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bankless_ROLLUP_Under_Attack_-_Crypto_Freedom__Privacy

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Masa Foundation 7

A

Where, where does this stop? David? Are they going to arrest Tim Berners Lee, you know, the creator of the Internet protocols? How about Netscape 1994, who designed HTTPs? Remember Marc Andreessen talked about kind of cryptowars 1.0 when he came on the podcast? He was talking about the battle there. I mean, are the developers of Internet protocols responsible for how North Korea uses the Internet in order to do nefarious things that treasury doesn't want? It's absolutely ludicrous. And I think that if. If treasury or ever any government regulator in the US took this type of stance towards communication, we would have no silicon Valley, we would have no free and open Internet based largely in the us today. We would have none of this innovation and economic GDP growth. It would have been completely squelched. Bankless nation. It is the last Friday of August. David, what time is it?

B

It's the bankless Friday weekly roll up where we cover the entire weekly news. And crypto, which is always an ambitious endeavor, yet we persevere nonetheless into the frontier. How you doing, Ryan?

A

We're doing okay. Just okay, though, you know, this, this week felt like a gut punch. And we're gonna talk about some, the bad thing that happened this week and in the show. There's also some good stuff, but I mean, getting the bad thing out of the way. Number one, the Department of Justice has arrested Roman Semenov. This is a us developer of tornado cash, an open source privacy developer. This one hurt. David. It feels like crypto continues to be under attack. Privacy and freedom are under attack. It's a big freaking deal. And we're going to spend some time talking about it in the episode. That's the bad stuff. But we got some good stuff, too. What else?

B

We're talking about plenty of good stuff. The arrival of EIP 4844 draws close. This is, of course, the one that scales up layer twos further than they already have. The friend tech debate continues. Is it good or bad? Ron and I did an entire show on that. We will recap it very quickly, but really talk about the big takeaways, which are that it's proof that we are ready to go mainstream. We got a mainnet debut as well. We got an airdrop to talk about and an exploit as well. Just a normal week in crypto, so make sure to, like, subscribe, rate, and review wherever you get your podcasts. Ryan, I don't know if you've checked recently, but on Apple Podcasts, we are about to hit 1005 star reviews. So this is a call to action for anyone listening to on bankless on Apple, give us those five star reviews so we can legitimize the bankless podcast and get that top of the iTunes investing in business categories.

A

You know what? We gotta start here, though. This is pretty cool from our friends and sponsors over it. Speaking of cool events, this one's not in Germany, David. But we're throwing a little party, little shindig over at permissionless. This is gonna happen Monday, September 11, from 07:00 p.m. to 10:00 p.m. in Austin, Texas. David, what are we doing here?

B

So every once a year, bankless manifests in real life. Could you imagine? That is the permissionless conference. Of course. We've been talking about it endlessly on the weekly roll up for bankless citizens who did not catch it last week or for whatever reason, missive roll up. How dare you? We are throwing a party for you, the citizens, and that is Monday the 11th at permissionless. So the one time of the year the bank list shows up in real life. Ryan will be there. I will be there. The entire bankless team will be there. So you guys can meet all the magicians that make this show possible behind the scenes. Big shout out to the team. We're all going to hang out, going to get some drinks. 500 people is our limit. We are not there yet. So if you are a citizen, make sure you show up in the discord to click the link. That is only for citizens, as well as all the other podcasts, guests that you guys have listened to, all the people, panelists that we've invited to permissionless. Anyone that's ever been on bank list that's also a permissionless will be there. I think. I think Eric Voorhees signed up today, so he'll be there at the party along with everyone else. You know, all the fam.

A

I'm gonna buy that man a drink for that debate with SP.

B

I will also buy. Well, you can get Eric Voorhees. I'll get Dankrat's drink. I'll get Dankrat's drink.

A

Yeah.

B

Yeah.

A

Do you know what? Actually, I got a surprise for you, David, because all the drinks are free.

B

All the drinks are free. Kraken is actually buying Eric Voorhees a drink. Thank you. Kraken for thanks, Kraken. Yeah.

