Episode #25: Fear and Loathing at a Cryptokitty Auction 🙀
By: Coin Talk
Tags: Investing, Cryptocurrency, Ethereum, Zcash, Bitcoin

Transcript

Robot

This episode of Coin Talk was taped Tuesday, May 14th at 100 PM Eastern Standard Time. The Bitcoin Price Index was $8,726.

Aaron Lammer

Jay, in the crypto cave.

Jay Kang

Back at it.

Aaron Lammer

I understand that you are out of patches.

Jay Kang

I'm out of nicotine patches, which I was not expecting. I generally have it lined up like baby diapers where you make sure you're not out of them, but for some reason I went to my car this morning, and the patches that I thought were in my console were gone, so either somebody robbed me very specifically, robbed my car of nicotine patches, or I misplaced them.

Aaron Lammer

Should we be announcing the price of Bitcoin and your patch level at the start of each show?

Jay Kang

If I sound extremely irritable, if I start yelling at you about something, Aaron, please, it's not me.

Aaron Lammer

It's kind of terrifying to think that this is the you that's on the patch that I interact with.

Jay Kang

Oh, yeah, well this won't look, trust me ... Like I could fly off the handle for any reason right now. You just try me.

Aaron Lammer

Okay. Well, I'll do my best on that front. You want to do a little news?

Jay Kang

Yeah.

Aaron Lammer

Actually, I'll do the first one that just jumped out at me. It's been a long time since one of my bags has just spiked out of nowhere against the market. This is the stuff that got me into crypto in the first place, waking up and seeing like a 30% jump in one of your bags.

Jay Kang

Yeah. It was like if you planted a bunch of seeds or something like that and then you woke up one morning and one was like a full grown marijuana plant.

Aaron Lammer

Exactly.

Jay Kang

And you're like, "I don't even remember planting marijuana, but great!" You know?

Aaron Lammer

Yeah. Yeah. I actually did that in my own yard. I bought $5 worth of sugar snap pea seeds on Amazon, which is, I'm gonna tell, for a preview for your listeners, that is way too many sugar snap pea seeds. That's enough to have like your own sugar snap pea operation. So, by the end, I had soaked them, so I just started throwing them all over the yard, so I'm hoping in a few months, there will just be weird snap peas growing in strange corners and in the trash pile.

Jay Kang

Isn't that littering? Aren't you-

Aaron Lammer

It's my own yard though.

Jay Kang

You don't own ... It's not your lot, right?

Aaron Lammer

Who's gonna be mad if some sugar snap peas pop out? Actually, I think a couple of my neighbors listen to this podcast, so ...

Jay Kang

Okay, let's be very clear about this. This is not Aaron's yard by himself. He shares it with at least 10 other people, and he is throwing sugar snap pea seeds everywhere.

Aaron Lammer

So, the sugar snap pea/marijuana plant that I'm referring to is of course ZCash. We're dating ourselves here, but this morning ZCash spiked 30%, which used to happen to my portfolio a lot. It's been a while, and my first instinct was like, "Wait, why is this happening?" You know? It's not like the New York Times front page has like an explanation of why ZCash spiked. I Googled ZCash. I was like, "I don't know. What happened?"

Finally, we asked our good friend, Ledger Status, and he informed us as you and I are not always up to the minute on crypto news, that ZCash had been added to Gemini, or Gemini announced that it was becoming the first licensed ZCash exchange.

Jay Kang

Wait, so do you own ZCash right now?

Aaron Lammer

I do, yeah. Yeah. I think you actually talked me into it. I became such a Monero fanatic. Then I was like, "It would really suck, like what if I was right about the privacy coin hypothesis, but it's not Monero, it's a different one?" So, I hedged myself pretty extensively in the privacy coin area.

Jay Kang

Oh, yeah. Well, you have to do that, I think. I think the argument was between is the academic background and the technological interest in ZCash going to win out over the current functionality in sort of the "coolness" of Monero? And at that point, to me at least, it seemed like a coin flip.

