The final page of the report, which is recommendations related to the strategic Bitcoin reserve,
they have a footnote talking about the United States government's incremental acquisition of Bitcoin
with a footnote to stacking sats.
I mean, that's about as good a bow as you can tie on the shift of the Overton window on Bitcoin as I can imagine.
What happens if quantum computing moves a lot faster than we hope or anticipate?
What does consensus look like?
What role do, if any, do policymakers play?
Do financial institutions play?
if there's a contentious hard fork around this, what's going to happen, I think is a really
important question. We're moving away to some extent from the U.S. government debt as the
neutral reserve currency. I think the sort of clear signal at the end of that was in 2022
when we froze Russia's treasury reserves when they invaded Ukraine. Whenever you think about
that decision or that war, if we can freeze your neutral reserves, they're not all that neutral,
right? We get to control the supply of it and we get to decide who can spend it or not.
And since then, central banks around the world have been busy stacking gold, especially including China.
I think what we will likely end up seeing is the world is moving towards digital fiat currency,
and the world is moving towards more neutral reserve assets for central banks away from U.S. government debt.
And the way that's going to play out in China is the CBC, the yuan, plus gold.
And I think our answer to that from a policy perspective is private stablecoins and Bitcoin.
A much larger percentage of the total Bitcoin supply is inside the United States than of the gold supply.
If the U.S. government were to go in and fully monetize Bitcoin, that enriches our citizens, our companies, our country, if we can stack enough Bitcoin in time, specifically at the expense of our geopolitical adversaries that are holding the competing asset, which is gold.
If you really want immutable freedom money, well, that's Bitcoin, right?
You're not going to get basically anything other than Bitcoin that is going to be like pure immutable freedom money.
Stable coins are stable to fiat.
Fiat, literally in the name, you know, it's by government fiat.
The government's creating it.
I kind of think it's a little bit of a render unto Caesar's situation.
This is not about is Bitcoin or crypto good or bad.
This is really about, you know, speech.
Are you holding people responsible for writing and publishing code?
We just need a recognition, as you said, that technology moves fast in the law.
There is now a such thing as peer-to-peer disintermediated transfers of value.
And when all of these laws were written, if you were doing an electronic transfer money, there necessarily was a regulated intermediary.
And so this is just a patch to recognize that we can't treat infrastructure like code the way we would treat a bank.
They're just not the same thing.
The infrastructure is more like a USB cable and the exchange is more like a bank.
And those things need to be differentiated from each other.
Honestly, so it was crazy to see the White House yesterday with the tweeting out with – or maybe it was last night, right?
Last night, yeah.
Tweeting out Matt Pines by name.
That was awesome.
Yeah, that was amazing.
Really cool.
I mean, you guys are crushing it.
What can I say?
I mean, for a bunch of spooks, you know, which I'm hearing is the very fashionable thing to call you guys now.
Yeah, that's the theory.
Yeah.
No good deed goes unpunished, right?
For sure.
Well, look, I actually have some sympathy for this.
There is a history of people wrongly speaking for the Bitcoin community.
And I think that the New York agreement really left some scars on the community and some sort of bad memories there in the original Bitcoin Foundation.
And when you do what we do, which is to sort of do policy work on behalf of Bitcoin, it's important not to confuse that with doing work on behalf of the Bitcoin community.
And I think people rightfully get upset when they think you're speaking for them, especially when you're working with the federal government.
And we believe very much in what we do and happy to get into all of that.
But I think there is a somewhat understandable immune system in the Bitcoin community.
but very much the the our ideas is the influence is is meant to run the other way it's we are
supposed to talk to the government including the intelligence community about you know here's what
bitcoin is here's how it really works and here's how we think um this all makes sense in terms of
uh policy goals rather than uh sort of our directives to the bitcoin community coming from
from the government yeah and i mean it's also one of these situations where like uh this immune
system is a good thing and it is good that bitcoiners are wary and don't trust and verify
like that we want that to be the case like we want bitcoiners to be super kind of concerned about
anything they view as potential co-option of of bitcoin uh by that same token it's like it's also
important to then recognize where there is really good work being done and like the stuff with like
like they've got a former cia guy working for him and it's like well yeah that wasn't like a
a hidden thing. In fact, that was kind of like listed on the resume, you know?
Yeah. I mean, like as Bitcoiners, we know a little bit about OPSEC and the fact that it's,
it's just out there on our website, right. That our, our, you know, head of government affairs
used to work for the government. It's not, not a, something we're trying to pull over on anybody.
Yeah. Yeah. Well, yeah. All, all of this, I appreciate the work that you guys do very much
and appreciate the Bitcoin community for remaining ever vigilant as well, of course, but Zach,
uh welcome to the show it was dc feels like a long time ago for me already um it's been kind of a
whirlwind since then for you guys in like a a positive way there's just there's a lot going
on right now there's a lot we wanted to cover today um from the uh the recent report that was
just dropped yesterday we're recording this on thursday july 31st and then also the tornado cash
that may be reaching a verdict as we are talking right now so let's see on the samurai wallet case
a lot of other stuff going, going on as well. But yeah, how are you? How are you holding up
amidst all of this? It's a busy times for you guys. Yeah, it's, it's crazy. But the truth is,
it's really been, I mean, this week is exceptional, but it's been busy times for the last seven
months. Really, ever since the election, things have been moving so, so fast and changing so,
so much, mostly in a positive direction. And then in some ways, there have been really
disappointing developments, especially around these two criminal cases. But, you know, I do this
because I love it. I feel like if I had a real job, I wouldn't do very well at it because I'd
be focused on all these things anyway. And so it's great to be able to focus full time on what's
going on with Bitcoin in the world. Well, let's start out with maybe you just let me know you were
in the room for the Samurai wallet. Can we start there? What's going on there? What was the end
results? Because this has been going on for a while. Obviously, it's been super high profile.
It has a ton of implications. What happened? Where do we go from here?
Yeah. So the important development, I think, that started all of this was that the judge in the case
switched. So the original judge was Judge Berman, older guy, didn't seem super receptive to
understanding what this technology is and the sort of motion dismiss arguments that the defense was
making. But, you know, and for example, he disallowed the several amicus briefs that myself
and others were going to file in support of the motion dismiss, the motion dismiss being a legal
argument that the defendants could not have been guilty of unlicensed money transmission because
they didn't actually transmit any funds. You'd think that sort of a 78-year-old judge might want
to hear from industry experts about that. He said, okay, maybe we'll have oral argument about it when
we decide the motion, but we're not going to take written briefs. Defense counsel wrote what I
thought was an excellent brief making this argument, like a really good job, and that's
worth reading. I think we have it on the BPI website somewhere. But we were heading towards
a oral argument and then a decision in this motion dismissed. Before that could happen,
the case got switched out to a different judge, Judge Coat, who is just a notoriously pro-government,
pro-prosecutor, heavy-handed, when it comes to criminal cases, judge. And more or less,
the first thing she did after inheriting the case was to, without allowing any oral argument,
let alone with the benefit of Amici, just dismiss all of the defense's motions,
including that substantive motion dismissed. So the legal argument that the money transmission
charge was inappropriate because there was no transmission, that didn't get any hearing in
front of her, and that was just gone. And so at that point, the case is just necessarily going to
trial with a judge that we have every reason to believe would be very sympathetic to the way the
government sees things, pretty unsympathetic to the defense's arguments. And if the defendants
lost at trial, they were looking at, you know, like 11 to 20 years in prison. So that's a really
difficult situation. At the same time, the Tornado Cash trial was ongoing. So similarly,
the defendants in Tornado Cash lost at the motion dismiss stage in a really disappointing ruling last
year. And they are having essentially the same charges as in the samurai wallet case tried in
front of a jury. And, you know, that case has been going, it depends sort of how you look at it,
but it definitely has not been cleanly going well for the government. And there's some really
uncertainty about how the verdict is going to turn out in that case. And if there was an acquittal,
that would really undermine any sort of bargaining power that the samurai wallet prosecutors would
have in terms of seeking sort of a settlement before trial, which is pretty common after the
verdict. And so I think that precipitated the prosecutors and Samurai Wallet bringing a plea
deal to the defendants. We now know that that plea deal was, we will drop the sort of scarier
conspiracy to commit money laundering charge, which is different than my transmission charge.
The money laundering charge essentially says that Keone and Bill created Samurai Wallet for the
purpose of helping criminals launder funds, right, which is about intent. It's important to
understand sort of the difference in knowledge and intent here. So if you're a Uber driver,
and you have someone in the back of your car, and you say, all right, where are you headed? And the
person is like, oh, I'm going to rob a bank. You, the Uber driver, are not legally responsible for
robbing the bank, even though you knew that the guy in the back of the car was going to do that.