A

Well, speaking of Kraken, let's pull up the Kraken price charts. Bitcoin price this week, start of the week. I think we're down from last week.

B

But tell us the carnage here down 7%. Bitcoin has lost $2,000 off of its market cap, starting the week at $28,000, ending the week at $26,000. You know, last week, we were covering the prices during the dump, and I was like, oh, we almost never get to do this because it always usually dumps right afterwards.

A

You're excited.

B

Yeah, because we actually were able to cover the market action. And so, like I said, like, oh, yeah. So it's. We're botting them out. Right now. It's at 1740 or maybe 16. It was 1640. I was like, okay, sweet. We're actually getting the market action. And then afterwards, there was a huge wick all the way down to, like, below 1600. That's the ether price I'm talking about. So, no, we actually did not get the capture the market actions. But moving on to Eth price. 1740 is where it started last week. Down 5.5% to 1640. Wicked. Down to 1520. $5. Whoa, that got real low.

A

We're going to talk about that. We're going to talk about that in a bit. Why that wick may have been. But before we do, let's talk about a few of the other metrics here. Eth bitcoin ratio, is that flat?

B

Up 1.5%. Yeah. So this is a bitcoin sell off that dragged the rest of the market down.

A

All right. And global crypto, market cap. Total market value of crypto. What's that sitting at, David?

B

Yeah, almost 1.1 trillion. We did drop below a trillion dollars during the bottom. Yeah, but we're back up 10% above a trillion.

A

Yeah, I don't like bitcoin below 30k, eth below two k, and definitely market cap below a trillion.

B

Enough buyers kept us above, you know, above $1 trillion. So thank you to.

A

This is going to be one of.

B

The shout out to buyers out there. I was a buyer last week. You were buyers?

A

You were a buyer? Yeah, I was a buyer. I think by proxy, one of the things that I do is buying total crypto market captain above a trillion, though, still, I think this is going to be one of those bad news good news episodes. All right, so that was the bad news. Prices are down a little bit. Let's get into some good news here. It's all on layer two beat. Look at the activity. David, what are we looking at here?

B

We're looking at a growing area under the curve of the scaling factor, hitting new highs for the week at 5.2 x ethereums. So the aggregate scaling of all layer twos on ethereum are 5.2 x one the base. Ethereum, mainly thanks to Zksync era, actually, interestingly enough, clocking in at 12.2 transactions per second, coming in at number one, followed up by. So this is earlier the week, followed by base coming in at 8.6 transactions per second, arbitrum, seven transactions per second, and op mainnet, five transactions per second. So really, honestly, like, shout out to ZK era. The transaction volume has been absolutely insane. There is a decent supply of that that is bots, but also there's a decent supply that's not. What do you mean, bot airdrop farmers.

A

Oh, bots. Okay.

B

Actual bots passing money around. And so, like, yeah, like many, many people think like, oh, well, it's bots. It's kind of, it's like illegitimate, illegitimate transaction volume. It's not, it's not real humans. It's real money. Like that's. There's a half a billion dollars being pushed around in ZK sync era. So that's real, actual, like stress testing of the protocol. Bots or not, there are actual, like new novel apps being built on ZKDe that real humans are actually using. So it's a mix between bots and humans. Kind of a taste for the future.

A

Well, that's what you're going to get. When the transactions are so cheap, then the robots can start affording it, right? Cheap transactions are robot transactions. Base flipping arbitrum and optimism by daily transaction count. Wow.

B

Yep. Coming in at number one at the optimistic roll ups.

A

Yep, it's a big freaking deal. Look at this chart just straight up. Have you been surprised by Base's adoption, David?

B

I mean, as someone who's been playing on friends all week.

A

No, I mean, from a month ago to now, would you have predicted this chart, base in like a period of weeks, outstripping Ethereum and then also the two largest optimistic roll up chains that have been live for like two years and base beats it in two weeks.

