks that?
Speaker 1:How does that happen, Just for the layman on the street? How does a bank run out of money? Explain that in the most simplistic term for someone that doesn't understand the risk that lies with this, because it can happen to any country and any bank theoretically.
Speaker 2:What is?
Speaker 1:the drivers of that.
Speaker 2:Theoretically yes, and I mean the thing is to respond to this question properly. It would take really a long, long time because you need to understand lots of puzzle pieces, but the easy way because I want to focus on the easy way.
Speaker 2:The easy way is that if that cash, that if you have, let's assume you know people hold with a bank like one billion Singapore dollars, for example, with the bank like as balances right on your bank account. But the thing is that not every euro, the bank does not hold every euro in cash there, right? So typically banks hold depends like 10, 20% of cash with them, right? So if there is a reason or if people go to the bank and want to withdraw their money into cash, they can just do this until the amount you know is basically dried out. Right? So that's like the simplest way. So if a lot of people, for whatever reason, go to the bank, when I withdraw cash at some point in time there is no cash.
Speaker 1:If it's higher than the normal percentage that they hold and fluctuates abnormally to prevent them from replenishing, where do they replenish? From A central bank? In which case do you mean like? So where how does the money flow? Because you have central banks, you have regional banks, so you know, is it a matter of just waiting for more money to be released?
Speaker 2:No, no, no, and this is also why I'm always not the big fan of, you know, the sprinting money, the sprinting money meme, because it's not like that. You know, bank goes to the central bank and said I want money, then the central bank, you know, goes to the basement and prints the money and gives it for free to the bank. That's not what it works. So typically, if a bank wants to get money from the central bank, they approach the central bank, they provide collateral, so they typically you know, for example, government bonds, provide government bonds and then, in exchange for this amount, they get back central bank money, right?
Speaker 1:Okay. So there's a transfer of value and the value is linked to government bonds that are held. So you see these government bond auctions that happen from. So a government has an auction for bonds which guarantees a store of value over a period of time, theoretically assuming people want to buy your bonds and then the people that have bought these bonds transfer these bonds ie banks with central banks to transfer more value in the form of cash.
Speaker 2:Correct, correct, correct. And the thing where all these fiat comes in, right? So fiat is typically used as a term that, like I think it's from Latin. You know that you can basically create money out of thin air, right? So that's what this means and where this comes in. And again, it's a little bit more complicated, but I try to explain this in simple term is that if you go to your bank and want to get a loan, right, what the bank typically does it creates this money digitally, right? So they say, okay, you want a loan of one million. They just basically, from a balance sheet perspective, they increase their asset and liability side with this amount, but the thing is they need to have a specific amount of money that needs to be backed by the central bank.
Speaker 1:So some form of collateral?
Speaker 2:Some kind of collateral right. So this means, you know, if you get like a loan of one million, typically depends on the country, but it's like one percent. It was also sometimes five percent of the money that needs to be backed with central bank money. So this means it's like it's not true. If you say it's not backing, it's not backing, it's not backing at all, right. But again, it's one percent of this right and what you can do is, from the 99% you can further, you know, lend this out again, right. And from this 99, you need again to deposit one percent with the central bank, right. So this is why this also called multiple money creation, because you can basically leverage this. And this is, you know, where the main criticism of the system is coming from in terms of the money system, the global debt is how many?
Speaker 1:300 trillion? There's a number that always gets thrown around and I always say okay, but oh to who? And create it from where Right, which is to this principle.
Speaker 2:Yes, and the thing is always, if they are debt, you know they are always people that it's not money that you know just has been created, but there is always a person you know who has borrowed the money and one person has the claim on that right. So it's kind of a it's kind of in balance kind of. But of course, the where an issue can arise is if you think about government bonds. Right, like in the US, for example, you can issue government bonds to finance, you know activities, infrastructure, buildings. For me I would say all good to do that, but you need people that buy the government bonds, correct.
Speaker 1:And this is the debacle that they're in Is that right now, no one wants to buy US-backed government bonds?
Speaker 2:Well, I would challenge this a little, because currently interest rates are so high that I think a lot of people buy American bonds currently.
Speaker 2:Because it's super attractive in terms of interest rate, but where I agree and that's exactly what I mean, and the timeline, I don't know. But if there is the scenario that the interest rate goes down and really nobody wants to buy government debt and this can be US, it can be Singapore, this can be Europe then of course you have an issue, because you cannot, you know you cannot, as a state, make more debt, if it's maybe even for a good reason, you know so I don't know, to build schools, but you need the supply and the demand right.
Speaker 1:So I mean, this is where my head starts breaking, so bear with me if I ask really mundane or stupid questions. Yeah, okay, so good time to buy government bonds. Interest rates are high Sounds good. Interest rates are high because they've been printing money relentlessly, which they've used for quantitative easing. Okay.
Speaker 2:I would explain a little bit different. I would say you know, interest rates currently in the US are high. I mean because they wanted to fight inflation, right.
Speaker 1:But inflation is caused by printing of money.
Speaker 2:That's what the Bitcoin community typically says. I don't fully believe in this story and if we look into the recent increase of the prices, you can. For me, this is like across the relationship. You see, this is related to the war in Russia and Ukraine. So you've seen that the main reason, the main driver, was energy prices, which came up. So you can say, you know, on a long run, this is also related to the money creation of the central bank could be. There are studies showing in this direction, studies that showing the other direction, but the main reason for this increase was really the war, because it was like energy and food prices.
Speaker 1:But I would challenge that and I would say that pre the Ukraine war, 80% of the dollars ever printed. Let me get this right. I'm going to butcher this now. There was a statistic that came out, which was pre Ukraine, where the US had printed 80% more money than in the last two years, than it had in the last 200 years. Okay, surely that has a disastrous impact, because you devaluing your currency or you're not devaluing your currency when you do that.
Speaker 2:You do. But when is it becoming an issue for the people? It's becoming an issue when the purchasing power is becoming more.
Speaker 1:Purchasing power, the ability to buy a house the ability to so inflation Inflation it's directly proportional to inflation. We saw this with the Romans, right, it's the same thing that happened with the Romans. The fall of the Roman Empire, many would argue, was linked to them devaluing their currency and how much of their is it? The denieria, actually, was made up of actual steel, and they kept reducing it, reducing it, reducing it. Eventually, people didn't believe in the currency, which had a knock-on effect that affected that entire civilization.