Conversely, if you're the getaway driver, right, if someone calls you and says, hey, I just robbed
a bank, I need to evade the cops, come get me, and then you get them for the purpose or with the
intent to help them get away, then you are responsible for what they did for aiding and
batting. So this money laundering charge, it carries this up to 20-year sentence,
but the government has to prove the defense mental state, not just they knew that criminals
were using samurai wall, but they intended that. On the other hand, the version of the
money transmission charge that was left, this is a pretty Orwellian thing. Technically,
the charge is conspiracy to operate an unlicensed money service business or money transmission
business. But the version of this charge that was left after the sort of hoopla around the Blanche
memo and around the sort of Brady, what looked like a Brady violation a couple months back,
actually didn't require there to be any license. So there are like three versions of this charge.
The government had initially charged two of them. One is basically you needed a license under the
Bank Secrecy Act and money transmitter law, and you didn't have it. That was already gone. But
then there's this other version, which is whether or not you needed a license, if you transmitted
money with the knowledge, not the intent, but the knowledge that some of that money was being used
or was the proceeds of crimes, then you can be guilty of an unlicensed money transmission business,
even if you never needed a license. That's not actually an element of the offense. And so
the deal was they got rid of the money laundering charge and the defendants pled guilty to the
money transmission charge, which has a maximum sentence of five years. So they don't get a trial
now, they don't get to appeal, and they don't get to appeal their sentence as long as it's under
that five-year maximum. And so that's what happened yesterday in court. Now, interestingly,
when you plead guilty to a federal offense like this, you have to what's called allocute before
the judge, you have to say in your own words, the conduct you did and why it was against the law.
and I only got to hear all of Keone's allocation,
I didn't get to hear all the bills,
but Keone was very careful to say in his allocution,
yes, I knew that there might've been criminals using this,
right, that's the knowledge it's in,
and that there was money that was transmitted.
Criminals may have used Samurai Wallet to transmit funds,
but did not, did not say anything that sounds like
I transmitted funds, the software transmitted funds,
anything like that.
And so there is this weird sort of like, you know, are they actually guilty of this thing?
Are the things that they said to have the guilty plea entered, like the things they said are true?
Are those actually the elements of the offense?
It's sort of like a weird legal question.
But I think if you put yourself in their shoes, you know, you're going to this trial with really unfavorable circumstances and you could spend 20 years in prison.
You know, Keone's married.
He's 36, right?
You come out when you're 56. Bill is in his 60s. He would be in his 80s if he ever got out. And the difference between five and 20 years is really meaningful. And so I think this is much more a human decision than it is about the sort of substance of the legal case.
I mean, it's just all kind of insane, though, because it's a great example of like, the legal system being a lot slower to catch up than the you know, than techno technological progress, like technology advances really, really fast and does not wait for the legal system.
The legal system then tries to kind of keep up with it as best it can. But in these sorts of cases, it's like there isn't precedent for these. I mean, these are really setting precedent, are they not? And I mean, is that at all dangerous too, that this is kind of precedent setting? And like what precedent does that set as we move forward? Does this endanger more software developers?
Yeah, I mean, hugely dangerous. That's how I got involved in the first place. I think privacy is really important, but I wouldn't say that I'm independently like a privacy activist.
The danger that I saw in these cases in April of 2024, which two things happened in basically in the span of a week.
One was the arrest of the Samurai Wild developers, but also in that week was the government's reply brief in the Tornado Cash motion to dismiss briefing, where for the first time the government really laid out their theory of how they thought Tornado Cash violated money transmission laws.
And that argument really had no logical conclusion, right?
It was they facilitated the movement of funds.
And if you just think about that for like eight seconds, you're like, OK, nodes facilitate
the movement of funds.
Miners facilitate the movement of funds.
Hardware and software wallets facilitate the movement of funds.
The plastic that goes into my cold card, I suppose, facilitates the movement of funds.
This is precedent that will go much, much beyond privacy.
This is like a ban on any tools that help people engage in peer-to-peer transactions, right, if this is taken to its logical conclusion.
And, you know, we need to get involved with the court to make sure that the government isn't able to get away with these specific legal theories that have no limiting principle.
Now, the specific sort of precedent that's set here, the most dangerous thing that's outstanding is Judge Fela in the tornado caches.
She actually did a oral, not written ruling saying that the Bank Secrecy Act doesn't require custody or control.
That's not the position of the current administration, but that is a federal court ruling that's out there.
We'll probably get to this.
Like the remedy to this, the long-term remedy is passing the Clarity Act, which would just make it clear that that ruling doesn't stand anymore, right?
The law, whatever it was before, is different now, and you need custody or control.
In fact, you need unilateral custody or control.
It's not enough that you're a sort of member of a federation like Liquid or a single sort of guardian in a federated e-cashman.
That's not going to cut it either.
But that ruling is still outstanding.
We did not get any kind of substantive ruling like that.
I guess the one silver lining of what happened in Samurai Wallet is now that there's guilty plea,
Judge Code is not going to come up with some argument as to why specifically it was possible for Samurai Wallet to transmit funds,
even though that is the implication of the guilty plea here.
But even though there's not formal precedent in the Samurai Wallet case,
if you get another more hostile administration in the future where prosecutors want to bring cases like this,
which currently goes against the Blanche memo,
which is the Trump administration's statement of how they want to use the DOJ to do criminal cases.
But if we were to get, God forbid, like a President Elizabeth Warren,
definitely prosecutors would point to, hey, these guys knew what they were doing.
they're the software developers and they pled guilty to transmitting funds, even though everyone
agrees this tool was non-custodial and they didn't have custody or control of user funds.
It's all, first of all, President Elizabeth Warren is terrifying to just to even conceptualize.
Yeah. Like, wow, don't ever want to hear those together. Can you, can you talk about the clarity
act a little bit and, and just kind of what that entails, why that's important?
Yeah, so the Clarity Act is a really sweeping piece of crypto legislation.
It's called a market structure bill.
And the main thing that the Clarity Act is about, the thing that is meant to give clarity over, actually has basically nothing to do with Bitcoin.
It is this question of when they are sold to retail, are crypto tokens commodities or securities?
This really matters because there's not a way to effectively sell crypto tokens to U.S. retail and not violate the securities laws.
This is what the sort of Coinbase and Binance and, you know, Ripple lawsuits were all about.
And it is very important to the large crypto exchanges and the large crypto VCs that there be some sort of safe harbor or legal path for them to sell tokens because that's their business model.
So the bulk of the Clarity Act is actually about that.
But then there are some other really interesting and really important provisions that were added to the Clarity Act.
Some of them are interesting about like sort of parallel to the questions we talked about in Samurai Wallet and Trinidad Cash, which are about like DeFi protocols, right?
What is the difference between like a centralized exchange and a smart contract, which operates on a peer-to-peer basis?
There is good language in the Clarity Act that – and I think it's important that it's phrased this way – that recognizes a right to self-custody.
I think it's actually really important that no legislation purports to create a right to self-custody.
I think that right is in the US Constitution.
I think you can find it in the First Amendment.
You can find it in the Fourth Amendment.
You can find it in the Fifth Amendment, in the Ninth and Tenth.
I just think that, like, it would be unconstitutional to just straight out ban self-custody.
But recognizing a right, I think, is useful and good.
And then there is Section 109 of the Clarity Act, which is importing language with some
small edits from another really important bill called the BRCA, the Blockchain Regulatory
Certainty Act, which is really meant to squarely address the issue from Samurai Wallet and Tornado
Cash, which is when does the Bank Secrecy Act apply? When are you considered a money transmitter
and therefore subject to the Bank Secrecy Act by virtue of offering Bitcoin or crypto-related
services? And it codifies some version of guidance that has been in place since 2019 from FinCEN,
which is the part of the U.S. Treasury Department that deals with illicit finance, where essentially the line is custodial versus non-custodial.
Do you have custody or control of user funds?
The language in the Bank Secrecy Act and related regulations says in order to be a money transmitter, you need to accept and then transmit funds on behalf of the public.
You'd think that between accepting and transmitting, you'd have to have the funds.
But somehow the prosecutors in these cases didn't get the memo on that.
And so this is like, you know, for the AOSAs in the back, this is literally writing it into the law that you're not going to be treated as a money transmitter if you don't accept and then transmit funds.
Now, there was some language – there are some ways in which the clarity language which borrows from the BRCA is better than the BRCA.
The primary way, I think, is this concept of unilateral control, which is not in the BRCA.
And I think there are important questions of like, I think, specifically federated systems where this becomes an important protection.
And then there's one way in which it's worse.
There's sort of these qualifying.
You are only exempt from being a money transmitter if you're a non-custodial developer or service provider.
if you're providing infrastructure, if you're a node, if you're facilitating a blockchain system.
But I think if you read the language carefully, and I have a sort of long back and forth with
Lola Leitz on this on Twitter for people who want to really get into the details,
sort of analyzing the text of the Clarity Act, my read, and I feel pretty good about this,
is that the language in the Clarity Act would have fully protected the developers in both
TornadoCache and Samurai Wallet. And they're pretty good protections overall.
So passing this legislation, I think, solves the biggest legal and regulatory problem that we have in Bitcoin.
And on the one hand, there's a lot of politics behind this.
On the other hand, this really should be something that everyone in the industry, whether you're a Bitcoin or a crypto person or whatever, none of this technology is useful or really all that valuable unless you can use it on a peer-to-peer basis.