Aaron Lammer

And then there's a bunch of like long short horses like way back in the pack that you can also throw your money at.

Jay Kang

Or like shit like Verge, which was a privacy coin.

Aaron Lammer

Sure, Sumo.

Jay Kang

Or Dash, that was very like-

Aaron Lammer

Sumo.

Jay Kang

No. Not Sumo.

Aaron Lammer

I'm back on the Sumo. We can talk about [crosstalk 000607].

Jay Kang

Wait, really?

Aaron Lammer

Let's wait. Let's tease that.

Jay Kang

Speaking of fucking [crosstalk 000610].

Aaron Lammer

Later in this program, we'll discuss how Aaron got back in the Sumo game.

Jay Kang

You've lost your title.

Aaron Lammer

So, ZCash up about 20, 30% against Bitcoin. I don't know where it's gonna land, but this is kind of a big deal, right? The fact that you can go in and trade cold hard U.S. dollars for a privacy coin that's totally anonymous and untraceable.

Jay Kang

I think so. I mean, it's different than adding Litecoin, which I believe they also added today, right?

Aaron Lammer

Yeah.

Jay Kang

Which is very expected and nobody can come up with a usage for. Now, the amount of ZCash that's actually being used out in the world is very, very, very, very inconsequential as we explained in ... I think you and I did a ZCash deep dive.

Aaron Lammer

Yeah, we did a ZCash and Monero deep dive, and yeah, there's also not a ton of it out there.

Jay Kang

Yeah.

Aaron Lammer

I did notice pretty early on, ZCash is being mined at one of the more professional levels. Like it's one of the coins that you can get dedicated miners for, and there does seem to be an ecosystem building around it, and then there was this other strand of thought, and I remember people said this, which said like, "Coinbase will never feature a privacy coin. It's out of the question," like as if it was like a line too far to go in America to let people trade a dollar for a privacy coin.

Jay Kang

First of all, Coinbase has not ... I mean, we're talking about Gemini, which is a different project. I think it is interesting in theory. I think the number of people who will be buying ZCash and then using it as an anonymous transaction, as we discussed before, the other person has to also have a ZCash wallet, and then you have to turn on the masking of it before you do the transaction, and then you can use it, and then it works that way. The number of people who are doing that because Gemini offers it who wouldn't have been doing it in the past, I think, is probably close to zero, but-

Aaron Lammer

But to slightly push back against that, all you need is two Gemini customers, right? Doesn't every Gemini customer have a ZCash wallet now?

Jay Kang

No.

Aaron Lammer

Oh, no. Only if you [crosstalk 000808].

Jay Kang

You basically need the actual desktop wallet to do a masked anonymous actual transaction.

Aaron Lammer

Right, okay. So you couldn't do it purely within Gemini?

Jay Kang

Yeah, like if I sent you ZCash through Gemini, you couldn't do it that way.

Aaron Lammer

Okay.

Jay Kang

But I do think it is a ... At a time when Japan seems to be threatening to shut down a lot of the privacy coins and take them off exchanges, I do think it is a good sign that the probably second most trusted exchange in the United States has started offering ZCash because it seems to at least be an endorsement from the establishment or the crypto establishment that privacy coins are okay.

Aaron Lammer

And now the cats out of the bag. I mean, I was a little shocked honestly because I thought that people really didn't want to mess with that stuff. It's a more extreme form of cryptocurrency. We're not totally clear where we stand on the ones that we're already changing fiat to. The next exchanges that are gonna come around are gonna be comfortable broaching this topic and potentially crossing the same line. It kind of speaks to competition within the exchanges that this happened at all.

Jay Kang

I guess so, but I also think that part of the reason they chose ZCash was not necessarily because of privacy but because the team is, like in the same way that we were talking about last episode with 0x and how the team is very Silicon Valley rubber stamped. Like you can't find a more illustrious team of cryptographers in the entire crypto space.