Speaker 2:The same. So we are agreed that the main issue for the people is not that the money, like from people like Louis and I. Right, the main issue is not that the money supply skyrocketed substantially, but the main issue is inflation. Right, because with the money supply and I mean again, I don't like this story of printing money because there is always some kind of collateral, even if not fully backed. But the thing is also again here you have supply and demand.
Speaker 2:So if the central bank stick to the terminology prints money, you need on the other side people that demand this money, and this was mainly or were a lot of banks. So this money was primarily sitting with banks, but it was there. So it didn't reach the real economy, so it didn't reach the citizen, it didn't reach the main of the markets, I mean you could say somehow the real estate market, because prices are insane. So asset markets, yes, maybe, but this money printing did not really fully transition and fully reach the real economy. And this is why I'm with this causal relationship. I'm very cautious. There might be some effects, for sure, also for some reasons you elaborate on, but I would say the main reason is really the supply shock we have seen, related to the war, which has brought us a higher inflation due to energy and food.
Speaker 1:If I asked you to explain to me in business terms the US economy. If that was a business, how would it still be alive? How is the US able to be $30 trillion in debt but still be sending billions to Ukraine, to Israel, to fund wars? How logically is that possible and how is it that they can still? If that was a business, that business would fold, would it fold a long time ago. So explain to me like a simpleton how does this, any of this, make sense, in your mind at least.
Speaker 2:Well, I would say that generally it's related again to supply and demand. So as an economist, that's the answer for kind of anything. I'm just kidding. So I mean the US. If the US wants to get more debt, they can just issue government bonds. And I said just, people continue buying it. So all good, let's say, but do those?
Speaker 1:bonds actually hold value If that was a business. If those, let's take US out of the picture. Yeah, and I say that's company X. Company X is 30 trillion in debt and in the last month I added another trillion. That curve is just going straight up. Okay, they are printing more money to create more debt to help other companies. But please buy my company shares. Would you buy those shares?
Speaker 2:I personally would not buy the shares. I know what you mean and I know that this sounds kind of crazy and I'm also a person that I say I don't think that this can go on forever, but it definitely goes as long as people are willing to buy to finance the debt. And what I and I would really be interested in on your perspective, because I know, or it seems, you have a very strong opinion on that is, isn't it of? Let's think about the COVID situation, and I also think that generally, that these that the banks need to, you know this minimum reserve, what I mentioned I think it's way too low, so I think it should be higher, so that way more money is secured. So, generally, I think we are aligned.
Speaker 2:What I often thinking and I'd like to challenge Bitcoiners for that and would like to see what you think it's just if you think about COVID, right, and for us, in Germany, you had lots of support programs, right, Some people that got unemployed, and in Germany the impact was pretty, pretty smooth because the government stepped in really substantially right, and in other countries it was, they were dependent on tourism, it was even more severe, Disastrous, I mean.
Speaker 1:South Africa tourism, restaurant industry declined by 70%. Hard lockdown for over a year Alcohol wasn't allowed to be sold. I mean, it was just an absolute bloodbath, yeah.
Speaker 2:And in this scenario I'm just often thinking because that's often what you know Bitcoin standard, where everything is, you know, where we just have Bitcoin scarcity, or a form of money that is bound to Bitcoin. I understand the argument about scarcity, but I still think that you need for some reasonable scenarios, you can define what this means, but you need some kind of intervention to not have the situation you know to, that you have a total increase in unemployment, which would be like, for example, you know, for society, a big issue. So I mentioned that because I think, with a very hard currency, you don't have any room for intervention, which is kind of a good thing, but don't you think that in some situations it's good?
Speaker 1:to be. Let me ask the question like this then, because I see where you're going and I think it's a good question Do you think COVID would have been handled the way it was handled if we were tethered to hard money? No, why? Why? Because you can't just print money, which means that you can't just stop the bus. You can't just negatively impact everyone's lives, you can't take away their livelihoods.
Speaker 2:So you would have said you know, if we had, if before COVID we had like a system that is not based or doesn't look like that, then you know they would be more relaxed or wouldn't have done any of these measures.
Speaker 1:I think and this is my humble opinion, I think that the fiat system has become a cancer that has infected people's ability to think rationally, and what I mean by that is that when you are in power and you know that you can just print money, you will just print money. There is no Any president that has tried to come in and even thought of rectifying that will immediately be taken out of office. Why? The easiest option is to print money. Don't deal with the issue. Raise the debt ceiling, print the money and this is the same point I raised earlier In the past, to fund a war, you would have needed to.
Speaker 1:If you go right back, silver, then gold. When you ran out of gold, what did the government have to do? It had to tax and recall the gold from its citizens. What happens to that leader when he starts doing that? He's removed from power immediately and that war will stop. And that principle applies.
Speaker 1:If you look at the world today, it's absolute chaos. Why? Because you can just print money, you can go into perpetual war. If you look at the graph of money printing across presidents and when they come in and you cross, correlate that to wars, you can see a very clear picture, and I think that principle would apply to something like COVID you asked. You were going to ask me maybe how I would have dealt with COVID.
Speaker 1:I don't think government should have allowed people to lose their jobs the way they did. I think that the rational and thinking was distorted by the concept of being able to provide stimulus, checks and pay for people to sit at home and do nothing, whereas if it was the converse, a harder decision would have been made, which is who needs to stay at home, who continues to work, and I think that's where the world has become very warped and that's why we need to go back to a hard form of money, because it will clear up a lot of the cancer that's infected the minds of the people that are in power, because they're making the easier decision and it's not always the right decision.
Speaker 2:Yeah, it's definitely an interesting angle. I mean, I think as an economist, I think in theory there are a lot of arguments can be made, I think, for this case, but still, we have seen it in practice for a limited amount of time and it was also different time. So what I'm saying is that I think often you don't know about all the single details. You know it's. Why am I saying that? I'm saying that it's you know you should have somehow and maybe you know there is a country that is doing that have an environment where you see what this really means to have this right, because I think, well, we've got it.
Speaker 1:I'll solve it all.
Speaker 2:Yeah, but it's just one form of legal tender and it's a flop.
Speaker 1:It's not a flop. It was considered a flop, but if you look at their bonds and if you look at the current financial sentiment from the major financial players towards a Salvador, it's positive sentiment.
