Bonus: The Crypto Story by Matt Levine- Part 1

Listen to the first audio excerpt from this week's special issue of Businessweek magazine, The Crypto Story.

Bloomberg columnist Matt Levine uses the full issue to explain where crypto came from, what it all means, and why it matters.

This episode is voiced by Bloomberg Businessweek Editor Mark Leydorf.

See omnystudio.com/listener for privacy information.

Episode Transcript

Speaker 1 (00:03):
This is Bloomberg Crypto, a daily Bloomberg I Heard podcast,
and I'm Stacy Marie Ishmael, Managing editor of Crypto for
Bloomberg News. Let me cut to the chase. Matt Levine,

(00:28):
my colleague on the Bloomberg Opinion side of the house,
is perhaps the greatest finance blogger ever to do it,
and in what is both a flex and a service,
He's just written tens of thousands of words on the
subject of crypto for a special issue of Bloomberg Business Week.
Matt's gone deep into the blockchain to break down its origins,

(00:49):
it's possible, futures, and the current state of a technology
that's showing up everywhere in industries ranging from finance to
shipping too, of course video games. And we're going to
be bringing his exploration to you in audio form thanks
to the talents of Bloomberg editor and professional voice actor
Mark Ledoff. You'll get weekly chapters of the special Crypto

(01:10):
issue of Bloomberg Business Week, written by Matt Levine, narrated
by Mark Ledorff, coming to you each Sunday through December eight.
And now here's the first chapter of the special audio
edition of the Bloomberg Business Week Crypto Issue. The crypto Story,

(01:42):
Where it came from, what it all means, and why
it still matters, by Matt Levine. One ledgers, bitcoins, block
chains part a life in databases. Modern life consists in
large part of entries in databases. If you have money,

(02:03):
what you have is an entry in your bank's database
saying how much money you have. If you have a
share of stock, what you have is generally an entry
on a list kept by the company, or more likely
some central intermediary, of who owns stock. If you own
a house, things are slightly different. There's a house involved,
but your ownership of that house is probably written down

(02:25):
in some database. In the US, this often means there's
a record of you buying the house, your title in
a filing cabinet in the basement of some county clerk's office.
It's not a very good database. In many ways, the
important thing here is the house. You have a key
to the front door, your stuff is there. Your neighbors
will be unsurprised to see you leaving the house in

(02:48):
the morning, and would be surprised to see someone else
coming back in. But in many other ways, the important
thing is the entry in the database. A bank will
want to make sure you have the title before giving
you a mortgage. A buyer will want to do the
proper procedures to that record before paying you for the house.
The key will not suffice. Plus lots of other stuff,

(03:10):
Much of modern life occurs online. It's not quite true
that your social life, and your career and your reputation
consists of entries in the databases of meta platforms and
Google and Microsoft. But it's not quite false either. Some
of this stuff has to do with computers. It's far
more convenient for the money to be computer entries than

(03:31):
sacks of gold or even paper bills. Some of it
is deeper than that, though. What could it mean to
own a house? One possibility is the state of nature.
Owning a house means one you're in the house, and
two if someone else tries to move in, you're bigger
than them, so you can kick them out. But if
they're bigger than you, now they own the house. Another

(03:54):
possibility is what you might think of as a village.
Owning a house means you live there, and your neighbors
all know you live there, and if someone else tries
to move in, then you and your neighbors combined are
bigger than them. Home Ownership is mediated socially by a
high trust network of peers. A third possibility is what
you might think of as a government. Owning a house

(04:16):
means the government thinks you own the house, and if
someone else tries to move in, then the government will
kick them out. You don't need to live there, because
the government's knowledge is sufficient. You can rent out the house.
Someone else can move in with your permission. If you
revoke the permission, you can go to the government and
it will subject to landlord, tenant law, etcetera. Kick the

(04:37):
person out. Home Ownership is mediated socially by a government.
The database is a way for the government to keep track.
You don't have to trust any particular person. You have
to trust the rule of law. Money is a bit
like that too. Sacks of gold are a fairly straightforward
form of it, but they're heavy. A system in which