That's what makes Bitcoin valuable in the first place.
To the extent that there is sort of value or valid use cases for like Web3, that's also
the reason why that differentiated from TradFi And so everyone really should be on the same team here If you want we can talk about a bit of the politics of the Clarity Act but that going to play out over the rest of this year
Yeah, let's.
OK, so the Clarity Act, in order to be signed into law, if you remember Schoolhouse Rock, you first got to be passed as a bill through both chambers of the legislative branch, and then you have to be signed into law by the president.
The White House has definitely signaled that Trump will sign this bill if it passes.
And the bill has already passed through the House a couple weeks back.
So the remaining thing that needs to happen that is going to be challenging is getting the bill through the Senate.
There are a couple of groups of people that – so I guess the two things that we as Bitcoiners should really care about, one is that it passes.
And second, that it passes with the Section 109 protections for noncustodial developers intact.
Um, the challenge to it remaining intact, uh, is going to be specifically from the Elizabeth
Warren wing of the democratic party.
We need to win over some moderate Democrats.
Uh, and there's reason to think that this really jives with civil liberties that Democrats
believe in.
Like this really should be something that, for example, Ron Wyden, who is a champion
of section 230 protections should understand about, this is not about is Bitcoin or crypto
good or bad.
This is really about speech and are you holding people responsible for writing and publishing code?
But there's going to be a lot of this is a loophole that treats crypto differently than banks.
And this is a welcome mat for North Korea.
And all that stuff is wrong, right?
No one's asking for crypto to be treated differently than the banks.
Banks are custodial.
There are entities in crypto, right, like centralized exchanges that are also custodial.
No one at this point is really arguing that those should not be subject to the same rules as traditional financial institutions.
We just need a recognition, as you said, that technology moves faster than the law.
There is now a such thing as peer-to-peer disintermediated transfers of value.
And when all of these laws were written, if you were doing an electronic transfer money, there necessarily was a regulated intermediary.
And so this is just a patch to recognize that we can't treat infrastructure like code the way we would treat a bank.
They're just not the same thing.
The infrastructure is more like a USB cable, and the exchange is more like a bank, and those things need to be differentiated from each other.
But there's going to be significant national security FUD.
And then the overall bill passing, there are sort of two other constituencies that are going to be a challenge here.
One is moderate Republicans, specifically not on the Senate Banking Committee, who feel burned by the big, beautiful budget bill.
You'd think that would have nothing to do with it, and substantively it doesn't.
But there are people who feel like we, you know, deficit spent too much and they don't want to be dragged along on stuff they don't really understand.
I'm confident we can probably win a good number of those over.
And then, to be honest, the biggest political challenge is going to be a lot of Democrats that are going to push, including people that are otherwise supportive of Bitcoin and crypto, that are going to add an amendment to the Senate version of the Clarity Act, basically requiring the president's family to divest from anything crypto related.
That's going to be very hard for Republicans to sign.
And, you know, that's going to be politically hard.
And I think the answer there, you know, when we're speaking to those Democrats, it's going to be we understand your concerns.
This might be appropriate for an anti-corruption bill.
And maybe let's bundle that with not having people in Congress be allowed to insider trade.
But like the Trump family also develops real estate and we would never dream of making impossible to build houses in America just because you're worried about the Trump family profiting from their real estate.
Like we don't make bad policy to punish our our political rivals.
But the timeline for this is they're going to try and have the bill voted on in the Senate by late September, likely at least before the end of the year.
And so it's really going to be the rest of the summer and then into the fall.
We need to whip some votes.
It's a great analogy with the real estate too.
And when I was in D.C. for the Bitcoin policy, some of you guys hosted, which was an excellent event and quite eye opening my first time going on the Hill and talking to folks there.
But like that was one of the first things that I live in Illinois.
And so all of our all of our representatives and senators there, they are all Democrats.
And what they all brought up as like one of the first things was, well, what about the Trump, you know, the Trump coin and the Melania coin and all these things?
and how that's related to Bitcoin, right?
And trying to separate those two
is a really difficult thing.
And trying to get people to approach policy,
I mean, which, as you said,
we shouldn't be making policy,
just bad policy to punish political opponents.
But unfortunately, it feels like
in our Coca-Cola, Pepsi-Cola democracy,
that often becomes the case
with whoever's in power
and is able to get stuff shoved through.
The legislative process
ends up making some bad policy
that's very short-sighted
and the pendulum swings back
eventually and we do it all over again. And it's frustrating to see because you would hope that
common sense would prevail. But often I think it does not in emotions prevail. And that's a shame.
I don't know if that's probably just human nature and maybe there's no fix for that.
But one would hope that we could rise above that a little bit.
Yeah, I hope so. I think the biggest part of it is education. I mean, I was recently having a
conversation with like a, you know, I know we don't really love credentials in Bitcoin world,
bit, at least by this person's credentials, very smart, very educated, sort of respected person
who's like, all right, what's your favorite of Bitcoin and stablecoin? And just really just not
understanding the difference between these things, right? Even in 2025. And it's easy to get sort of
lost in your own echo chamber. But the level of sort of basic understanding is so low. And just my
explaining that like, well, you don't really bet on stablecoins going up and down. This is just a
way to move dollars, like, oh, I understand this much better now, right? It really is. Some of it
is as simple as that. And you just need to explain what's going on. And that gets you, I don't know,
maybe 60% of the way. And, you know, aside from what's going on, why is it important?
I don't know if you saw the Coinbase ad that came out today.
The UK one?
The UK one. I thought that was-
Really well done.
Really well done and really sort of politically interesting because if you didn't see the name Coinbase at the end, that absolutely could have been like a fairly leftist political ad.
And I think connecting sort of why Bitcoin matters to people who – whether or not they're connecting the dots, they're feeling the problems that Bitcoin is here to solve.
Right?
At this point in 2025, the problems that Bitcoin is – are not subtle problems.
There are problems that are front and center in our politics.
They're front and center in ordinary people's lives.
And, you know, after you get to the what, the why is also really important, that like
this is not something we should jeopardize for political squabbling.
When I sort of gave my opening speech at our summit, I put these two things right next
to each other, right?
Like here's what the Bitcoin network is, and here's why this is deserving of serious policy
consideration.
before we get to what we think the good policies should be.
But I think that's also, right, when you hear about meme coins,
it sounds silly and meme coins are silly.
But then like when you really dig into the substance,
why is it that we got Trump coin to be such a ridiculous market cap?
That's actually directly a result of policy choices in the previous administration
where they wouldn't let anyone release anything useful
because they were using the securities laws as a weapon.
And I have some sympathy for Gensler in that I think if you sort of strictly apply
the Howey test. Yeah, most of these tokens technically were securities. Fair enough.
But if you're not giving any guidance in how to do this in a legal way, and there's going to be
money speculating on this, and you say, listen, the way to not violate the law is to release
something that has no fundamental value, and it's purely a gambling vehicle, that's what people are
going to do. And it is sort of weird that meme coins were the only thing that the prior administration
really left alone. And then that is the thing that makes the industry looked at.
So honestly, a really excellent point that just like, yeah, they were kind of the
untouched things. It's like, oh, this is just a, this is just a joke. Like, okay,
we don't need to pay attention to it. It's like, no, it's like a joke that, yeah,
it makes like a couple of people very, very wealthy, but ends up just wrecking most average
people who are already wrecked. And the only reason they're speculating on these things in
the first place is because they are being wrecked by this broken system. And it's like,
God, it's just a brutally vicious cycle, honestly.
Yeah.
But I'm hopeful right now because it seems that the Overton window has been sort of blown wide open since the election.
It's impossible for folks, whether they're individuals or policymakers, to ignore Bitcoin and, quote, crypto and stablecoins.
Stablecoins seem to be getting more limelight than just about anything.
We can maybe touch on that a little bit as well.
but at least it's, it is part of the national conversation on a level that it never has been
before. And so like that, I think is a good thing because that's an opportunity for, as you said,
education, like that's, and to differentiate these things, like, you know, as you guys say all the
time, like we're the Bitcoin policy Institute, you know, we're not the crypto policy Institute.
We're not the stable coin policy Institute. Like it's the Bitcoin policy Institute and, and kind of
taking this and getting into another topic that I really wanted to dive into with you
is this new, the new report that the White House just released. And it's a pretty fairly large,
I think like 166 pages, but this digital assets report, can we dive into that a little bit? I've
reviewed it a bit myself, not on the level or with the ability to dive deep that you have with
your background, but maybe we can start. Was there anything in here that really jumped out
at you like you were not expecting it or you were kind of shocked to see either in a positive or a
negative way. And then maybe we can get into some of the individual parts and the recommendations
specifically. I don't know how much there was in there that I was shocked to see. I think there
are a lot of things that I had sort of strong reactions to. So to start where you just left
off with the shift of the Overton window, I've seen in my personal life, I live in New York City,
a lot of my friends are sort of like the yuppie elite types. And I've seen in my personal life,
the like, career risk, or whatever perception of talking around Bitcoin shift dramatically. I
I think really since the ETFs launched, that to me was a moment where like a lot of this became more OK and mainstream.