Speaker 1:Yeah, and the development it was considered a flop and the IMF and everyone was on you know Naib Aliike, the president's case and threatening him and all sorts of weird stuff was unfolding. But he's broken the mold, he's broken the narrative and he's pinned their currency and invested as a country into Bitcoin. And as Bitcoin improves, so does the El Salvador nation and its people.
Speaker 2:I think, generally the outlook for El Salvador, and it was it. Definitely, you know, he needed to have lots of courage to do that because I remember that the IMF and everybody was like you know, are you sure what you are doing?
Speaker 2:And even like threatening him. You know that, hey, maybe you know you don't get another loan from us if you do this. And still he did so I think that a lot of courage and also, I think recently the rating for El Salvador was improved, so showing that El Salvador is more solid than before. Why I'm saying it was a flop is basically I had a few people, a few friends, being to El Salvador actually twice, and it was just one conference last week. And the thing is that if you look at numbers, like how many payments, for example, have been made, there was a very high increase in the beginning. It went down and it's almost marginal, and they even told me from there, so I haven't been there.
Speaker 1:You're talking about the actual usage of Bitcoin as a form of.
Speaker 2:In El Salvador for payments.
Speaker 1:So really this by the people.
Speaker 2:Exactly, and I would go to the bar and pay with that. And also, when friends of mine have been in El Salvador, one year ago, they said like approximately 50% of the shops had accepted it, and when they were there last year it was less again. So I'm just saying a flop here, and flop is maybe too sharp and not fully fair, but the curve was definitely not going like that. It was rather going like that. But and I think that's also interesting that you mentioned I think it's great. It has had a very positive effect.
Speaker 2:Also, if you think about tourism, because there are now lots of also like Bitcoin tourists coming to that, and I think if you look at numbers for tourism, this has increased a lot, not just for Bitcoin, obviously, because there was COVID, so it's also very challenging counterfactual right. So, long story short, I think Bitcoin has had an effect, but if you look just at the payments and also the general knowledge level in El Salvador, I think that it wasn't the best start. But, what's also interesting, they do have some kind of programs to bring this to schools in El Salvador. And these are the things I think it's great and it's a good thing.
Speaker 2:But around general payments. I'm just a little bit skeptical that the potential would say the potential has not been reached.
Speaker 1:And that's a fair point. I don't know enough about the stats to talk to with confidence. I think that it's a great testbed that has been put there for us to observe and watch. I'm seeing similar things starting to happen in other countries. In South Africa We've got Bitcoin Ecasi. That has set up in George, which is along the coast. It's doing educational programs with the youth, so it's very exciting to see more and more of this narrative being introduced to educate the youth, to help them understand value and the core principles that come with Bitcoin.
Speaker 2:And this education is so important because, if you think about it and I think it was similar for us when you first hear about Bitcoin, you just say you know. You just say this cannot be true or good.
Speaker 2:So you say, you know, you say that needs to be a scam or whatever. Then you go down the rabbit hole and then, over the years, you increase trust in that and think you know, wow, this is rock solid. But how long did this whole journey take? You know, a lot of years, I mean.
Speaker 2:For me, I think, like initially, like two or three years, and if you have people with an we, I think we have open mindsets, right. If we think about innovation, we are open and maybe also a little bit of skeptics or, you know, supportive of things like gold, you know so, which is basically going against mainstream, let's say, and if you don't have that, this even takes longer. So this is why I think this education is really key, because, also, if you think about and some people say, you know, why didn't have? You know, all the banks are now going into Bitcoin custody and you know all the peace, peace doing that, and why is not everybody doing lightning, and all we see is investing into lightning. All of that because it really takes this at least I don't know five years, 10 years of understanding right, and that's a great point, I think.
Speaker 1:I concur with you. I think that it has taken a few years to really get to grips with the technology and, as a continuous learning process, it's interesting to see the developments. A lot more banks are offering on ramps for their customers now to utilize Bitcoin as a store value. You've got all the ETFs that are waiting for approval by the SEC and, old Gary, you know, preventing that from happening, but you know, when the black rocks the grayscale, I think it is, and all the big boys are trying to create ETFs to enable their customer basis to access Bitcoin through that mechanism. That means something right and it's going to be an interesting journey to watch, for sure.
Speaker 2:And how did we come from CBDC to all the way to? I'm going to loop us back to CBDCs.
Speaker 1:I think Bitcoin's overshadowed in the whole discussion, so I was just going to course correct there and I'd like to go back to CBDCs. I would like let's start on the positive side. What is the benefit of CBDCs and how can they help the everyday human? What is the mechanism? What is the intent? How do central banks, governments intend to use CBDCs?
Speaker 2:So first it's important to understand that for every country this is different. So every central bank has a different goal with that, has a different approach, a different design than mine, so I cannot respond to that for all the countries in the world. So it's really jurisdiction dependent generally.
Speaker 1:And there's no central general consensus at some level.
Speaker 2:Not really. I mean, you could say rather, maybe there is some general consensus when it comes to developing an emerging market economies versus advanced economies. So if you look into developing an emerging markets economies and let me focus we're talking about retail CBDC, so basically a CBDC that is kind of cash available for everybody. We are not talking about wholesale, which is just for banks, because I think that's you know, that's completely different. So we are focusing now as retail CBDC and then developing an emerging economies do often have payment systems that are not super efficient and this is why, actually, four central banks have already introduced the CBDC globally, which is three ones in the Caribbean Bahamas, jamaica and Eastern Caribbean currency union. So you know these three jurisdictions and Nigeria and Africa.
Speaker 1:Let them go so on.
Speaker 2:Yeah, that's a fact, that's a fact, but they generally, generally, generally, there are different goals they wanted to achieve with that, but one goal was always payment, payment efficiency, because, for example, in these island nations, they had payment systems that were very heavily dependent on banks. You know, when banks were down for some reasons, they needed to have another payment system, you know, that can handle these transactions. So that's an important reason. Also, they wanted to increase a financial inclusion with a CBDC basically, which is easily accessible with a digital wallet, you know, backed by the central bank. And that is the reason why these countries stepped ahead, because they just have payment systems that are not super efficient, and I personally do see a value of a payment system that is provided by the central bank, that you need to have such an efficient system in place. Generally, you know to be payments with banks, to have this as part of the payment system. So I do see that.