(04:59):
your trusted banker holds onto your sacks for you and
writes you letters of credit, and you can draw on
those letters at branches of the bank run by your
bankers cousin. That's pretty good, though it relies on trust
between you and the banker. As well as the banker
and the banker's cousin. A system of impersonal banking in
which the tellers are strangers and you probably use an

(05:22):
a t M anyway, requires trust in the system, trust
that the banks are constrained by government regulation, or reputation
or market forces, and so will behave properly. Saying that
modern life has lived in databases means most of all,
that modern life involves a lot of trust. We trust

(05:42):
the keepers of the databases. Sometimes this is because we
know them and consider them to be trustworthy. More often
it means we have an abstract sense of trust in
the broader system, the system of laws and databases and
trust itself. We assume that we can trust the systems
we use because doing so makes life much easier than
not trusting them, and because that assumption mostly works out.

(06:06):
It's a towering and underappreciated achievement of modernity that we
mostly do trust the database keepers and that they mostly
are trustworthy. Part B, What if you don't like it?
Section one Distrust. We don't always trust them, and they're

(06:28):
not always trustworthy. Sometimes they just aren't. There are banks
you can't trust to hold your money for you, and
places where you can't trust the rule of law to
regulate them. There are governments you can't trust not to
seize your money from the banks, or falsify election results,
or change the property registry and take your house. There
are social media companies you can't trust not to freeze

(06:51):
your account arbitrarily. Most people in the US most days
live in a high trust world, where it's easy and
reasonable to trust that the or mediaries who run the
databases that shape our lives will behave properly. But not
everyone everywhere lives like that. Even in the US, trust
can be fragile. The two thousand and eight financial crisis

(07:12):
caused huge and lasting damage to a lot of people's
trust in the banking system. People trusted banks to do nice, safe,
socially productive things, and it turned out they were doing wild,
risky things that caused an economic crisis. After that, it
became harder for many people to trust banks to hold
their savings. Also, though you might have a philosophical objection

(07:35):
to trust, even if your bank has an absolutely unblemished
record of keeping track of your money, that might not
be good enough for you. Your bank is to you
a black box. How do I know you'll give me
my money back. You could ask the bank, and the
bank will say things like, here are your audited financial statements,
and we are regulated by the Federal Reserve and ensured

(07:57):
by the Federal Deposit Insurance Corps. And we have never
not given back anyone's money. And you'll say, yes, yes,
that's all fine, But how do I know you don't?
Trust is built into the system a prerequisite. You might
want proof. This is probably a modern desire, or at
least a desire that's more intense and easier to satisfy

(08:20):
in modern times. In a world without the Internet, without Wikipedia,
without links, without open source software, et cetera, you had
to take a million facts on faith every day. What
were you going to do? Look them all up? Section
two compose ability. Even if you're generally cool with trusting

(08:44):
the keepers of modern databases, you might have a more
technical objection. These databases are not always very good. Lots
of the banking system is written in a very old
computer language called cobal. In the US, people still frequently
make payments electronic transfers between electronic databases of money by
writing paper checks and putting them in the mail. The

(09:07):
US stock trades take two business days to settle. If
I buy stock from you on a Monday, you deliver
the stock, and I pay you on Wednesday. This isn't
because your broker has to put stock certificates in a
sack and bring them over to my broker's office, while
my broker puts dollar bills in a sack and brings
them over to your broker's office. But because the actual

(09:28):
process is a descendant of that, it's slow and manual
and sometimes gets messed up. Lots of stock trades fail.
Don't even get me started on the property registry. If
you buy a house, you have to go to a ceremony,
a closing, where a bunch of people with jobs like
title company, lawyer mutter incantations that let you own the house.