B

I have the benefit of hindsight right now, but I don't know, it feels pretty obvious. That's why people have been excited about base all along. Like a lot of the l two based contrarians have been like, why is everyone excited? It's just another optimism fork. It's nothing new. And then everyone, the base bulls are like, what do you mean it's nothing new? It is the largest exchange, the largest us public company exchange with their own layer two. Of course they're going to pump the hell out of it and they have the marketing reach and so we're seeing, I think the base bulls take a victory lap here.

A

I would say a lot of things in crypto do not live up to the hype. I would say even among the people who are hyping it, base has kind of lived up to the hype, at least to this point in time. This is a post from will she hand 1 million trades on friend Tech in the last two weeks? In less than two weeks. That's incredible. Would this be base's first breakout app? It's all friend tech.

B

Yeah, I would say so. Yeah.

A

These are the dune boards. David, what are we looking at here? This is fascinating roll up economics. What do you see in these charts?

B

Yeah, this is just some great bankless candy right here. This is why we've been bullish on layer twos, fundamentally, is because their economics just check out. This is an economic dashboard from Nifty table. Shout out to nifty table. Thank you for putting this dashboard together. They've got a [email protected]. if you want to sign up. Okay, so on the top left on chain profit. This is how profitable these roll ups are. And you can see kind of why I was pointing, like, yeah, sure, there's a bunch of bots on Zksync era, but they're paying Zksync era a ton of money. That's real revenue into the bought or not, followed by base. This is for the month of August of 2022, followed by base profitability, and then op Mainnet and arbitrum. And so this is the transaction fees that the roll ups are charging minus the cost of publishing transaction data to the ethereum. Layer one is the profit. And that is what you are seeing on the left in ether terms and on the right in dollar terms. And then if you go scroll down, it'll kind of just walk you through the costs and also the revenue, just all the economics that make a roll up. A roll up. And so this is the dune dashboard that basically articulates the economic case for layer twos. And as you can tell, they are extremely profitable. So, in aggregate, between arbitrum, optimism, base, and Zksync era, all of them combined together profited 3000 ether so far in August. In the first three weeks of August.

A

3000 ether in August. What would that translate to 3000 times?

B

Almost $8 million. Almost $8 million. Thank you to the us dollar chart on the right here.

A

What I love about this, David, is, you know, in so many, I guess, crypto economic models that are obfuscated or hand waved away, this is like real tangible on chain revenue. And the business model for roll ups for layer twos could not be more simple. What do they do? Ethereum is a wholesaler of ether block space. Ethereum block space. Rollups purchase that and they resell it for more. They are a value added reseller, and then they make a profit on that resale. And that's how they generate 3000 eth worth of value in one month. It's a really freaking simple business model. I mean, like a lot of technology here, a lot of work to get the kind of the network effect. But what do rollups do? They take layer one block space, Ethereum block space, and they resell it for a profit. That's what they do.

B

So Ethereum layer one is Costco, and all of the options of roll ups are your local grocery store that goes to Costco buys the goods. Restaurants on packages. Yeah, restaurants. Yeah. Your local distribution center, wherever that is. Yeah. Ethereum is the Costco of blockchains.

A

Wow. The new narrative. Watch. It's coming from bankless. No longer ultrasound money.

B

This is a graphic that I saw going through crypto Twitter last week that I thought was pretty cool. Cool. The current layer two landscape, I think this already needs updating because there's definitely some extra op stack chains that aren't in here. These are all the layer two s that are deployed to Ethereum and then also the ones that are scheduled to be deployed. Things like Scroll, Tyco, some other ones I'm not familiar with. So you can see just like the Starkx ecosystem, the Zk stack ecosystem, the op stack ecosystem, and then the ones that don't have shared code bases like Arbitrum, Starknet, Aztec connect, et cetera, linea.

A

Where's polygon? Oh, I see it. No shared code base up here, huh?

B

Yeah, should be changing soon. So the scheduled live immutable Zkevm, I'm pretty sure that is a polygon Zkevm. So the polygon will have its own ecosystem. I don't know about the no shared code base between arbitrum Nova and Arbitrum one. I thought that that was a shared code base TBG on the accuracy of this whole thing. But this is like the spread of the layer two s, and there's a lot of them is the point.