Speaker 2:So that's the one side, but the other side advanced economies. Here, the use case and the benefits are, of course, different, and that's also very often why people ask you know which problem are you solving? And from the central bank side, again, it's also focused maybe on the euro area. The ECB says also that the resilience argument is important. So currently heavily dependent on foreign providers when it comes to credit cards, for example, all US, and they have also seen how easy it is to exclude specific countries from payment systems. Right, you can see, for good reasons or bad, are you?
Speaker 1:referring to Swift.
Speaker 2:Yeah, I refer to Russia and Swift Right and that you see how easy it is generally to cut a country off.
Speaker 1:Yeah, right, and that's something which is disconcerting, I think, for a lot of countries. Exactly, it's like a scene as a political weapon.
Speaker 2:Exactly, yeah, Exactly. And I mean also as a country, you don't want to be a country that is cut off right, Because who decides what is good or bad?
Speaker 1:right and those I mean. That, I would say, is probably the causality. That mechanism has been flexed once too often for political agenda by the powers that be on the West, and now you've seen the emergence of BRICS and a complete I would want to use the word revolution or pivot away from Swift for that very reason yes, for these countries, yes for sure, and I mean also very interesting how this BRICS, how this will develop.
Speaker 2:But focusing on CBDC, this is definitely one reason, and I think from a central bank perspective and also from a political, from a state perspective, this, for me at least, makes sense to have a payment system like this generally in place. The thing is also this can be a CBDC, where you have a new form of money issued. That would be like the CBDC case. But this could also be that just the central bank builds the payment system without a new form of money being moved. Okay, so one question, to put it very easily if you build a payment system, just a payment system, or if you build a payment system with a new means of payment?
Speaker 1:So, if I can, pause, I suppose, like to your point. Different countries will introduce it differently. We saw a bit of a disastrous rolling out of CBDCs in Nigeria. My layman understanding is CBDCs were kind of pushed in trying to pivot the populace away from hard currency to help migrate them to CBDCs, which is digital currency. Okay, they limited the amount of actual money that you could withdraw from the banks, the currency. That resulted in a lot of economic blockages or challenges and resulted in riots within Nigeria and I think that whole CBDC program has fallen flat on its face. As a launch, did I get it right?
Speaker 2:Well, I think they are still proceeding, so it's still. I think it hasn't been shut down or something like that Maybe just changed the amount of current.
Speaker 1:They still got the currency with the CBDC. Yes, okay.
Speaker 2:I think this hasn't changed from a project perspective and it's also still live.
Speaker 2:But I agree, I mean, there was a lot of decisions that have been weird, let's say and I, for example, if somebody would introduce a digital currency and would limit how much cash I can withdraw, I would be furious, and this is also why countries like Europe want to learn from that. And even on the same day where the EU Commission published a regulatory proposal for the digital, which was set down the legal groundwork for that, on the same day, they also started an initiative to also basically foster the role of cash, so that this is basically clear to the public, that it's not about abolishing cash or something which I personally believe, because I think cash will be around as long as people will need it and if people not need it is the wrong word but until people will stop using it. Basically and this is, you know, this were the reactions in Nigeria and you have seen, in other countries actually also there the adoption was pretty, pretty slow. So I think in Bahamas it's 1% of money supply, so it's not a lot, and this also goes back. What's the 1%?
Speaker 2:The CBDC? Yes, yes, yes, yes, yes, so 1%.
Speaker 1:And for CBDC to work. What is the? Is it the same way we currently operate with our phones? I mean, what are we waging in? It's just an additional app, or is it an interlock into your existing digital apps, like your banking app, your Apple Pay?
Speaker 2:So it depends on the country. For Euro and for a potential digital Euro, it would be both. There will be an loan app and it will be integrated in your banking app, and there might be even the way that you have some kind of a card, some kind of a prepaid card you can use.
Speaker 1:So this is separate to a banking card. It's a CBDC card. Yes, okay.
Speaker 2:It's just different payment, yeah, payment.
Speaker 1:What would be the difference between? So, if my money gets paid into the bank, where does does it change where my money gets paid to or where I receive money? No, I mean for now it doesn't change.
Speaker 2:I mean, there are some cases where some countries you know pay, try it out paying. You know salary in the public sector in CBDC. Then you just have it in the CBDC wallet and not in the other wallet. Or if it's integrated, it's actually in the same app but on a different account, let's say. But that doesn't make a lot of a lot of difference.
Speaker 1:And this is also. Wouldn't that disenfranchise all the banks? Because the banks make interest of your money.
Speaker 2:No, so yes and no.
Speaker 2:So one reason I wouldn't say banks, but if you talk about payment service provider more broadly, it can be yes, because the ECB is also doing this to to get more independent, as I said, from foreign entities, right, and this means countries, but also private sector companies like credit cards.
Speaker 2:Right, yeah, and this is a good, a good thing, let's say, because they are basically after the market shares of these PSPs. But for banks, to be honest, I don't see a major impact because of the current design that has been proposed. And the current design which has been proposed is that banks will be involved in the process of distributing CBDC, of onboarding customers to CBDC. So this means there is not a direct customer relationship between the central bank and you as an end customer, but it always goes via your bank. So they get some kind of money for that right. And the second point is there is a limit on the maximum CBDC holding for a citizen. Why? Because not to endanger financial stability, so that people, you know, don't, in times of financial distress, don't convert their money overnight from the bank account into CBDC, which would put banks or could endanger financial stability.
Speaker 1:I just want to pause there, so just say that last part again. So a individual will be limited on how much they can hold at any given point in CBDC to prevent large swings between hard currency and digital currency.
Speaker 2:What do you mean with hard currency, like cash, like cash? Or it's basically to prevent swings from digital commercial bank money into CBDC, so that you would go to your bank and said I don't trust my bank anymore because there are some issues and, as I said before, right, it can?
Speaker 1:become bankrupt. That's happening in the US now between regional banks, central banks, which ones have insurance, which ones don't have insurance.
Speaker 2:Kind of, I mean, this was also a bank run. Basically that happened and this is why, for CBDC, they want to limit this, because if you could just basically, by clicking your app, you know, convert all your savings money on your bank account into CBDC, this would mean for banks, this liquidity could, you know, be removed kind of immediately at any time, which would put the banks under, you know, immense pressure.
Speaker 2:It's a form of a bank run. Exactly, it would, yes, okay, yes. So it would in this situation, or could facilitate a bank run in this situation. This is why they are about to introduce limits on this convertibility between your money on the bank account and the CBDC, which is central bank money.