And my friends that like laughed at me for owning Bitcoin for a long time now, they all have at least some Ibit or something.
And when we're talking about like this is the statement of the executive branch of the United States government, when you begin with the history of Bitcoin and how much of an innovation it was.
And even in like the sections of the report about stable coins, they're quoting Satoshi about, you know, peer to peer cash.
And then the final page of the report, which is recommendations related to the strategic Bitcoin reserve, they have a footnote talking about the United States government's incremental acquisition of Bitcoin with a footnote to stacking sats.
I mean, that is that's about as good a bow as you can tie on the shift of the Overton window on Bitcoin as I can imagine.
So that's something that sort of immediately, immediately stood out, even if it's not like a substantive policy shift.
What this document is, is mostly it's a series of recommendations for what both Congress and the agencies of the executive branch should do with regard to crypto policy.
So this document doesn't itself make any rules, but it points in the direction of how the administration is thinking.
One of the parts I was really gratified to see that's not going to get a lot of attention, it's on either page 83 or 86, is the discussion of digital assets and Bitcoin and insurance.
And some of the language in there came out of direct conversations.
You know, my friends and full disclosure, I'm an investor and I'm their lawyer.
But the folks at Anchor Watch who are building cold storage Bitcoin insurance, one of the big problems that they have with offering, for example, Bitcoin denominated insurance is that Bitcoin is not an admitted asset under state insurance regulators.
Right. You can't hold it in reserve because it's too volatile.
But it's not too volatile if the thing you're insuring is Bitcoin denominated.
If you're insuring Bitcoin in cold storage or if you're insuring Bitcoin mining operations where your lost profits are going to be denominated in Bitcoin, it's not good enough to be holding T-bills because the price of Bitcoin can go parabolic and you need to have assets that match the liabilities that you're underwriting.
And so in this report, there's like a couple pages of we need to go to the state level regulators and change these rules about admitted assets.
And like that is directly from like Rob Hamilton to the Treasury Department to United States government policy.
And so that I was not necessarily expecting that to make it all the way in.
But that's like one example of something that was very cool to see in the report.
Um, you know, I think the report is mostly pretty good on the, um, sort of peer to peer,
uh, non-custodial developer protections that we spoke about before it directly endorses
the language from the BRCA and the clarity act, which I was glad to see.
Now there are some other spots where it's, uh, you know, a little more mixed.
Um, the worst part of the report for me is the equivocation on a rule that was proposed,
I think in the beginning of 2023, that would change the definition of what a mixer is.
And for the purpose of FinCEN and OFAC, it would treat as anything risky that was designed
to obscure a flow of funds on the blockchain, which would not just include what I would
call a mixer, which is a custodial service that takes in some Bitcoin and sends out other
Bitcoin.
It would include coin joins like Samurai Wallet and Wasabi.
But then, like, at least if you read the language of it, right, they talk about the
different ways people use to obscure flow of funds includes using a different address every time
you send or receive funds, which is just the best practice if you're using any wallet.
Which is insane. Yeah. So I would have liked to see the report condemn that instead of saying,
we need to look into this more. So I would say that was the worst part of the report for me.
And then, by the way, on each of these topics here, Peter Van Valkenburgh from CoinCenter has
a great thread on this, talking about these different sections that deal with developer
protections. The other thing that Peter rightly points out is there's also some language which,
you know, is mixed about we should think about amending the Bank Secrecy Act to deal with
the existence of non-custodial technology, which, OK, I mean, there are good ways to do that. Like,
there is some version of that that I could get behind, but I get a little bit nervous when it's
like, all right, amend how? And I would have liked to see a statement that, like, we're treating
infrastructure as infrastructure and we're treating, you know, custodians as custodians
and we're not going to get confused between the two.
But, you know, the one real substantive recommendation is to pass the Clarity Act language.
And, you know, broadly speaking, that's pretty good.
I think there's less about the SBR than folks were hoping.
I don't know how much of that I can really get into other than to say there was a lot
of discussion back and forth about that, I think, on the back end.
And I think specifically the sort of political appointees in the administration and the sort of lifer bureaucrats don't necessarily see eye to eye, specifically on the question of the ways that the executive branch could unilaterally acquire Bitcoin for the SBR.
at BPI would put out our theories on this. I personally am on the record saying I think the
Treasury's exchange stabilization fund would be a powerful mechanism that without a new law being
passed, the United States government could acquire more Bitcoin. I don't know that everybody in the
Treasury Department feels that way. So that was sort of relegated to like the last page, but it
was broadly supportive. It mostly just restated what the SBR executive order says, which is,
We're going to have a Bitcoin reserve.
We're going to have a digital asset stockpile.
The digital asset stockpile can fund all sorts of stuff.
The strategic Bitcoin reserve will not be sold, and Bitcoin will be held as a strategic
reserve asset, which great to have that coming from the federal government.
And that's where you have the stacking sats footnote.
But they didn't announce new buys.
They didn't endorse any specific strategies for acquisition.
It just restates that the Treasury Department and the Commerce Department will find ways
to acquire incremental Bitcoin.
And then there's a lot of sort of non-Bitcoin stuff in there.
There are sections on DeFi.
There are sections on stablecoins.
There are sections on sort of like security versus commodity market structure.
And that's really the meat of most of the 168 pages.
And I think they also just, with regard to the SBR, they have not clarified yet what the
total amount of Bitcoin that the government actually has in its possession is.
Like they're using that same like whatever 210,000 number that but that's just like the generic number kind of that's not the result of all these agencies reporting down.
Hey, here's how much we actually have.
And I think Bohine's addressed this saying we're not going to say this yet or we're still preparing it.
It's something like that.
Right.
And there's reason to think it's not 210.
Right.
I think there's good reporting from well, it's on this question of like it looks like a bunch of this stuff might have been sold since the sort of late days of the Biden administration.
Yeah, they've not said that publicly.
Now, the executive order doesn't require them to come out with that number publicly.
And so the question is, why haven't they?
I think there are two reasonable theories on this.
And they're not mutually exclusive.
They could both be true.
One is, especially if you're inclined in the tinfoil hat direction, but not implausible,
there's a bunch of Bitcoin that the United States government holds that it can't or won't
talk about how it got that Bitcoin.
You know, Bitcoin in the early days was used a lot on dark web markets.
Maybe it was used by international criminals.
And it makes sense that the FBI might have wanted to mine some Bitcoin to be able to pay confidential informants in a way that wasn't traceable.
And if you were mining in the early days, you might have a lot of Bitcoin and we might not want to dox.
The FBI has exactly this amount of Bitcoin because our foreign adversaries or criminals or whatever might be able to do chain analysis and trace that back.
and that could blow a bunch of our sources and methods, right?
Ditto the CIA or other intelligence agencies.
So there could be sort of dark classified coins that they could probably just not talk about that
if they wanted to get that under sort of a classified exception.
But that could be one reason to not talk about it.
The other sort of more mundane reason is that maybe they don't know.
It's possible that there's like a lot of Bitcoin that was confiscated
and then just kept in a sloppy manner, again, especially in the early days.
and they lost the seed phrase.
They lost the wallet, right?
This was before best practices
where they were keeping things at Anchorage or Coinbase,
and it could just be an embarrassing answer of, like,
this audit is really hard to do.
It's slow, and they might be sort of, you know,
mum about it because the answer just doesn't look good
in terms of their, you know, good government.
It'll be interesting to see for sure,
But I would have to guess that maybe they do not have – based on like Lola's reporting, this has been great.
They do not have as much as they initially thought that they did.
One other item that I wanted to just kind of circle back on as it relates to like Bank Secrecy Act is there was something about the Patriot Act in here as well and applying a specific provision of it to digital assets.
Did you dig into that part at all?
Can you speak to that in any way?
No, I mean not specifically, but the Patriot Act significantly amended the Bank Secrecy Act.
So when we talk about the Bank Secrecy Act, the Bank Secrecy Act was passed in 1970.
The original intent of the Bank Secrecy Act was to go after organized crime.
At the time, organized crime was much bigger in the United States than it was now.
And a lot of times they would hide their funds in Swiss bank accounts.
And so the FBI would be going after some mob boss.
They would think that funds were sent to Switzerland.
They would go to like the U.S. bank that they thought that that crime family used and the U.S. bank would say, sorry, we don't keep any records of this.
And so we don't know if money was sent abroad.
And so the Bank Secrecy Act requires you to do these to keep these records, KYC, right?
That's you need to know who you're doing business with and then file suspicious activity reports if the facts of someone's banking are suspicious.
It was amended a whole number of times, but there are two significant amendments.
One was by the Patriot Act in the aftermath of 9-11.
That's where actually a lot of these money transmitter rules initially came from.
The concept of money transmission was originally in large part meant to go after the Hawala system, which is prominent in the Middle East.
And a lot of this was meant to go after terrorist financing in the aftermath of 9-11.
And then the Bank Secrets Act was again heavily modified in 2020 to deal with the existence of – to some extent, right?
They didn't modernize the money transmission concept to deal with crypto, but modernize in some ways to deal with the existence of crypto and the sort of more modern internet.