Aaron Lammer

They've got their bonafides.

Jay Kang

All bonafides up and down, like everybody is a professor of something at Johns Hopkins or MIT or whatever, like they have real academics and real researchers working on this stuff, and I think that actually probably has more to do with Gemini's stamp of it than anything else.

Aaron Lammer

I think you're onto something there. Like when we started talking about the good crypto versus bad crypto, if ZCash did get filed into the bad crypto, which I guess in the Japanese sense it is, it's the best of the bad crypto. It's the most reputable bad crypto. Even Monero, which I'm a fan of, has a little bit more of an anarchist, fuck you, punk rock kind of attitude.

Jay Kang

I don't know if that's true or if you're extrapolating something deep within yourself that you wish was true about you.

Aaron Lammer

There's definitely some assholery going on over in the Monero camp, and whatever ZCash's attitude is, the first thing you hear about are all these academic bonafides, and it will be interesting if these university qualifications are what allows privacy coins to flourish in America; if the academy is the person who brought about the apocalypse.

Jay Kang

That narrative doesn't necessarily work with our current tech narratives, right?

Aaron Lammer

No.

Jay Kang

Mark Zuckerberg dropped out of Harvard, and we're supposed to think more highly of him because he dropped out of Harvard.

Aaron Lammer

Peter Thiel will pay you not to go to college.

Jay Kang

Yeah. Bill Gates dropped out of Harvard, right?

Aaron Lammer

Yeah.

Jay Kang

So, it is interesting that basically people who are like 14 years into their higher education are the ones that are being rubber stamped by crypto, and I think the reason why this is is because crypto needs anything that people can glom onto that makes it seem like a real project because there's no product to show.

Like Facebook had a product that was better than MySpace at the time and was better than Friendster, but with crypto, all there is is the reputation of the people doing this thing that you're not gonna actually use functionally, and so you have to believe in the project based on the credentials of the people who are doing it.

Aaron Lammer

I think about ... I'm not saying that there's anything scammy about ZCash, but there's certainly scamming within crypto, and generally when you see academia crossing the path of scammers, it's being used as a way to legitimize scammery. You know, some guy is on the self help circuit, and he's like, "I'm a PhD from blah blah blah."

Jay Kang

"The University of Toronto."

Aaron Lammer

Yeah. So ... Jay. Like that could be another battle ground, I think, within cryptos as different academic researchers coming to back certain coins, but I think it's a huge bullish sign for ZCash. I feel like they just jumped into a new class.

Jay Kang

I do, too.

Aaron Lammer

They're not bad crypto anymore.

Jay Kang

I agree, and I think that this might free them from some of the weird interpersonal stuff and the Zooko stuff that has been kind of affecting their whole existence, which there always seems to be some drama around ZCash.

Aaron Lammer

Yeah, and that's probably good for both of them honestly. It gets people interested.

Jay Kang

Yeah. The other thing is that I think that Gemini finally offering something other than Bitcoin and Ethereum and offering ZCash, which is not offered on Coinbase, it might help them-

Aaron Lammer

It's certainly a differentiating factor in terms of what you're signing up for. It's almost like we're seeing these, Coinbase and Gemini, appearing as full other ecosystems, and they imagine whole other worlds. Definitely Coinbase went into like Ethereum world, and that's like where it's pointed.

Jay Kang

And we'll talk about Ethereum world a little bit later in this episode.

Aaron Lammer

If you're wondering what you can buy in Ethereum world, you're definitely gonna want to hear what Jay has to say later in this program. But Gemini is obviously not going to go for Ethereum world. I don't think you want to compete with the founders of Toshi and going how ETH you can go, but ZCash presents a whole different audience that has privacy people, anarchists, deep libertarians. It really speaks to where they could go with that stuff.