Speaker 1:So to sum up, what is the benefit of CBDC then?
Speaker 2:Yes, so for countries, what I mentioned, right so have an own payment system that is independent and again, I see a value for that.
Speaker 1:Yeah, so it's independent of SWFT. You have your own payment system. I agree with that, correct.
Speaker 2:And for the citizen needs to be seen. So the thing is where benefits are for the CBDC. On the cost side is for merchants, Because merchants today pay a lot of fees to Mastercard, PayPal, I mean to these companies, so here they can have an advantage. But for end users and that's also the stories that we are often saying or where we are pushing it's not so easy to see a benefit because in countries where the payment system is efficient.
Speaker 2:So if you have again other economies that are not so progressed and where it's difficult to pay, where a lot of financial exclusion. There could be a benefit. And for Europe and that's always what we also discuss substantially it needs to have some value propositions compared to the digital forms of money we have today. And two things that come to mind to me actually in this context are, as an economist are like, the things that the market hasn't provided until today. So I think a good I mean a good CBDC would need to address some market gaps that the private sector did not fill out. And there are basically two things from my side. One is payments that can work online and offline. We didn't see this in the private sector. The private sector could have done this, so it's not a matter of technology, but we don't see that. So that could be a reason why you say the public sector might need to step in. There are times where we are going more and more digital.
Speaker 2:And the second thing is a topic of privacy.
Speaker 2:Actually, you know, I think, what CBDC can improve, so I'm sure we will discuss that, because why could this be a benefit in terms of privacy?
Speaker 2:We don't have today a digital form of money in the fiat world, let's maybe say, which has a high degree of privacy or which guarantees privacy a lot, because if you pay, for example, today with your credit card, with your bank transfer, the bank always knows who you are, who you send the money to, how much, probably even what you bought with that, so it's really low privacy.
Speaker 2:And what a CBDC can do actually and again can it depends on the design. It can be designed in a way that it's some form of digital cash, so it has the privacy features of cash being brought into the digital world right, so have a higher privacy than any other fiat related digital payment method we have today. And this is, I think, a very interesting advantage a CBDC could bring. And this is again why I say and this also was actually one part of my research from my PhD time where we showed how this can be done technically but again, it's a question of design and of political will if you want that. But if you ask me, that could be a benefit a CBDC could have for a citizen.
Speaker 1:I think that it's landed. I would almost want to scratch it to understand how that happens, but I don't want to go down that rabbit hole because I just want to kind of zoom out a bit. So benefits to pivots away from Swift clear, agreed 100% on board Benefits to remove the middlemen and all of the unnecessary fees agreed. The lack of benefits to the end user. Concerning the example of providing more privacy, is an interesting one, although it doesn't make sense. But, again to your point, comes down to the architect, which is linked to political will in the respective country, where nine times out of 10, if not 10 times out of 10, it's not about enhancing privacy for citizens. Which leads me on to the challenging of the CBDC.
Speaker 2:So you say in theory the privacy argument makes some sense, but you think politically this will not come from.
Speaker 1:I don't think that governments. I think they want more visibility, more control. It's just the nature of the beast, yeah.
Speaker 2:Directly to that, because we do have in Europe an interesting case, that we know what the central bank and the politics wants to do about privacy, because there has this regulatory proposal out there and what the ECB is now doing for the Titcha Euro again, and this is important to mention, the ECB is currently in the so-called preparation phase of the project. Ecbs, sorry, the European Central Bank, okay.
Speaker 1:So I was in my European charter.
Speaker 2:But they are in the preparation phase of a CBDC, but it hasn't been decided if a CBDC will be introduced. So it's just, it's not set in stone. That's just important to understand. And if a CBDC would come, it would be maybe three or four years just to set the scene and come back to a timeline Same privacy, dcb and also the EU Commission, basically as the political body to that.
Speaker 2:What they said how the Titcha Euro will look like is there will be two variants. One is an online Titcha Euro which you can use for online payments, which has the same privacy as similar privacy as online payments today. So not an improvement, right? And there will be the offline Titcha Euro, where you can obviously pay offline, which has higher privacy guarantees. So this, for example, means when I sit here and want to pay you, I just, for example, tap my phone on yours, or if I'm in the store, I just tap the phone, as we see with lots of payment system. But importantly, it's settled offline and there is really no trace back to the central bank. And if I say no, like no trace, no tracing back for the central banks, basically ensured by cryptography and secure elements, so not that the central bank says I'm not collecting that and you can say, well, you can say whatever you want, but that the technology is set up in a way that you just cannot access transaction details.
Speaker 1:At some point. So that sounds very attractive, that ability to have peer to peer value transfer that is anonymous, but at some point there would need to be an online validation of the ledger and that would then be done through cryptography. What you're saying, if I'm hearing it correctly, it would be done through cryptography, not necessarily convey. It would need to convey where the value is gone from A to B, but not who A is or who B is. Is that what you're saying?
Speaker 2:I mean, that's to be honest, we don't know yet how the settlement in particular would work, because we don't know the tech provider, but that would be one way. And the other way would be and again, an analog to cash If you have your online digital euro wallet and you basically put the money into your offline wallet, right, this is similar to cash. So you go to the ATM, you get cash, you have cash in your hand, right, and then you spend the digital euro offline with people, right, you spend back and forth, back and forth, and at some point you deposit the rest again on your online wallet, for example. Right, so the cash you didn't use you bring to the bank, for example, right, and then this would be the situation where, also, the bank would know the balance you were having, but they don't know what you spent your money in the meantime. So that's kind of the analogy to the cash payment today.
Speaker 1:And, theoretically, someone that you've engaged with could be receiving lots of value in that form. That would go back to their bank and have a higher value that they arrive at the bank with. But the bank's not going to ask where they got the value from.
Speaker 2:Exactly, exactly, that would exactly. Yes, so period, but there is always a but there will be a limit on these payments because they are obviously anonymous. So this also means, if you think about money laundering, terrorist financing, it's a very high political agenda.
Speaker 1:Okay, so there's going to be caps. There will be a cap, yes.