And so I don't know the exact reference to the Patriot Act, but that is to some extent baked into the BSA.
Okay I think from what I remember reading it was basically saying something about it giving the Treasury additional guidance to be able to freeze funds that are digital assets that may be associated with some of these bad actors or whatever Yeah So there is a big part of the report which is different than sort of the money transmission FinCEN question
There's a different part of the Treasury that deals with sanctions called OFAC.
And there's a lot of controversy and legal questions about the scope of OFAC sanctions
authority.
Pretty uncontroversially, OFAC is able to sanction Bitcoin and crypto addresses.
And OFAC violations are what are called strict liability offenses.
They apply to everyone.
And you can technically be guilty even if you didn't mean to do business with a sanctioned entity.
And so in my day job, when I work with Bitcoin startups, when we talk about compliance, whether or not you're a money transmitter, which is often the sort of meaty question, you generally always have to comply with OFAC.
And there are all sorts of free tools out there that companies can use to screen for OFAC.
It's actually not all that operationally complex.
and it shouldn't really make a difference on your operations because the chances that you're doing
business with like Hamas or the North Koreans in any given instance, it's pretty low because they
know that they're sanctioned and they're not out there, you know, doing sort of ARK transactions
yet. And by the way, there's no such thing as a sanctioned address on Lightning. So a lot of the
sort of modern Bitcoin startups, this just isn't even like a thing. You know, this might be
controversial in some parts of the community. I don't think that the way that until we get to
talking about tornado cash, historical OFAC sanctions on Bitcoin are such a problem. If we
know that there's like a pile of Bitcoin in an address that belongs to some bad actor to like a
terrorist group, making it illegal to do business with that terrorist group, you know, that matches
all the other laws we have. Like that seems like a fairly reasonable thing for the United States
government to want. And I think the important distinction is, are you sanctioning an address
versus sanctioning coins? I think it's very important just as a logical matter and for
Bitcoin's fungibility that we not have such thing as a dirty UTXO. And Bitcoin is actually better
situated than account-based systems like Ethereum, where let's say you were to get Bitcoin from a
sanctioned entity, there's a specific UTXO that lands in your address, and you can sort of
segregate that and say, okay, this is off to the side. It hasn't poisoned all your other Bitcoin
the way that if sanctioned Ethereum lands in your Ethereum account, you're in much more trouble
because there's not the same UTXO model. But that's sort of vanilla sanctions. Now, what happened
with Tornado Cash, I don't know how much your listeners know about why Tornado Cash became
famous in the first place. It's an Ethereum privacy tool that uses a smart contract, a
non-custodial immutable smart contract. But it came to prominence because of a hack of a crypto
video game called Axie Infinity. This was in like the 2021 hype cycle. One of the things people were
really excited about was NFTs, and NFTs could be video game characters. And there was a company
that came up with this Pokemon-like video game where the characters were these Axies, Pokemon-like
figures that were NFTs. You buy them on OpenSea. The in-game currency was a shitcoin called Smooth
love potion or SLP. But the problem with Ethereum is that it's too slow and expensive to actually
run a video game. So they had to build a special purpose blockchain called Ronin. And then they
bridged Ethereum, right? You'd buy your NFTs on OpenSea, you'd lock them up in the Ronin bridge
that connect Ethereum to Ronin, you'd play the game. And then after you earned your SLP tokens,
you'd unlock them and then go sell them, you know, on an exchange. And this got like really,
really big, tens of billions of market cap, some ridiculous, I think, like double digit percent of
the GDP of the Philippines was people being paid to play Axie Infinity just to like farm these
tokens, like it got really wild. And then unfortunately, the North Koreans infiltrated
this startup that created Axie Infinity, and were able to hack the Ronin Bridge and did what at the
time was the largest heist in human history, they stole something like $650 million worth of assets
in like 90 seconds or whatever it takes for an Ethereum block to close.
And then they put a significant portion of those assets at least through Tornado Cash.
So understandably, to some extent, the United States government freaked out.
No one wants North Korea to get a bunch of untraceable crypto to fund their missile program
or whatever.
Now, they handled it very badly.
They arrested the developers, which, as we spoke about, was wrong.
They shut down the front end.
But the thing about Tornado Cash is it's an immutable smart contract.
you can't shut it down by throwing someone in prison.
It keeps working.
And so the crypto community being the crypto community,
the next thing that happened is a bunch of people found celebrity Ethereum addresses, right?
You know, Jimmy Kimmel buying Bored Apes at the time, right?
And so you could find all of these Ethereum addresses associated with prominent people.
And they dusted those addresses with like small amounts of Ether USDC
that went through the Tornado Cash protocol,
which, by the way, the government, after they realized that they couldn't shut it down,
they tried to use their OFAC sanctions authority to say, if you do any business with this smart
contract, not just this ETH, but this smart contract is foreign property that we're going
to sanction. And so now, technically, you've got Jimmy Kimmel and Eminem and whatever violating
OFAC sanctions, which is a strict liability offense, and this was like a whole mess.
And so then this became the subject of several federal lawsuits about,
Does the government have the authority to sanction smart contracts?
What does it mean to make it illegal to interact with open source code on the Internet?
And where this all ended was the plaintiffs.
There were these two cases.
One of them was brought by Coin Center.
One, I forget the other plaintiffs were, but the other plaintiffs, not Coin Center, ended up winning their lawsuit.
on the interesting legal theory that the immutable smart contract could not have been property
because immutable code doesn't have the properties of property.
So when people talk about smart contracts in crypto, a lot of people use the analogy
of a vending machine.
It's code, but you put in a dollar and you get out a candy bar.
An immutable smart contract doesn't really work that way, though, because you don't get
to decide what's in the vending machine.
You don't get to change the price.
You don't get to withdraw money from it in the same way.
And so the Fifth Circuit Court of Appeals, which is like a federal appellate court in
the South, found that there was no OFAC sanctions authority because the government claimed it
was foreign property and it just wasn't property.
That leaves open the possibility that you could sanction non-immutable smart contracts
or other, you know, what would it mean to sanction a side chain or a roll-up or any
of these sort of like, you know, primitives, an e-cash mint, right, and Bitcoin, an ARC.
And so, again, all this super-duper long-winded way of saying, I don't know the specific reference
to the Patriot Act, but there are lots of questions about what specific authority the
government has to put sanctions on different types of entities, including, interestingly,
code in the digital asset space.
again it's one of those things where it just it's pretty wild because after my very limited time
again spending on uh on on capitol hill and talking to some of these folks you realize wow
i mean a lot of our representatives are really really old um and have like i mean like you know
don't know how to open a pdf uh you know that's what they have their 23 year old staffers for
but like these are the people who are ultimately like yes we have people of all ages but they're
They skew old like in the Senate and in the House, like undeniably so.
I think skewing slightly younger in the House than the Senate, but like still we're talking pretty darn old.
And that just kind of gets a little bit terrifying when you realize that these are the people who clearly like there is no way they're going to like grok it at the level that you or I or even like or even the average, you know, 25 year old is going to be able to just from a cursory glance at this.
and yet they're the ones who ultimately have the power to write policy about this and like that's
why again like i think the work that you guys do like trying to educate people is so important
because like yes you you know nobody bitcoin doesn't need anyone's permission to run right
that's the whole point yes like bitcoin doesn't care bitcoin doesn't care about the politicians
but like the politicians care about bitcoin and about bitcoiners and to your point earlier like
you know you you don't want an elizabeth warren type president like you'd rather have a lot of
cynthia lummases than you would a lot of elizabeth warrens like just to to weigh that scale you know
so it's it's just a little bit terrifying because it's like my god these these people are very very
very old in a lot of cases and you know just really are not in a place to be able to understand
and that's okay it's not like their fault they grew up in a completely different generation they
are not like they're not uh digital natives in any way of course they're not going to understand
it like this stuff is hard for people who have been studying it for years to understand so i
sympathize like of course that's actually genuinely very complicated yeah yeah it's it's really
complicated but yeah well i'm moral of the story i'm glad that you guys are doing what you're doing
because if not like we need as much uh we need presence in washington because again you'd rather
have good laws that protect the rights that you have the government doesn't give you rights right
Like you have the rights.
The government just protects those rights or it should.
That's the goal, right?
And so, yeah.
Well, and here's where like I quote my friend American HODL, Bitcoin might be anti-fragile,
but you're not, right?
Like they can get to you, right?
And so, sure, it may be that no matter what the government throws at Bitcoin, it will
come out the other end and it will win and fine.
But you don't want to live through the bad version of that timeline or you the human.
no not at all like again you would rather live in a place because like i i love the united states
of america yes our our government has throughout many decades done super messed up stuff um but i'm
very proud to be an american i think the american people and the american idea are really really
powerful and really strong and i want that to continue and i want this to be a place where
that is a bastion of freedom for the rest of the world and like that actually is leading the charge
and not falling back into really strange and absurd Orwellian states like the United Kingdom
appears to be doing right now. I have hope for them too. I think Peter McCormack is going to lead
a massive revolution in the UK and it hasn't seen its best days yet, but I digress.
