The Crypto and Crime Connection

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[00:00:00]So rightly so, Americans were disgusted by the financial system. So that's a really important piece of the story leading to crypto as well.

[00:00:08]>> It's essential because in October of 2008, uh, this thing called the Bitcoin white paper is released on this cryptography mailing list. This small list of cryptographers that communicate with each other. And the white paper is just lays out the sort of intellectual foundation of Bitcoin, both the cryptography, but also the sort of like, you know, the goals. What are we trying to do here? So, it's the height of the subprime crisis. People are so angry at the banks, like even more than usual.

[00:00:35]>> And what the white paper proposes is, wouldn't it be cool if we could avoid these [ __ ] who have screwed us >> and just transact directly? Like, why can't I just like send something of value to Dax and he sends it back to me?

[00:00:48]And like, >> sounds like a good idea, right?

[00:00:51]>> And it's built on this new technology, blockchain. Well, that's what's interesting is it's it's newish, but it's not really that new. Like, blockchain goes back >> to 1991.

[00:01:01]>> Uh, there were these guys, we're going to get real dorky here. We can do this, right? Let's go dorky. So, blockchain, I would say, started with uh Stuart Haber and Scott Stronetta at Bell Labs building off the work of cryptographers like David Chom, who I interviewed for the book. There had been this idea of like trying to do sort of encrypt encrypted money, money that would ultimately be very useful to be able to transact online. And so they were building off a thing called public key encryption which basically allows us to buy stuff online um without our credit cards being hacked, right? It sort of encrypts the data.

[00:01:34]>> The data's got to travel from me and my computer to the bank and another >> bank and then to the merchant and then like both every there needs to be a record of this, but we also don't want it to be public so that people can rip you off. Um, so public key encryption is actually vital to our our modern economy. Um, but blockchain had been around since 1991 and the Bitcoin white paper didn't come out till 2008.

[00:01:53]>> So it had been sitting there for 17 years and no one had really done that much with it. And even Bitcoin when it came out as obscure mailing list like you know very very few people these are like really hardcore cryptographers cryptographer nerdy cryptographers or whatever. I guess all cryptographers are probably nerds in some way. website that would love. But um so it's very obscure and like it really didn't have a use case. The problem was like well >> sure I could like I it's sort of like always sunny in Philadelphia like I could give you a piece of paper that says it's a dollar but like why is it actually a dollar right just cuz I say it is like what's giving it value right which is sort of about what money is but anyway they were there was nothing >> that could be bought with this stuff called Bitcoin. Mhm.

[00:02:36]>> Um there's a famous story of a guy buying two pizzas with 10,000 Bitcoin, you know, >> now it's worth $9 billion.

[00:02:42]>> Yeah. Whatever. You know, and that shows you how like worthless it was at the time. The first use case was crime. The first use case was buying drugs and other things that were illegal on the Silk Road, which was this dark web uh drug marketplace where you could also order assassination attempts and stuff like that. Or the the guy that ran it tried to um to like an FBI agent or something. And anyway, it got shut down by the feds. Um but crypto proved like oh because what a blockchain is is just a a ledger of transactions. It's just a record. They're like this they call them wallets. This uh wallet uh sent something of value to this other wallet.

[00:03:20]Um but it's synonymous like it obscures the identity of who's sending what to whom. It's not anonymous. Like if you can figure out who owns what, then you have a whole record of every transaction they've ever made potentially, but it is synonymous and there's also other ways of obscuring it.

[00:03:38]>> Yeah. I think we should attempt to make a really good faith argument for all the appeal of it when it first presented itself and that was one of them. So it was pitched as completely anonymous.

[00:03:47]>> It was it was it was pitched as anonymous, but it was also just like don't do to me the crypto story is quite simple, you know, in the in the sort of the broadest sense. It's like it's two parts. The first is do you hate our current system?

[00:03:59]>> Right.

[00:03:59]>> Every single person raises their hands.