Speaker 2:And we have no idea yet how this cap look like. So the ECB is currently talking about a general cap, and this is not the cap around privacy, but the cap around absolute holdings, what we talked about before. Right, so that you cannot put all your bank money into CBC. They suggested 3,000 euros, but just as an initial kind of anchor has been set, so they also say it's not set in stone. It's just the amount that an average European person holds in cash and this is why we use this right, Just for now. So this also hasn't been set in stone, but it gives some kind of indication if we are talking about hundreds, thousands, 10,000, 100,000, but for this privacy preserving one we don't know Obviously it needs to be below.
Speaker 1:So I think you just gave me the perfect segue into my concerns for CBDCs. So in theory sounds great, but the concerns that I have, based on my limited knowledge around CBDCs, is exactly that the ability for a centralized body to tell you how much you can spend, what you can spend it on theoretically. But they can do that Well, there's a cap.
Speaker 2:Okay, yes, but not on what you spend on, like they can say you know, you can buy cigarettes.
Speaker 1:Again architect the ability to switch things on and off digitally.
Speaker 1:Okay, so we saw with the trucker strike in Canada what Trudeau did with the money that was being sponsored to help those people that were protesting against their right to work, and how the Canadian government came in and blocked not only the bank accounts but, you know, had more severe penalties all the way upstream for the people that even supplied it. Now, in a world where we live in a CBDC world, theoretically that could be done at the flip of a switch, the typing in of a name. You could limit someone geographically as to what they can spend where they, how much they can spend where they can spend it, what they can spend it on. Now this is more the dystopian kind of concerns around CBDCs, to the point where if you're a bad actor or a perceived bad actor in the system, if you're speaking out against your respective government that's in power at that point in time, that that CBDC could be a control mechanism that can fundamentally remove your rights and limit your ability to move, to transact and to operate.
Speaker 1:If you think about the ability of cash, in that same example you gave, someone can give me a million dollars of cash and the bank does not need to know about it and I could live with that million dollars for as long as I need to spend it where I need to, and it would be very difficult to trace it. It's traceable if we know where the million dollars came from and that's linked to that ledger. But there's a sense of freedom with cash that still exists.
Speaker 2:at some level it does, and I have to say I'm the biggest fan of cash, so I pay everything what I can today in cash.
Speaker 1:Interesting. You're the guy that's designing the CBDCs.
Speaker 2:No, no, no, I'm personally not involved.
Speaker 1:I mean you're I'm picking my words wisely, Maybe you can fill the gap. But I want to say you evangelizing or helping to educate.
Speaker 2:I have. Yes, I help to educate and, as I said, I think we discussed this before. I also started with being very optimistic about CBC and seeing a very good use case, because I also believe that it makes more sense to have my money in a central bank account compared to a bank account, because it just has less risk. But with this limit, this use case is basically cut off, and I do see myself and probably for you it might not sound like that, but rather in the middle or even on the pessimistic side, because currently we just talked about facts, so we didn't really talk a lot about what I think. But I think cash has a very important. It's super important for society when it comes to privacy, when it comes to financial inclusion, about censorship, resistance, anything. So, as I said, I hope when I die one day, cash is still around and I can still pay with cash. So I think that's super important and I mean all what you sketch around that the government can surveil you. They can restrict specific payments. They said, hey, you had three beers already this month, so the fourth? Nah, it's too much, we don't want you to that.
Speaker 2:In theory, you can have this with a CBC Period. You can have this with every payment system there. So it's not just about CBC the thing. The question is if this will happening. And if we look at the current CBC projects, we also see that none of the projects the central bank has insights into the payment data. It's always just the commercial bank, and this is exactly the same as for the digital payments today and also the ECB. Now, and the regulator also said that this programmable money, how it's often called, that it's restricted for specific uses will not be implemented with CBC because, also, if you think about the architecture they have in mind, it cannot be implemented because they don't have access to data and for the offline one, you cannot link this to previous purchases because it's anonymous. So it's just not possible.
Speaker 1:So there's the upper cap that kind of nullifies that yes.
Speaker 2:And you could, and that's a valid point, and we have seen this with a non, not much you can do a 3,000 euros.
Speaker 1:And again, if it's 3,000 euros, over what period? Because if they choke it to say it's 3,000 euros, Typically it's like an account, a maximum account balance. Maximum account balance. Okay so, but then if you deplete it to new, then you top it up again. How many times can you do that? Yeah, okay, there's an unusual trend. Yeah, eomarku Zonian, you're the outlier, what are you up to? And you know, it becomes a With the limit.
Speaker 2:I generally agree, because we have also seen in Europe there is so-called like anonymous e-money, so you can imagine like you can buy a prepaid card where money is stored on top of that, which is kind of, I think, pretty unique in this context, and also the limits for that are going down, down, down you know.
Speaker 2:So it was 250, now it's a month, now it's 150. And there are even some countries that want to get rid of that completely. I mean, the discussion is a bit so Long. Story short, I agree that the limit can be a tool that is lowered, lowered lowered Right.
Speaker 1:You've even seen it with cash right when you go and try and draw, and it's not in all countries, but I've seen more and more stories like this. If you move cash around or if you try and withdraw a large sum of cash, all of a sudden your bank's interrogating you which is what is this money for? And you have to answer like a list of questions and you're like hang on a second, this is my money. Yeah, I'm going to give you to get my cash. So you know, it's such a financial sovereignty, digital sovereignty, and I suppose maybe the question I want to kind of run this up with is CBDCs enhancing digital sovereignty or weakening it.
Speaker 2:That depends, okay. The architect.
Speaker 2:That depends on so many things. Yeah, it depends, of course, on the architecture. I mean, and this is also what we did in the proposed I had part of my PhD thesis, so what we basically did there is we suggested a variant where you use, basically, where you basically use zero knowledge proofs, you know, like cryptographic innovations in the sense to really not record some data at the first place, but also nobody can use this data against you, right? So if you have a payment, it's not that I say I send money to you and it was 100 euro, but it was like I just prove that the balance, the money you received, is the same that I send, right by zero knowledge proofs, basically right.
Speaker 2:And secondly, we said it's important to have these components also open sourced, because everybody can check right, don't trust, verify. So I think if you had a system like that, where you could also have a way, you know, for self custody with a very high limit for anonymous payments, I would actually say this would as long as cash is around. So another dependency. This could really improve sovereignty. But you see lots of ifs and when, gotcha and uncertainties obviously.
Speaker 1:No, I respect that response. I think that's a fair, balanced response and it's the ifs, it's the architecture, it's the ownership of that architecture. And my biggest fear and it's a cycle that repeats throughout history is money, power, tolerance that hijack a society, a government and use those as mechanisms to be tolerance. It just freaks me out a little bit.