What one of the Winklevosses said when he added it was, "Yeah, Bitcoin was great, but this is taking it further." I think that Brian Armstrong thinks of Ethereum as Bitcoin but further, and the Winklevosses are signaling that they think of privacy as the further, and if we ever see a true flippening event, it's gonna be along one of these axises. Like if something replaces Bitcoin, it's gonna be become it reaches that mass exchange state and people think it's superior.

So, I wouldn't be surprised, like I'm gonna call my shot here, would not be surprised to see ZCash go on a crazy run over the next few months.

Jay Kang

It's almost convinced me to buy ZCash, but not quite.

Aaron Lammer

I thought you were gonna say it had almost convinced you to short ZCash just to spite me.

Jay Kang

You can short it on BitMEX, so ...

Aaron Lammer

So, Jay I understand you went on a little field trip.

Jay Kang

Wait, wait. No. Before we do that, I want to talk about a story that is fresh off the presses-

Aaron Lammer

Hot. Hot.

Jay Kang

... which is ... Hot off the presses. This morning, the Supreme Court of the United States, and I feel like we should have an applause sound effect here. They legalized sports gambling in the state of New Jersey. Now, it's a somewhat thorny, complicated case that we don't have to really talk about, but essentially what the court did was they removed federal oversight, and now states can decide individually if they want sports gambling in their state, and so New Jersey has already said yes. I don't know what the exact timeline is gonna be before sports gambling opens up there, but several states are gonna start offering sports betting. You're gonna see the emergence of little storefronts in which you can go in like William Hills in London and place sports bets.

Aaron Lammer

OTBsThe saddest place in the world.

Jay Kang

Well, not if you're winning, then it's very happy, but yes, from an outsider's perspective, they are neither clean nor sanitary nor do they have good energy about them.

Aaron Lammer

I feel like if I was trying to draw an illustration of bad vibes, it would just be like a shot through the window of an OTB.

Jay Kang

It's a big cliché, though. I actually think that the link to crypto here is fascinating, and it is because right now if you go online and you go to any large sportsbooks, so whether it is BookMaker, which is a European one, [Sportbook.au 001554], which is another huge one that has a long history, Bovada ...

All these things take many, many forms of cryptocurrency, and then they just sort of convert it for you, and so if you put in one Bitcoin, then they'll credit $8,000 or $8,500, wherever the price is at the time, to your account, so large amounts of gambling are already happening with crypto, and I feel like now that it is legal in these places, that if you see any sort of adoption of crypto, I actually think it'll, to like a brick and mortar setting, it will be because these casinos and these sportsbooks, when they open up, will almost certainly take crypto.

Aaron Lammer

We've discussed before how there are these long shot future uses of crypto, like, "Oh, we're gonna pay the electric grid, and it's gonna auto-leverage the cheapest electricity," and it's like, cool, could I do that now? Definitely not. Could I gamble with crypto now? Yes. It's the real first use case.

Even when you think about some of the more utopian elements like ETH World DApps. It's like well, what could you actually use a smart contract for right now, right here? It's like to settle a bet; to set up futures, betting ... It strikes me that what you're describing, which is basically the same people who have already been in the sports betting game coming legally to America and allowing Bitcoin betting is only the beginning. I would expect that people would want to decentralize these in the same way as exchanges and create future betting centers that actually use some of the smart contracts.

Jay Kang

Well, now that it's legal, you don't need to decentralize it, right? So, the decentralization doesn't matter, but what matters is that you want to build a massively responsive quick and creative infrastructure for the millions of people who are gonna now start sports betting legally, right?

Aaron Lammer

Yeah.

Jay Kang

So, if this is not just Nevada, now you have Pennsylvania, you have New Jersey, you have California, Wisconsin, Texas, Oklahoma, all these states start to open up sports betting, then you can bet in those states, and so will cryptocurrency, will blockchain companies be able to come in there and say, "We want to build this thing for you." The people don't necessarily have to use this token to bet that we're creating, so they issue an ERC20 token or whatever a lot of these casino ideas are. If they can get into that market and they can build an infrastructure for it, then I think that's massive for crypto.