(09:50):
It can take hours. If your model of how a
database should work comes from modern computers, the hours of
incantations seem insane. There should be an ap I. You
might think. There should be an application programming interface allowing
each of these databases to interact with the others. If
your bank is thinking about giving you a mortgage, it

(10:11):
should be able to query the property database automatically and
find out that you own your house, rather than send
a lawyer to the county Clerk's office, and it should
be able to query the Department of Motor Vehicles registry
automatically and get your driver's license for identification purposes, and
query your brokerage account automatically and examine your assets. Modern

(10:31):
life consists of entries in databases. What if we updated them?
What if we rewrote all the databases from scratch in
modern computer languages, using modern software engineering principles, with the
goal of making them interact with one another seamlessly. If
you did that, it would be almost like having one database,

(10:51):
the database of life. I could send you money in
exchange for your house, or you could send me social
reputation in exchange for my participate patient in an online
class or whatever, all in the same computer system. That
would be convenient and powerful, but it would also be scary.
It would put even more pressure on trust. Whoever runs

(11:14):
that one database would in a sense, run the world.
Whom could you trust to do that. We'll be right
back with more from Bloomberg Business Week Special Crypto issue
written by Matt Levine a narrated by Mark Ledoff, partsy

(11:41):
Digital Cash. What if there was one database and everyone
ran it? In two thousand and eight, Satoshi Nakamoto published
a method for everyone to run a database, thus inventing crypto. Well,
I'm not sure that's what Satoshi thought he was due ing.
Most immediately, he was inventing bitcoin appear to peer electronic

(12:04):
cash system, which is the title of his famous white paper.
What Satoshi said he'd invented was a sort of cash
for Internet transactions, an electronic payment system based on cryptographic
proof instead of trust, allowing any two willing parties to
transact directly with each other without the need for a
trusted third party. If I want to buy something from

(12:26):
you for digital cash bitcoin, I just send you the
bitcoin and you send me the thing. No trusted third
party such as a bank, is involved. When I put
it like that, it sounds as if Satoshi invented a
system in which I can send you bitcoin and nobody
else is involved. What he actually invented was a system
in which lots of other people are involved. Section one,

(12:52):
Before we continue a digression, What are you even reading?
Why are you reading it? And why am I writing it? Hi?
I'm Matt. I'm a former lawyer and investment banker. Now
I'm a columnist at Bloomberg Opinion. In my day job,
I write about finance. I like finance. It's fun to
write about. It's a peculiar way of looking at the world,

(13:13):
a series of puzzles, a set of structures that people
have imposed on economic reality. Often those structures are arcane
and off putting, and it's satisfying to understand what they're
up to. Everything in finance is a created on top
of a lot of other things. In finance, everything is
weird and counterintuitive, and you often have to have a
sense of financial history and market practice to understand why

(13:34):
anyone is doing any of the things that they're doing.
Now back to Mark Lidorff, a professional actor who, lucky
for us, also happens to be an editor here at
Business Week. Thanks Matt. For the past few years, the
most polarizing thing in finance has been crypto. Crypto is
a set of ideas and products and technologies that grew
out of the Bitcoin white paper. But it's also, let's

(13:57):
be clear, a set of lines on arts that went
up when Satoshi invented bitcoin. One bitcoin was worth zero dollars.
It was just an idea he made up. At its
peak last November, one bitcoin was worth more than sixty
seven thousand dollars, and the total value of all the
crypto in circulation was something like three trillion dollars. Many

(14:21):
people who got into crypto early got very rich, very fast,
and were very annoying about it. They bought Lamborghinis and islands.
They were pleased with themselves. They thought crypto was the future,
and they were building the future and being properly and
amply rewarded for it. They said things like have fun
staying poor, and in g M, I not gonna make

(14:45):
it to people who didn't own crypto. They were right
and rich and wanted you to know it. Many other
people weren't into crypto. They got the not entirely unjustified
impression that it was mostly useful for time or for
Ponzi schemes. They asked questions like, what is this for?

(15:05):
Or where did all this money come from? Or if
you're building the future, what is the actual work you're doing,
Or if you're building the future, why does it seem
so grim and awful? And the crypto people often replied,
have fun staying poor. And then this year those lines
on charts went down. The price of one bitcoin fell

(15:28):
below twenty dollars. The total value of crypto fell from
three trillion to one trillion dollars. Some big crypto companies failed.
If you're a crypto skeptic, this was very satisfying, not
just as a matter of schadenfreude, but also because maybe
now everyone will shut up about crypto and you can
go back to not paying attention to it. For crypto enthusiasts,

(15:52):
this was just a reason to double down on grinding.
The crash would shake out the casual fans and leave
the true believers to build future together. In a sense,
it's a dumb time to be talking about crypto because
the lines went down, but really it's a good time
to be talking about crypto. There's a pause, there's some repose.