Speaker 2:Okay, yeah, it really goes. Also, what I learned is a lot is really what driven a lot of you know the opinion about this topic, about what you generally think about, about politics, right, and if you, if you trusted, yes, no, a little because, if the answer is no, then you will not be a fan of a CBDC, because you also say, well, this is designed now, but they can change this in five years, Right, and who guarantees me that?
Speaker 2:And there is no good response to that. I personally have a little bit more trust in the governments. I'm like you know where I'm living, so I'm I have more trust. I also would say I don't have unlimited trust, and I mean this is obviously also why I'm also a fan of Bitcoin and why I don't think these, you know, need to contradict each other and even stablecoins. We didn't talk about them today, but I do see a really you know, a world where all these coexist and the great thing is now, compared to 15 or 20 years ago, we always do have Bitcoin also there as an outside option for payments, right?
Speaker 1:Such a good point where you trust the government on your side of the fence in Germany, and I think that that's a fair statement now. But if I look at Europe holistically, there's a lot of right wing political power that is emerging unabated. And how would a right wing party that is like full hard right wing that comes into power leverage this type of technology? That's the burning question.
Speaker 2:Yeah, that's a really good question and for this digital euro is also important to understand that if you change the design, you know, let's say, for now it comes in a form that preserves the privacy that if you change this, it's not the central bank then can change the design. That's important because that's always what Bitcoin has things you know, the central bank president has changed and now they do this completely different. That's just not the case. That's not the governance, and what needs to happen is basically that the European political bodies so parliament, council and commission need to agree on this substantial change. So they basically would need to change laws for that, and that's again here. Again is the question how likely do you think this is and I personally think that this is rather unlikely a to have all the European countries agreeing on that at least 50% plus the three bodies that this is the way to go. But again, I understand everybody who's skeptical and just has a different prior on this likelihood.
Speaker 1:I would have agreed. The older version of me would have agreed that that would be unlikely. This version of me that sees what's happening in the world when it comes to false flag events being used to manipulate emergency powers. You know, I didn't go down the rabbit hole on COVID, but I kind of gave you a taste of my perspective and look at how much power was taken by governments during COVID which hasn't been given back emergency powers. So in theory you're right. You know that's.
Speaker 1:What makes Bitcoin so resolute is that it's in its true essence, decentralized. And many people have tried to come into Bitcoin and try to change the block size and we think of the block wars or try to do a hard fork to a different version of Bitcoin or whatever it is, and they can do it. Anyone can come into Bitcoin now and you can branch off and say this is my new Bitcoin for Europe. But if the core consensus, the masses that are driving the proof of work, don't agree to it and don't allow it to happen, it can't happen. And that's kind of the principle you're leaning on for CBDCs, which in theory is sound, but I think if it's not decentralized enough, it's still at risk because you just need some real radical behavior to unlock in several European countries that evoke a state of war and emergency powers and resolutions to mitigate it by flexing a financial mechanism like a CBDC to choke anyone that is considered or deemed a terrorist and all of a sudden, everyone has to comply.
Speaker 1:Everyone would jump onto CBDCs thinking it was God's gift to Earth to make it easier to live in the digital age. No more loose money, actual currency exists, then what? Then you stuck. You stuck in a dystopian nightmare that is going to be extremely difficult to break out of. So that's the concern. I do see the benefits on some of the use cases you've mentioned for sure, and I think it's always good to try and balance our thinking and let's see where it goes. I want to quickly loop back, maybe make it a bit more fluffy. It went a bit dark there, but let's just loop back to your broader economic view and what is your take on the current financial system, the global financial system? How do the chips fall with everything that's unfolding and I know you can't give a silver bullet answer but in your professional opinion, what should people be doing? How should they prepare? Where should they put their money? What should we expect in the next 24 months.
Speaker 2:The next 24 months. Timelines are, of course, always hard and, of course, no investment advice. The typical disclaimer applies, so I really struggle with doing more research. Concrete developments I'm seeing, because I think they're. It's just so dependent on all the things and there is just super much stuff going on, but I'm just very optimistic and we talked about this as well and it's nice to talk about the optimistic things as well. It's just all the developments we see around Bitcoin, so be it like the currently, I think, 12,.
Speaker 2:a Bitcoin spot ETFs application sitting with the SEC, which is definitely bringing the space forward, and this, together with regulation when it comes to custody things like that. I think these two things, the new asset class having financial products of that and regulation is, I think, really massive for the whole ecosystem and for the whole industry and this is why I'm perfect also, together with the halving next year and for Bitcoin, pretty optimistic when it comes to Bitcoin.
Speaker 1:I mean, this is the pot of the rollercoaster. If you've been stuck in sets, this is the exciting part, right? I mean, we're in that zone just before those God candles kick in for the halving, so I'm quite excited to see what happens there, and I've been preparing for this moment. Yeah, I agree with you. Yeah, yeah, that's a question. Can a CVDC theoretically be built on top of the Bitcoin blockchain layer?
Speaker 2:So in theory, yes, and there are also discussions and I also had this with a few people, you know to enable the Lightning Network to do this. So can this be done? Yes, will this be done? No, why?
Speaker 1:not. Yeah, because that's the crux of the issue right there, because it's decentralized. Yes, you see, that's my concern with CVDCs and you see this, you had like a contingent of political people that went to your Salvador to understand Bitcoin and the first thing they did when they went back to their respective countries, a lot of them were like we're going to create our own digital currency. We're not going to use Bitcoin. Why? Because they cannot let go of the power, the money and the power is too intoxicating. And the same principle applies with leveraging Bitcoin. Is that, actually, if you built on the backbone of Bitcoin, you could leverage the decentralized power of Bitcoin to drive the purest fundamental philosophy that you want to unlock? There's so much innovation waiting to happen on top of Bitcoin. You just need to be pure in your thinking of what you actually want to achieve with it.
Speaker 2:Yeah, but the thing is also from a central bank. I mean, now I try to be a central banker for a second and I would think about the use case that I would like to achieve with the CVC system and I would live in my bubble in my home territory for years. I also I wouldn't stick with a new technology. 15 years is new. I mean. We know it worked. We talked about uptime perfectly, but still I wouldn't use this as the underlying infrastructure for a payment system. For you know what is it? 500 million users. So just from the central bank perspective.