Now, I don't know if they can, but if they can, then you actually have real economies that are working off of some blockchain or another.

Aaron Lammer

Well, they certainly have enough money to give it a pretty good shot. We've discussed how we think the next generation of exchanges will be funded by Silicon Valley, and people are gonna be in a lighting money on fire state trying to get new crypto customers. The people who I can realistically imagine competing with them are the major gambling sites, and yeah, if the reason that you originally buy Bitcoin is to like lay money on like NFL Parlay, you still got a crypto wallet on your phone, you know? It doesn't really matter what the beachhead is, but I do think the decentralized exchanges can play a role.

You're a much more experienced gambler than I am, but I noticed that the fees are pretty significant that you're paying. The vig is not insignificant in these betting situations, and what we're seeing with some of these decentralized Ethereum exchanges where they're doing these totally frictionless swaps and trades ... Couldn't someone eventually build a system for gambling where the house takes a lot less money, and the whole thing just runs as a giant piece of software?

Jay Kang

Well, I mean, the problem is they would lose money even if the cost were zero, right?

Aaron Lammer

Right.

Jay Kang

What they can do is they can have all bets be parimutuel, and what that means is that if you have enough people entering a giant pool and there are smart contracts, it could just be ... Like if I bet you $10 for example on the Warriors game tonight.

Aaron Lammer

Yeah, I will only bet you in Ripple, but yes.

Jay Kang

Yes. If we do our standard bet, and it's like 19 Ripple, we don't pay each other a vig, right, because why would we? Nobody is assuming giant loss.

Aaron Lammer

Yeah, we just pay that cockroach that lives in the studio.

Jay Kang

Yeah. We give him half a ripple.

Aaron Lammer

Throw him a little croissant.

Jay Kang

Has he come back?

Aaron Lammer

Oh, yeah.

Jay Kang

Oh my God. Have you tried to kill him?

Aaron Lammer

I tried to catch him because I wanted to add him to our show art.

Jay Kang

Oh, you're gonna take a photo of him?

Aaron Lammer

I could've killed him, but I instead tried to take him alive, and he disappeared again.

Jay Kang

I'm glad my feet are up on this chair.

Aaron Lammer

If I catch that cockroach and I have a little terrarium in here with like a little Lambo, would that offend you?

Jay Kang

No, no, no. I don't want to kill the cockroach either. I mean, he's so big that he must have conscious thoughts. I would feel bad doing it.

Aaron Lammer

Yeah, he's basically a land lobster.

Jay Kang

He's bigger than many lizards, let's just put it that way.

Aaron Lammer

Yeah. Okay, well, Kickstarter for housing for our cockroach coming.

Jay Kang

The last thing I'll just say about this gambling thing before we move on is that I think that I will agree with you that there is innovation to be done in the gambling space and that crypto companies should go all the fuck in because they have this new time where the rules are not quite set, and each state is making their own rules, and so it could be that things like Augur, which is a prediction market, which right now can only be done through some sort of ... It's like, you know when sign up for something they're saying you need a dot edu email address to qualify as a student? It's kind of like that with prediction markets right now.

If they could figure out a way to bust out a real prediction market that's popular, that's like a huge boom, so I think crypto really needs to rush into this space as hard as possible. I'm sure it will.

Aaron Lammer

Do you remember the first time you played, what's that trivia game called on your phone?

Jay Kang

HQ.

Aaron Lammer

HQ Trivia, and you're like, "Holy shit. This is really fun. Can't believe there wasn't something where I like played against everyone in trivia." I think that we're waiting on the first prediction market that feels like that where me and you are just making all kinds of fun bets, and we open up in the morning, and we're like, "Who are you backing in the next Trump cabinet member to go?" You know?