Another thing I wanted to talk about the report specifically is just on the stablecoin side of
things. So maybe there's a lot of language that I think is really good about CBDCs and
basically saying, no, we're not going to have this in America. Like, yes, this is being tried
all over the world, but this is, you know, it's reinforcing some of the language that has been
put out there previously. I was really happy to see that. Can we talk a little bit about like how
you saw the interplay between the language around CBDCs and then the language around stable coins?
Because I think there's a lot of folks that rightly so are maybe a little bit concerned that,
okay, are private stable coins just kind of CBDCs in disguise? If they're basically fulfilling a lot
of the same functions, if their goal is explicitly stated to increase US dollar dominance, that's
how the US government views this. How are you looking at this? How are you assessing this
landscape? Yeah, I agree. That's a big narrative out there, both in Bitcoin and crypto circles
and libertarian circles and other sort of like farther right circles. This is something that
like Marjorie Taylor Greene's objection to this almost killed the Genius Act. I fundamentally
disagree. And I think to understand that, like, let's start with, you know, how do we feel about
CBDCs. So I don't think that CBDCs are an immediate threat in the United States. I don't
think there's any political will to create a CBDC here. I don't think that really jives with American
values. I was sort of surprised to see the amount of Democrats standing up for the idea of a CBDC,
but I think that's really not a substantive position. I think that's a reaction to the
Republicans using CBDCs as a boogeyman. I don't think there's any serious or credible attempt in
America to create a CBC. But CBCs are definitely bad and dangerous. Why are they bad and dangerous?
It's because of the level of control it gives to the government. It gives the government a lot of
ability to very granularly surveil the movement of money. Yes, the incumbent system, there is a
huge amount of surveillance, both from the government and even more from private companies,
right? Credit bureaus know such scary stuff about you. Before I got involved in Bitcoin, I did some
work in the intersection of law and e-commerce space. And I would take meetings from time to time
with data brokers. And they would show you the data sets they have on individual consumers that
they are out to sell. And it's truly, really, really creepy. So the status quo is bad. CBDCs
would be worse in terms of surveillance. I would say even worse than the surveillance, though,
is the granular level of policy control that CBDCs give the government over money. And if you take
this out to its logical extreme, it's stuff like personalized inflation rates. We want people in
this town to spend more, right? And so their money is going to debase a little bit faster. They're
not going to get as much of the yield that's coded into our money. This person has expended their
carbon credits for the month. And so they can only, you know, buy the bugs at the, you know,
the WEF store, you know, or any number of things, right? You know, pick whatever side of the
political ally you're on, think about the other side being control and the way that they could,
if there is like programmable dollars that is controlled by the government, how they could
enforce their policy priorities against you, literally written into your cash. Like that's
really bad. Okay. Private stable coins, on the other hand, they're issued by private companies.
Sort of right now, the crypto native incumbents are Tether, which is mostly outside of the United
States and mostly used as a dollar store of value. And then Circle, which is more common
domestically with USDC, and that's more payments. There will probably be other non-crypto-native
incumbents now that Genius Act has passed coming into the space, right? Asset managers, banks,
stuff like that. The Genius Act sort of does two things. One is it provides consumer protections
for American users of stablecoins. It says that stablecoins have to be essentially backed one-to-one,
which, by the way, is not what we require of banks, which are fractionally reserved to shit.
But OK, fine.
And then the other is it gives sort of longer term regulatory clarity to bring those sort of non-crypto native financial institutions that want to get involved in stable coins, but they're worried about changing administrations.
They now have this sort of longer term clarity that they need to come into the space.
And there are parts of the Genius Act that there are different rules for U.S. issuers of stable coins and foreign issuers.
But the one sort of consistent requirement is if you're going to offer stable coins to Americans, regardless of whether you are a foreign or domestic issuer of stable coins, the stable coins need to have the technology that they can be frozen or confiscated by the private company but pursuant to a lawful government court order.
that was something that you know in response to terrorists using stable coins criminals using
stable coins pig butchering schemes where people convince you that you're making a lot of money on
bitcoin trading once you've given them tether but really they're stealing all your tether
social engineering schemes that that you know probably folks who are listening to this have
been victim to the government is concerned about that that's where that comes from could that be
abused. Yes, that is a danger of that part of the Genius Act. But I think there is something
fundamentally really, really different between sort of reactive government ability to, you know,
law enforcement goes to a judge, shows them evidence about a specific case with a specific
person, gets a court order from a judge to freeze assets. And then, you know, the judge gives the
the order to the law enforcement who then goes to, you know, circle or tether and says, freeze
these coins and they freeze these coins. That is very different than we just have this policy
and it's our coin, the government. And so now we're just going to mess with it right away.
Right. That's sort of the difference between ex post authority and ex anti authority.
And if you really want immutable freedom money, well, that's Bitcoin, right? You're not going to
get basically anything other than Bitcoin that is going to be like pure immutable freedom money.
stable coins are stable to fiat fiat literally in the name you know it's by government fiat the
government's creating it it's i kind of think it's a little bit of a render unto caesar's
situation and when i look at you know the prospect of uh privately issued stable coins moving on
open public permissionless blockchains i think that that is you know if you if like the status
quo is here and CBDCs are here, I actually think it is a direction away from CBDCs that is
marginally more free and less susceptible of surveillance than our current sort of like
Swift and FedNow system. And so actually, I think this is a move. I get how in some ways,
private stable coins can on the surface look like CBDCs. I think in terms of like
individual liberty and freedom and stuff like that, it's actually a move away from CBDCs from
the status quo. I think that that's a fair characterization. I'm curious too. I hate to ask
for speculation, but do you think there's a chance? I mean, Tether obviously has moved their
headquarters to El Salvador. It seems that now that the winds are shifting a little bit in the
U.S., I don't know. Do you think they may move some operations onshore here in America just
because there is some more openness to this kind of thing in the U.S. now versus like the previous
administration? Maybe, but I don't think they're going to move the bulk of their operations no
matter what. Tether is very popular abroad. It's specifically a popular abroad for people who want
to use the dollar as a store of value and otherwise cannot get access to a US bank account, or it's
difficult or dangerous to get access to physical US currency, which is true in authoritarian
countries all over the world that have hyperinflation. It's also very popular for capital
flight. Tether is very popular in China, because China doesn't want you to take your money out of
China, right? Which, you know, I live in New York City, all of Hudson Yards, right? A big part of
the city is basically just expatriated Chinese money to park it in a store of value here. Tether
is much more convenient for that purpose than, you know, overpriced Manhattan real estate. And so I
think Tether understands where their bread is buttered. I don't think the US is the most important
market for them. They might create a US subsidiary to sort of serve as a payments vehicle inside the
United States. But I think their eye is really broad. And from talking to people who've talked
to their leadership team there, I think they see themselves as like a pretty sort of important
buffer between the sort of like tech elite West and the communist East. And they are sort of more
aligned with like Bitcoiner, libertarian, sovereign individual type thesis. So I think their focus is
going to remain more abroad. Now, I actually do want to go back to a point you made earlier
in the CBDC question about how stablecoins play into US policy, right? What is the US government's
interest in private stablecoins? Because that is a big part of the report. I think that's twofold.
One is sort of dollar dominance, right? The United States wants to keep the dollars,
the world reserve currency. They're just clearly, right? You look at Tether's market guide,
There's clearly a bid for dollars abroad, right?
This is similar to like the euro dollar system.
And legitimizing stable coins and having them proliferate is a way of having dollar strength.
It creates demand for U.S. currency.
And then the other problem we face is no one trusts us not to debase the currency because we're just definitely going to continue debasing the currency.
And so that's a problem for like the yield on U.S. government debt.
It makes it much more expensive to borrow.
And when you pass a law that says you're only allowed to do a stablecoin if it's fully reserved by dollar equivalents, which means U.S. government debt, that's a big source of demand for U.S. government debt.
And so the other sort of government play here is that this is a bid for T-bills.
And you hear Scott Pissent openly talking about we think it's going to create the proliferation of stablecoins.
It's going to create $2 to $3 trillion worth of demand for treasuries.
And so that's sort of a big deal.
And then when you zoom out, this is something that Matt Pines and I talk about a lot. He's very interested in sort of the geopolitical angle here. There seems to be like a – we're moving away to some extent from the US government debt as the neutral reserve currency.
I think the sort of clear signal at the end of that was in 2022 when we froze Russia's treasury reserves when they invaded Ukraine.
Whatever you think about that decision or that war, if we can freeze your neutral reserves, they're not all that neutral.
We get to control the supply of it and we get to decide who can spend it or not.
And since then, central banks around the world have been busy stacking gold, especially including China.
It's been stacking a lot of gold and that probably has something to do with the increase in the gold price.
And meanwhile, while I don't think there's a credible US effort to create a CBDC, they
sure should are doing that in China with the EU on.
And theirs is going to be, domestically, it's going to be a surveillance and control tool.
And then abroad, it's going to be a surveillance and control tool in Africa and the Middle
East and their ambitions to build empire.