[00:04:01]Right. Right. We all have different reasons, whatever. But and the second part is Bitcoin fixes this. It's become a meme because it's like such a such a ubiquitous argument, right? Um and and then it gets more nuanced obviously as people sort of articulate different reasons why they believe in it. But that really is like the essence of it to me.

[00:04:19]And it was it's insessional to to to to remind ourselves it was sold to us initially as a currency.

[00:04:26]>> Yes. Yes, it was. And it and it and it did operate that way, but as a black market currency, right? As a currency for drugs.

[00:04:34]>> I mean, it was at the time it was also like marijuana. And so, just to be perfectly clear, I love marijuana. Like, I have a medical card. Like, I'm not knocking drugs. Yeah, >> you were also buying much harder drugs and doing stuff that was much worse than that, including like child sexual abuse material and like all sorts of really gnarly stuff, but that was the use case.

[00:04:53]It was crime, uh, you know, facilitating transactions, uh, for for criminal activity. And then it kind of languished, you know, like it was kind of just sitting there. Um, interestingly enough, like a person who came, we only found this out recently, but interestingly enough, after the SOCO crashed in 2015, um, Jeffrey Epstein stepped in and secretly funded what's called Bitcoin core development, which is the group of programmers that maintain Bitcoin's operating system. Um, yes, there are people behind this like supposedly, you know, computerized future. There's always people.

[00:05:28]>> And um, and he was secretly funding it through a thing called the MIT Media Lab.

[00:05:33]uh because he was already a registered sex offender and they didn't want that to be public, >> right?

[00:05:38]>> Um so it's always had crypto has always I I don't think that anyone's being who's being intellectually honest can claim that the crime is just some sort of like you know it's only a tiny piece of it. It's never been that important to it. Like I really don't think that's honest if you look at the history >> and of varying degrees of illegality. So another thing is like taxes. So yes, uh it was say a child pornography. Yes, these are bad people. But then the person who's already paid income tax and state tax and uh they decide I don't know why I have to pay another 50% tax to give this to my children. I'd like to get this money somewhere else without the US government. Sure, this could be a system by which I could do that and no one can see it or be involved in it.

[00:06:23]>> Totally. And let me give you maybe even a more sort of morally compelling argument I was listening to. So, so what crypto can do is it can send something of value instantaneously anywhere in the world and avoid the regulated system including the banks.

[00:06:36]>> Um, and so I was hearing a story of a woman in Afghanistan who cannot get banking under the Taliban because she's a woman. And so she's running a business and she's paying her employees in crypto and she's running her business in crypto. I don't I don't >> personally know this person. I don't So this was secondhand, but I have heard similar stories.

[00:06:53]>> Yeah. Yeah.

[00:06:53]>> So we can all agree that's a good thing, right? Like we like that. Um, and we can get in later we can critique like are those arguments true and if Bitcoin's so volatile that it's not stable so does it actually work that way >> but in premise >> the premise is and so when I say crypto can only be used for speculation which really is gambling because you're not really speculating on an asset of any value in my opinion it's just lines of code speculation gambling and crime it's when I say crime I mean that literally in the sense that technically although we moral ally agree with this woman in Afghanistan. She is violating her country's laws. We just don't like those laws because we're in another country and we're think that's really >> different values, >> right? But to accept that that is good, we also have to accept the bad. If we're being intellectually honest, we can't just handwave away. I mean, to give you a sense of the amount of crime in crypto, last year, a crypto company uh estimated $154 billion dollars of criminal activity was facilitated via crypto. 154 billion >> is a lot of money, right? Especially for a market that >> it's a GDP of a lot of countries.

[00:08:01]>> Yeah. And it says it's a tr trillions of dollar market, but I I really don't think that's true in terms of the actual liquidity backing these speculative assets. Right. So, you know, it's an immount of crime. And and to give you a sense of like the kinds of crime, it's like Russian oligarchs selling sanctioned oil to the Chinese in exchange for uh drones that they send to Ukraine, >> right? It's like global criminal cartels.