(16:14):
Whatever is left in crypto is not just speculation and
get rich quick schemes. We can think about what crypto means,
divorced a little bit from the lines going up. I
don't have strong feelings either way about the value of crypto.
I like finance. I think it's interesting, and if you
like finance, if you like understanding the structures that people

(16:35):
build to organize economic reality, crypto is amazing. It's a
laboratory for financial intuitions. In the past fourteen years, Crypto
has built a whole financial system from scratch. Crypto constantly
reinvented or rediscovered things that finance had been doing for centuries.
Sometimes it found new and better ways to do things.

(16:58):
Often it found word sways heading down dead ends that
traditional finance tried decades ago with hilarious results. Often it
hit on more or less the same solutions that traditional
finance figured out, but with new names and new explanations.
You can look at some crypto thing and figure out
which traditional finance thing it replicates. If you do that,

(17:21):
you can learn something about the crypto financial system. You can,
for instance, make an informed guess about how the crypto
thing might go wrong. But you can also learn something
about the traditional financial system. The crypto replication gives you
a new insight into the financial original. Also, I have
to say, as someone who writes about finance, I have

(17:42):
a soft spot for stories of fraud and market manipulation
and smart people putting one over on slightly less smart people.
Often those stories are interesting and illuminating and especially funny.
Crypto has a very high density of stories like that,
and so now I write a lot about crypto, including

(18:04):
quite a lot right here. I need to give you
some warnings. First, I don't write about crypto as a
deeply embedded crypto expert. I'm not a true believer. I
didn't own any crypto until I started working on this article.
Now I own roughly a hundred dollars worth. I write
about crypto as a person who enjoys human ingenuity and

(18:25):
human folly, and who finds a lot of both in crypto. Conversely,
I didn't sit down and write forty words to tell
you that crypto is dumb and worthless and will now
vanish without a trace. That would be an odd use
of time. My goal here is not to convince you
that crypto is building the future and that if you
don't get on board, you'll stay poor. My goal is

(18:47):
to convince you that crypto is interesting, that it has
found some new things to say about some old problems,
and that even when those things are wrong, they're wrong
in illuminating ways. Also, I'm a finance person. It seems
to me that fourteen years on, crypto has a pretty
well developed financial system, and I'm going to talk about
it a fair bit because it's pretty well developed and

(19:09):
because I like finance, but no one should care that
much about a financial system. A financial system is well
a series of databases. It's a way to shovel around
claims on tangible stuff. It's an adjunct to the real world.
A financial system is good if it makes it easier
for farmers to grow food, and families to own houses,

(19:32):
and businesses to make awesome computer games. If it helps
to create and distribute abundance in real life. A financial
system is bad if it trades abstract claims in ways
that enrich the people doing the trading but don't help
anyone else. I yeh uh. A salient question in crypto
for the past fourteen years has been what is it

(19:54):
good for? If you ask for an example of a
business that actually uses crypto, answers you'll get are mostly
financial businesses. Well, we built a really great exchange for
trading crypto. Cool, Okay. Sometimes these answers are plausibly about
creating or distributing abundance. Crypto lets emigrants send ribittance as

(20:15):
cheaply and quickly. That's good. Often they're about efficient gambling.
Gambling is fun. Nothing against it, But a financial system
that was purely about gambling would be kind of limited. Meanwhile,
crypto's most ardent boosters say, crypto is about building real
useful things. Crypto will redefine social relationships and gaming and computers.