And I think what we will likely end up seeing is the world is moving towards digital fiat
currency. And the world is moving towards more neutral reserve assets for central banks away from
U.S. government debt. And the way that's going to play out in China is the CBC, the yuan, plus gold.
And I think our answer to that from policy perspective is private stable coins and Bitcoin.
If, you know, River has this really good report about who owns the Bitcoin, a much larger percentage
of the total Bitcoin supply is inside the United States than of the gold supply And so in this the point Michael Saylor makes from time to time too If the US government were to go in and fully you know monetize Bitcoin that enriches our citizens our companies our country if we can stack enough Bitcoin in time
specifically at the expense of our geopolitical adversaries that are holding the competing asset,
which is gold. And so I think that like, you know, even sort of looking at the chessboard from a
really Bitcoin centric perspective, I think private stable coins are going to be an important
part of that story of how Bitcoin plays out at the sort of geopolitical nation state level.
I totally agree. And I mean, it's, it's one of those things where it's like,
boy, this, this really makes a lot of sense. Like it would seem foolish at this point,
not to do it if we're trying to, you know, if our, if our goal is ultimately to do things that
are good for, you know, United States of America and for American citizens, like then Bitcoin is a
much more uh obvious answer than than gold uh and i think we're still waiting to hear how much gold
is still left in fort knox though to get an official audit so let's see maybe we have much
more than we think yeah i somehow doubt i somehow doubt probably not as well probably not really not
talk to me a little bit about the uh the tax treatment because i think there were some
some proposals about uh like uh de minimis uh some de minimis transactions and stuff like that i mean
And obviously, I would like to see Bitcoin not be given the capital gains tax treatment.
I don't think we're not there yet, but a guy can dream, right?
But did you view this as at least, was it a positive step in the right direction?
I mean, is it kind of just a-
It's a statement of support.
A lot of the stuff will take congressional approval.
There was an attempt to get some Bitcoin-related tax provisions into the Big Beautiful Bill.
Those were sort of cut loose at the last minute.
The deal that was on the table.
So the Big Beautiful Bill is a reconciliation bill.
It needs to ultimately be budget neutral over a certain time horizon.
And so anything that you include there needs to have a pay for.
And so Cynthia Lummis was trying to add crypto related tax provisions.
And I'm oversimplifying a little bit, but there were sort of two gets and a give.
The give would have been ending the watch trading loophole for Bitcoin and crypto.
So right now, if you buy and sell, if you sell and then buy security within 30 days, you're not treated as resetting your cost basis.
That doesn't apply to Bitcoin.
If you have unrealized losses in Bitcoin, right now that's almost nobody, but in 2022, this was great.
You can sell and then immediately rebuy your Bitcoin, not take risk that Bitcoin will appreciate and you'll have less Bitcoin.
And you can write off your Bitcoin losses against whatever else you might have made money on.
Ending that loophole theoretically saves the government a bunch of money that you can then use to have the two gets here, one of which was a $600 de minimis exemption for spending Bitcoin, which is, I think, very important for the adoption, at least in the United States, of Bitcoin as a medium of exchange.
Because if you're buying a T-shirt, you don't want to have to keep a spreadsheet of what you're saying to the IRS at the end of the year.
I suspect some people are doing this and not reporting really small things.
I don't know how much the IRS is going to go into that.
But if we're moving to a super AI-enabled world where the IRS has Palantir LLM bot that tracks the Lightning Network, these things might end up mattering.
And then also, how much do people really want to spend their Bitcoin?
I don't know.
But yeah, the report is supportive of this de minimis threshold.
If we want to create a Bitcoin circular economy, that's definitely helpful there.
So I think that's good.
The other thing that was going to be in the Big Beautiful Bill that would be a get for the industry is to end double taxation on Bitcoin miners.
There is a really interesting legal question about how to think about specifically block rewards or Coinbase rewards, which is different than fees that are paid to miners.
Specifically, the question is, are they income or not?
Usually, income is something that someone pays you.
And I think when you pay a fee to a Bitcoin miner to include your transaction in a block, they are providing a service.
They are appending your transaction to the blockchain, and you're paying them for that.
And that's income, and it makes sense that they be taxed on that as income.
When they get a block reward, who's paying them?
There's no company.
There's no person.
And so, okay, so if it's not income, what is it?
And the logical answer, I think, is taxpayer-created property, right?
If you're a baker and you have flour and water and yeast and you create a loaf of bread, you don't get taxed when you have this loaf of bread that's worth more than the constituent parts.
If you're a novelist and you have electricity and a laptop and your brain and you write a novel, you don't get taxed on the creation of the novel.
You get taxed when you sell it, right?
And I think that is the right way to think about mining.
And when miners get taxed on the block rewards they get, that creates, first of all, a worse tax liability for them because they don't get to necessarily choose when to sell, right?
There might be times where it's advantageous to sell or not.
You get this constant tax bill.
And that just creates sell pressure in the Bitcoin community.
So it's worth a lot, I think, to the mining world and good for Bitcoin overall to have that rule change.
Now, there's some efforts to litigate this in court and say actually just – it is wrong conceptually to treat this as income for the reason I just mentioned and courts should change this.
But having this written into law would be a sort of more robust way of doing it.
It's so funny with the wash sale rule.
I remember I was talking with one of my buddies from college about this like maybe a couple of years ago.
and i was trying to explain him like no like you there that the wash sale rule doesn't apply he's
like of course it applies walker and he was you know like you know uh finance he works in finance
so he is obviously much smarter than i am he's a great guy i love him but you know he's he's a
finance guy so you know he knows everything uh he did not know this and then when he looked it up he
was like truly shocked and i think went and bought a bunch more bitcoin because he no longer had to
care what the price was yeah it caps the downside risk yeah yeah it's it's like okay like great can
can write that off. Honestly, I think too, I have a very mixed feelings about getting rid of that,
uh, exemption there because it's like, on the one hand, if you got rid of that, you would lose
a ton of the doubt, like the sell side pressure that exists right now. Cause people wouldn't be
tax loss harvesting anymore. Uh, on the other side, I like doing that. So, you know, yeah,
yeah, it's a double-edged sword there. Uh, were there, were there other parts of the report that,
that you really thought it was important to, to emphasize anything just in terms of like the,
the tone shift or, or anything else that was addressed. I know there was a lot,
I think there was some language specifically about acknowledging Bitcoin, like the Bitcoin's use or
Bitcoin and crypto's use in illicit finance was like really low, like it's low volume in terms of,
which I think it's like nice to see that acknowledgement.
Because that's lower per capita than fiat, which it was important for the government to
acknowledge given the amount of FUD out there. I think the sort of the overall tone, right,
the biggest takeaway of all of this is this is something that would have been really hard to
imagine a year ago, which is the United States government taking Bitcoin and crypto like very
seriously and on its own terms. And that's, you know, everything from the Stoshi quotes to the
stacking stats footnote to the, you know, in the illicit finance section, there's a really thoughtful,
thorough treatment of DeFi, which like that is a hard, complicated topic. Even if you start with
the principle of like this custodial non-custodial distinction for Bank Secrecy Act purposes,
figuring out what does custodial mean in the context of different DeFi tools?
You know, the sort of questions around the infrastructure for stable coins, it's really
nuanced and it's really in the weeds. And there were just clearly lots of dedicated government
officials who understood this stuff, understood this stuff because these were previous Bitcoin
and crypto people who got hired into the government to do this job that were like cranking out good
work product that is the result of smart and knowledgeable people thinking about these
problems and not the result of what we saw before, which is, oh, I read some, you know, Cornell
professor's academic thesis on, you know, how Bitcoin is unequal in its carbon emissions to
the whatever community, right? Like, uh, this is a, you know, this is written by people who know
what they're talking about. And, and that, that's the biggest shift. It's, it's, it's great to see
that shift. I did see that the Bitcoin club at Cornell just put out, I haven't gotten a chance
to dig into it. Uh, but to give Cornell a shout out, they did just put out like a really nice
report on global, uh, global Bitcoin adoption. Yeah. Really great. No, Cornell is the good and
the bad. They are terrific. I think the reason I gave Cornell, there's also like a professional
old FUD professor there who's like his whole thing is. Yeah. It's, it's, it's wild. I'm sure
he loves the, as a regular attending at the Bitcoin club there. I'd hope so anyway. Zach,
you know, before we wrap up, just want to ask like for BPI specifically, and thank you for going
through so many aspects of this report. I think it's super helpful for people just to, because
let's be honest, most people aren't going to read 168 pages. So thank you for breaking some of this
down in language people can understand. For BPI right now, what is your kind of main focus? I mean,
I know you have your hands in a lot of different things, but what are you guys really targeting
right now? What's top of mind for you? What's kind of the next push that you guys are looking at?
Yeah, so that's a great question. So first of all, our main two issues are what we mostly discussed
today. Our main two sort of issues that are ongoing. One is public investment in Bitcoin.
We think that Bitcoin is important geopolitically.
It's an important policy tool.
And we have our eye on the ball with the SBR and we'll continue to.
The other is protection for the ability to use peer-to-peer finance and the protection of non-custodial developers and service providers.