Jay Kang

Yeah, or like how many tweets will trump put out today? All that sort of stuff would be so fun. Can you imagine if it was kind of like Reddit?

Aaron Lammer

You could start a gambling area on anything.

Jay Kang

There are communities that formed almost organically betting around different things, and you could check in on them and there just be lists of different bets that you could take either side of or you could start your own bets. I mean, I think that's the idea of Augur, and I'm very excited about it. I just am very unexcited to buy the Augur token until the Augur platform actually exists. Then I'll buy the fucking token.

Aaron Lammer

Before we finish up, I have to ask you, Jay, now that the Supreme Court has said this is kosher, I know you're celebrating this decision. I also know you don't have any patches, but did you ever think, "Man, maybe it would be better if the Supreme Court totally outlaws gambling in America for my own future health as Jay Kang?"

Jay Kang

I'm in the middle of one of the greatest sports betting hot streaks of my life. I think I've hit seven of the last nine. I've only missed two, and it might be even more than ... Nine is a conservative estimate.

Aaron Lammer

I just asked you do you think sports betting might destroy your life, and you're like, "Let me tell you how much I've been winning."

Jay Kang

No, no, which is all to say that right now I don't think I'm the right person to ask because sports betting is amazing, but of course I'm gonna ... I'm sure I'll lose tonight because I said it, but I don't know, man. If people really want to bet on sports right now, they can. You're not a deep gambler. You know how to bet on sports I bet.

Aaron Lammer

Yeah because it's mostly a tech hurdle not a gambling hurdle.

Jay Kang

Yeah. Like you could turn around to that computer right now and you could do it. You know the steps already, and anybody who really wants to bet whether or not they do through a bookie or whether they do it online, everyone kind of can bet, and will this lead to a higher spike in activity?

Aaron Lammer

Probably.

Jay Kang

Probably, but is that necessarily a fatal thing? No, I don't think so.

Aaron Lammer

I understand that you went on a field trip this week.

Jay Kang

Oh, yeah. Yeah.

Aaron Lammer

Out in the world Kang.

Jay Kang

Saturday, I was a guest. I climbed out of my apartment, got in my car, drove to beautiful Maspeth, New York where I was a guest at the Ethereal Summit.

Aaron Lammer

Yes. Is it may-? I thought it was mass-speth.

Jay Kang

I have no idea. Maspeth. Maspeth.

Aaron Lammer

Okay, so we've been getting asked a lot, "Are you guys going to Consensus? Which conference will you be at?" It's at Blockchain Week, right? This is Blockchain week right now, right?

Jay Kang

It is Blockchain Week.

Aaron Lammer

And the answer generally is, "No, we are not going to any crypto conferences unless someone is paying us to go."

Jay Kang

Or will pay our fee and there's free food.

Aaron Lammer

Yeah, or you offer enough food.

Jay Kang

And it's not in Midtown.

Aaron Lammer

And I do feel kind of bad about this. Like I know that we're starting the show, we're supposed to be involved in the crypto community, but I just ... After all the journalism conferences I've been to in my life, I just don't have any bandwidth left to attend conferences. I just, I can't.

Jay Kang

You've been to a lot of journalism conferences?

Aaron Lammer

Oh, my God. I used to go to be on panels at journal ... Dude, we were at the same journalism conference once. Don't you remember?

Jay Kang

Oh, yeah. That's right, in California.

Aaron Lammer

I like how you're like, "You've been to a lot of journalism conferences?" I'm like, "Jay, here are 10 pictures of me and you at a journalism conference together."

Jay Kang

Yeah. I don't really go to them anymore, but there was a period of time where I would go to them because people ask, and then you'd feel bad saying no.

Aaron Lammer

Yeah. So, what is Ethereal, and what was it like?

Jay Kang

Okay, well I will just say that I went to, full disclosure, I went to film a segment for Vice News Tonight, which is the HBO show that I'm on.

Aaron Lammer

Work Kang. Work Kang.