(20:38):
It will build the metaverse. Crypto is the vital component
of the next leap in the Internet. Crypto will build
Web three to replace our current Web two. Maybe if
you ask for an example of a business that actually
uses crypto, you'll get a ton of real lucrative financial businesses.
Then some vague theoretical musings like, well, maybe we could

(21:01):
build a social media network on Web three. It's still early.
Maybe someone will build a really good social media network
on Web three. Maybe in ten years, crypto and blockchains
and tokens will be central to everything that's done on
the Internet, and the Internet will be even more than
it is now central to everything that's done in human life,

(21:22):
and the crypto early adopters will all be right and rich,
while the rest of us will have fun staying poor,
and school children will say, I can't believe anyone ever
doubted the importance of doge coin. I don't want to
discount that possibility, and I do want to speculate about
it a little bit maybe sketch a picture of what
that might mean. I'm not going to give you a

(21:43):
roadmap for how we'll get there. I'm not a tech
person and I'm not a true believer, but it is
worth trying to understand what crypto could mean for the
future of the Internet, because the implications are sometimes utopian
and sometimes dystopian, and sometimes just a modestly more efficient
based layer for stuff you do anyway. Plus the finances

(22:04):
cool and it's cool now. Coming up next, you'll hear
more from Matt Levine's special Crypto issue of Bloomberg Business Week,
narrated by Mark Leadoff. Section two a second diggression, Names

(22:28):
and people. Before we go on, let me say some
things about some names. First, crypto, this thing I'm writing
about here, there's not a great name for it. The
standard name, which I'll use a lot is crypto, which
I guess is short for cryptocurrency. This is not a
great name because one, it emphasizes currency, and a lot

(22:50):
of crypto is not particularly about currency. And two it
emphasizes cryptography. And while crypto is in some deep sense
about cryptography, more people in crypto or not doing a
ton of cryptography. You can be a crypto expert or
a crypto billionaire, or a leading figure in crypto without
knowing much about cryptography, and people who are cryptography experts

(23:13):
sometimes get a bit snippy about the crypto people stealing
their prefix. There are other names for various topics in crypto.
Blockchain tokens, web three defy the metaverse, and they're sometimes
used broadly to refer to a lot of what's going
on in crypto. But it's not like they're great either,
so I'll mostly stick with crypto as the general term. Second,

(23:37):
sa Toshi Nakamoto. That's a pseudonym, and whoever wrote his
white paper has done a reasonably good job of keeping
himself herself for themselves pseudonymous. Ever, since there's a lot
of speculation about who the author might be, some of
the funnier suggestions include Elon Musk and a random computer
engineer named um So Toshi Nakamoto. I'm going to call

(24:00):
Satoshi Nakamoto Satoshi and use he him pronouns because most
people do a related point other than maybe Satoshi. Basically,
everyone involved in cryptocurrency is a hilariously outsized personality. It's
a good bet that if you read an article about crypto.
It will feature wild characters. One story in Bloomberg Business

(24:22):
Week last year mentioned sending billions of perfectly good U
S dollars to the inspector Gadget Co creators Bahamian Bank
in exchange for digital tokens conjured by the mighty ducks
guy and run by executives who are targets of a
US criminal investigation. Except this one, there won't be a
single exciting person in this whole story. My goal here

(24:43):
is to explain crypto so that when you read about
a duck guy doing crypto, you can understand what it
is that he's doing. Thank you Matt Levine, and thank
you Mark Ledoff. As a reminder, if you're looking for
these episodes in the Crypto Feed, will be publishing them
every Sunday through December. If you'd like to read this

(25:03):
issue in print form, you can head on over to
Bloomberg dot com slash the Crypto Story. This is Bloomberg Crypto,
a daily podcast from Bloomberg and I Heart Radio. For
more shows from I Heart Radio, visit the i heart
Radio app, Apple podcasts, or wherever you get your podcasts.

(25:24):
Send us your comments, questions, or suggestions. For the show
to Crypto at Bloomberg dot net or find us on Twitter.
We're at Crypto. The supervising producer of Bloomberg Crypto is
Vicky Vergalina. Our senior producer is Janet Babin. Our producers
are Mohammed Faruk and Sharon Barriro. Our associate producers are
Ty Butler and Moses on Them. Desta wonder At is

(25:47):
our engineer. Original music by Leo Sidron. I'm Stacy Marie
Schmal We'll be back tomorrow the a in Astan at
the y sid