And we're going to run that one to the finish line.
There are really interesting questions, though, about the next chapter of Bitcoin on the world stage.
And to be honest with you, we're at a point with BPI where we're having a lot of that conversation, sort of looking into 2026 and beyond and thinking about what are the areas we need to focus on.
One of them, part of the story, I think, is going to be the intersection of Bitcoin and other emerging technologies, specifically AI and quantum computing.
and bringing together folks in government, folks in industry, folks on Wall Street.
To some extent, we've done a pretty good job making sure that there are people in the executive branch
and on Capitol Hill who get it.
I'm a little bit more worried about Wall Street right now and who they're listening to.
They get that Bitcoin and crypto are important, but not a lot of Bitcoiners who are speaking directly to them.
And so what are the financial service products that come out?
What is the regulation going to be around sort of autonomous AI agents that have access to the lightning network?
How is that all going to happen?
One of the initiatives we're working on, I'm not sure when we'll eventually do this, but we're working on a series of war games or tabletop exercises to figure out what would happen in various extreme scenarios.
So, for example, there is some sort of big illicit finance that, you know, Iran comes out as being on a Bitcoin standard.
Are our policymakers going to freak out?
We want folks from the military, from the intelligence community, from the big ETF issuers to play out different scenarios.
What if there's this executive order?
And try and come up with a playbook for that type of stuff.
This is not everyone's favorite topic, but what happens if quantum computing moves a lot faster than we hope or anticipate?
What does consensus look like?
What role do, if any, do policymakers play?
Do financial institutions play if there's a contentious hard fork around this?
What's going to happen, I think, is a really important question.
And so, you know, Bitcoin is now fully, fully like on the world stage, right?
It is an important technology that's here to stay.
And people really realize that.
But it's not the only one.
And we live in a world where lots of other stuff is happening.
There's big geopolitical shifts.
There's other big technological shifts.
There's big cultural shifts.
and sort of figuring out how does Bitcoin look
and how does Bitcoin policy look,
sort of going through all of those other,
you know, tectonic plates moving in different directions,
I think is going to be, you know, a part of the story.
And also you guys did just, may as well show it,
you guys did just open up like a role, right?
Do you want to talk about that?
Not just a role.
Let's do it.
Yeah.
Now, we may open up actual rules in BPI before the end of the year.
But specifically, what we just announced, in some ways, is actually cooler than that.
I had no idea you were allowed to do this.
But it turns out that non-governmental agencies are allowed to fund people to work in the government on Capitol Hill for congressmen and senators.
And so we just announced the Bitcoin Fellowship Program.
Um, there are certain congressmen and senators who are open to having a full-time Bitcoin-focused
staffer.
And so, you know, we've raised money and are in the process of raising more money to pay
pretty good salaries to people whose job would be to be the Bitcoin expert for lawmakers
in DC.
And these are really important, impactful roles, right?
For anyone who wants to move the ball forward on Bitcoin policy, I can't think of that many
things you could do that are higher impact than when bills come up, when federal lawmakers are
trying to figure out what their stance should be. You are the person they always turn to when it
relates to Bitcoin, and your job is just to be sort of knowledgeable on that and help them,
right? When crypto lobbyists come and they want to put, you know, Fartcoin in the strategic reserve,
you know, you're the one to explain why maybe that's not the best idea, right? And everything
in between. And so, you know, we're funding these fellowships, and we're setting them up,
and we're placing folks in congressional offices, but then they work for that congressional office,
they don't work for BPI. And so I think this is like a super cool role for people that want to be
involved in DC and or Bitcoin. And I think specifically for folks, you know, if you're at
the beginning of your career, and you're interested in Bitcoin, and maybe you're interested in policy
and politics, this makes a lot of sense. Or maybe even if you're later in your career, right, you've
done stuff, maybe you've made some money and you want to have work that really more aligns with
your values. And sort of looking at this conversation we had, I think it's very clear
this is a really important moment in the history of Bitcoin, right? It is in the process of really
maturing into this, you know, call it mainstream, call it geopolitically important, whatever.
and this can go well or it can go poorly.
But like this is the decade where like real shit happens.
And so, you know, I think the opportunity to have a bunch of people get these fellowships
and shape policy at the highest levels of government in this moment,
like I just think this is such a cool thing.
That's awesome.
I had no idea that you could do that either.
Is that like is that a pretty commonplace thing that NGOs will do?
or is it? You know, I don't know that it is. I think this is just like a thing that exists. And,
and, you know, there's one, I don't know, I don't want to like necessarily dox, but you probably
there's one very Bitcoin focused staffer in one of the Senate offices who's like been one of the
most impactful Bitcoiners just in DC. And like the idea that we could have a bunch of those,
right, people just giving good information and guidance to lawmakers, pretty exciting.
honestly that's that's that's awesome like we need more bitcoiners everywhere we need you know
we've got bitcoin as the the digital trojan horse but we need uh we need to physically also get
inside these uh these buildings um absolutely and the perk is you get to ride that secret
underground uh subway between the the houses um wow i i did not get to ride a secret underground
subway while i was there i did get you have to work for a congressman or senator okay those
buildings are a maze, by the way. Like it is really, I got, I got lost a lot of times down
there. Well, sweet. BTC policy.org. If they want to apply to that position, I think it, and there's
also maybe I'm pretty sure it's right, but BTC fellowship.org, especially for this program. But
if you go to the BPI's website, you'll be able to find a link. That's awesome. Well, I encourage
people to check that out because again, we, we need, we need more Bitcoiners infiltrating
everywhere. Zach, we've covered a lot today. Anything else that we did not get a chance to
cover? Or did we round it out pretty well? No, I think we did pretty well here. Yeah,
look, this is a big moment. There's good and there's bad. But, you know, certainly, I feel
very grateful to be able to have a front row seat to this. This particular moment in history is
really cool. I don't know that I could focus on anything else if I tried. And I think I have like
the coolest job ever with BPI where I get to think deeply about these policy questions. And I imagine
most people listening to this sort of feel that way, regardless of what your role is in Bitcoin.
Like, it's pretty fucking interesting how things are going now. And find a way to be involved. I
guess the last thing I'd say, and this is a comment I try and make as often as I can,
especially to people that are skeptical of the like, legal and regulatory side of things.
The reason why Bitcoin succeeded, where other attempts failed, is because it was a cypherpunk
breakthrough, right? We invented through proof of work, a consensus mechanism that allowed for
peer-to-peer transfers that couldn't be stopped. And so there was no throat to choke and Satoshi
didn't fail in the way that, you know, Digicash, Eagle, Liberty Reserve, that type of stuff failed.
That's not an accident. This is at its base, it's a cypherpunk revolution. And I really think it
will continue to be. And while this is an important moment in time where legal and regulatory and
policy concerns, I think in some ways are at the forefront, the final boss of Bitcoin, the only way
in which Bitcoin is not really a neutral tool is that in some sense, it takes power away from the
state. It takes the ability to control the monetary supply to some extent away from the state, the
ability to censor transactions away from the state. And what we are doing in the legal and policy
space in some ways is a rearguard action. We are buying time for the cypherpunks out there,
the builders out there to create the tools and deliver the education to allow Bitcoin to scale
to people around the world who really need it and to make sure it's at a place where,
you know, look, when they're, it's not the United States, there will be powerful governments around
the world that will see Bitcoin as a threat and usurp power from them. And they will come at it
much harder than they're coming at it right now. And we need it's the tech that that's going to win
this at the end of the day. And so I see a lot of my job is as buying time for the people who are
building stuff. So definitely encourage anyone who wants to be involved in Bitcoin policy to do that,
reach out to us at BPI, apply for the fellowship, do all that stuff, call your congressman center,
that's all super important. But if that's not you, the other thing that people can do really to move
this mission forward is start building. And I think we need more Bitcoin startups. I think we
need more Bitcoin tools. There is funding out there. There are great programs like OpenSats.
But see if there's something you can do to sort of put your shoulder to the wheel and move things
forward a little bit. Because again, not just in the legal regulatory space, it may be that Bitcoin
is inevitable, but it's only inevitable if it is inevitable because it creates the game theory
that's going to get over the line and you get to be an instrument of that, right?
That's the time you were born into.
So being involved in policy is not the only way to do this.
And I want to encourage anyone who might be a builder out there, an entrepreneur to do
that as well.
I say amen to that.
Well, Zach, thanks so much and appreciate the work that you and BPI do very much.
Keep up the great work.
And yeah, and if you don't want to get into policy and you don't want to, you don't have
the tools to become a developer, even though you can vibe code a lot of stuff now, you can still
start a Bitcoin podcast. So, you know, that's the third door that you can go through. And we need
more of those as well to help, you know, propagandize the world. Well, I mean, the brain
drain from Bitcoin podcaster to officer of a public company is, it's alarming. It really is.
We've got to do something about that. There's a big gap that needs to be filled now. So many
podcasters now just becoming full on suits. So there's doors opening up for new entrants, I'd say.
But Zach, thank you for your time, man.
Great talking to you.
And yeah, keep up the great work.
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