Speaker 2:So, interestingly, I also had a podcast episode with a colleague from, or with a person from, the Swiss National Bank where we talked about, you know, if a CVDC should come, how, what the benefits would be to have a permission. Less, you know blockchains would would. The CVC would be based off around. You know innovative use cases around. You know interoperability, things like that, and there are some central banks that looked into capabilities like that, but they really don't want to give away. You know that's and this.
Speaker 2:This would be interesting for for me to get your perspective on, because one of the the the reasons why some companies are still hesitant when it comes to permission, less infrastructures is how can you guarantee me that the you know, like a North Korean person, whatever has not validated my last block Right. And that's really a point, because where regulation kicks in, you need to, you need to guarantee that this is not the case. But technologically you can't. I mean you can, you can say you know, either it's unlikely, you know, you can talk about statistics, but that's, I think, an interesting argument to think about with the, with the, with the fiat perspective, which is now, interestingly, also less and less become a deal breaker, let's say, but which is a concern when you comply with regulation, you know that says you need to take care of that. Hmm.
Speaker 1:It is both the conundrum, but also the superpower of Bitcoin is that you could have a North Korean that would validate the block, but that's all he's doing. There's nothing more. It's not. He's been rewarded for driving the compute power to validate the block. He's not seen the transaction or influencing the transaction or the ability of the transaction to a transpire. So in that respect, it actually doesn't pose a threat. But it is a paradigm shift to allow that to happen. It within a financial construct, but that's also what makes it a superpower, and if people could wrap their heads around that, then you providing a decentralized capability for validation that removes centralized authority, which is neutral right.
Speaker 2:So it doesn't care who you are and I totally appreciate this feature as well but again thinking just when you, when you're sitting as a banker, you know, and then you need to you need to do everything.
Speaker 1:It's really power. Exactly. It's like it's unfathomable for banker to think like that or to even allow something like that.
Speaker 2:Yes, I mean because they need to limit, restrict money laundering listed to finance, and in this way you can talk about terminology, but you would support the person, right.
Speaker 1:I mean that would still have the vision, they could still see the transaction.
Speaker 2:Yeah, but you would support a criminal, so you would hand over 6.25 Bitcoin if he minds it, you know. So don't get me wrong. I agree that this neutrality is a feature.
Speaker 1:You're rewarding someone for working within your ecosystem that theoretically doesn't meet your regulatory framework.
Speaker 2:And that's like an issue for such people.
Speaker 1:Good point, so interesting and yeah. So any final takeaways or thoughts that you would like to share. You know, from an economist standpoint, any calls of wisdom that you still want to share already so much wisdom. Just kidding.
Speaker 2:What I think is very important is two things. One is really education around all these topics and this is also why I really appreciate the invite and I always like to be challenged and, as I said, I'm not on the spectrum, you know, with CVDC maximalists. There I see myself really as trying to educate as objective as possible, and then you can still disagree with some of my or, a click again, can have your own interpretation and what you do with it. But at least we need to have fact-based discussions and in Europe it's almost impossible also with crypto, twitter to have fact-based discussions also when it comes to CVDC. So I always invite, you know, people from all sides with all interests to discuss, to engage and not just, you know, to post memes on memes on Twitter, but I don't know, engage with the politician you know in your local area to be beat about CVDC, be about crypto. So be involved. You know, not just complain, but do things. I like. That that's very important for me.
Speaker 1:I think that's a great piece of advice. Support that.
Speaker 2:And the second thing and this goes also a little bit back into you know, kind of the threat fire and these players, but also regulators, if you have an open mindset when it comes to innovation In here we talked around zero knowledge proofs, for example, with CVDC, privacy and handshake technologies.
Speaker 2:Right, and I think we are super still super early there.
Speaker 2:Right, because if we think about zero knowledge proofs, it's like just a cryptographic tool which can enhance your privacy, which is 40 years old. 10 years ago it has been, you know, come to practice with Ccash and now also more and more regulators understand why this can be useful. So, for example, when you do your KYC, know your customer process, you're not sharing clear data with anybody in this context, right, so your name, your date of birth, your nationality, but, for example, you just share a proof when you access, you know, an exchange that you are KYC or approve your older than 18, you know or approve you're not on a sanction list and this, this proof, thinking around compliance and around also all kind of authorization. I think it's really groundbreaking and I'm saying this because also the company at Tonec I'm working for we are very deep into this privacy preserving technologies because, as I said, I'm a privacy loving guy, so I pay everything with cash and we have now also the opportunity to bring this privacy into the payments world, also in the industrialized world, with this innovations. So you all should be, you know, open for innovation if you are in the space and, you know, want to bring your use cases or the economy forward.
Speaker 1:Amazing. Well, I think I'm personally grateful to have someone such as yourself out there doing the work that you do. You know just. I can tell from the discussion today that you're a perfect representative. I think you have very balanced thoughts in the space. I think that the fact that you understand Bitcoin and appreciate it, and that you still have such a strong belief in privacy is important. I couldn't agree more that the community, specifically the Bitcoin community, should get more involved, because they tend to hold very pure form of thinking, although they can be quite toxic in maybe how they come across. There should be. I would encourage everyone to be more constructive.
Speaker 1:Yes To leverage the technology to create the world, bring us all forward. Yeah, I think that's what we want to see. So, yeah, thank you. I do appreciate the work that you do and I really hope that you find traction in helping to shape the future and that if we do unlock CBDCs, that it has the right architecture and that you put in a failsafe that no one knows about that when they try and use it for the wrong reason, we can circumvent it. But, yeah, thank you so much. Do you want to give a quick shout out to your podcast and where people can find more information about you?
Speaker 2:Yes, yes, for sure, so I'm hosting also podcast. Unfortunately is in German, so I don't know if the target audience here, but if German people are listening. It's called Bitcoin, fiat and Rock and Roll.
Speaker 2:So I think, pretty good to remember, and also feel free to follow me, be it on LinkedIn or on an X, because I'm really posting a lot when it comes to crypto, when it comes to Bitcoin, when it comes to CBDC, so also use this to educate people around this, because so much noise is happening. So if this is our interest for somebody, then please feel free to follow or reach out.
Speaker 1:I always appreciate discussions what's the podcast about Bitcoin, fiat and Rock? And Roll. Bitcoin, fiat, rock and Roll. Ladies and gentlemen, could not have come up with a better title.