A

There's a lot of them and each of these, this is kind of a new thing to take a look at taking shape. Each of these, I think, will become super chains in and of the himself. Networks of chains, I believe. So we'll talk about that. A little bit more maybe at the end of the show. David, some market news here. Let's get back to why. There was this massive down a candle right after we recorded the roll up last week. Did we see something wrong?

B

Bitcoin is at 26,000 at the time of recording, and it dumped down to 25,200 ether. That was, like, below 1550.

A

That happened last Thursday.

B

We call this a wick or a flash crash.

A

Yeah. So it happened last Thursday, the 17th, I believe. Okay, so why? Why did this happen?

B

So there were rumors that bitcoin was dumped by Elon Musk from SpaceX. So. Thanks, Elon. Turns out that was unsubstantiated. The actual reason was leverage. It was leverage.

A

Oh, we did one of those things again?

B

Yes, yes. A bunch of apes loaded up on leverage, and then the buyers ran out and the sellers kept on selling, and then we dumped, and then there was a cascade of liquidations. So over a billion dollars was liquidated on Thursday, both shorts and longs, which just tells you exactly how degenerate some of this. Some corners of this industry is.

A

That's all it was. There's no conspiracy, there's no big event, no news.

B

It was just like when apes pile in, too much leverage, this is what we get. So $835 million of longs were liquidated, along with almost $200 million of shorts. So you can blame the apes for that one. Thank you.

A

Candles like that, I don't remember when I zoom out, but because I remember, we do these every week, David, so I remember this happening probably, like, five or six times. Candles like this.

B

This is a regular celebration. Just a cleansing of the apes. Yeah, it's like.

A

Oh, it is a cleansing.

B

They'll be back, don't worry.

A

The good news is now you can buy lower if you're bullish on these assets, so thank you, apes.

B

This was the largest liquidation event since FTX.

A

Really?

B

So there's a fun fact that's pretty freaking big. It's not. Not small. Yeah, go back. One tweet, you can compare the candles. Half as big. I would say, as one. No, that you had the right tweet. Half as big as FTX. So FTX had maybe a double way back here. That's. That's the FTX. Yeah.

A

Almost an FTX worth. Huh. And it's just leverage. Apes being apes.

B

Yep.

A

David, you know, I spent the morning reading a fantastic Arthur Hayes article. Oh, really? Interesting.

B

Please download me. I didn't.

A

Yeah, I mean, you got to read it yourself. I can't, like, put put this man's words into. Into my own. But I'll give you the punchline. Let me give you the punchline.

B

Yeah.

A

All right. So he says this. The Fed wants to cool us domestic inflation, but the more they simultaneously raise rates and reduce their balance sheet, the more stimulus will be handed to rich asset holders. Okay. Okay. So the more they do this thing. Yes. The more they raise rates, the more they do the quantitative tightening thing. The key thing is the more stimulus will be handed to rich asset holders. That's his thesis. And he justifies it through the rest of the article. One interesting stat here, David. Remember we were talking about how interest pay, how high interest payments are for the government, for the us government, because they've raised their rates. Right. So the Fed is.

B

They have a bunch of debt and they raise rates.

A

Yeah. The us government has to pay interest on all of their debt. And they have a lot of freaking debt. And so now they have to debunk themselves.

B

Right.

A

Rather than like one or 2% interest, they now have to pay over 5% interest. All right. This amounts to a lot of money. So this is the federal current government expenditures, interest payments. Right. And we talked about that in a previous. We talked about that in the previous roll up. So as of the second quarter, 2023, the US treasury will be handing out close to 1 trillion in interest payments to debt holders. 1 trillion. That's why rates are so high. And Arthur contends that this effectively becomes a rich person. Stimmy check. Okay.

B

Because an asset holder stimmy check. Right.

A

An asset holder stimmy check. Right. And who are the asset holders disproportionately?

B

Obviously, people are wealthy people, probably listeners of this podcast.

A

I mean, people who are not living paycheck to paycheck, people who have some spare assets to invest. Right. I mean, this is. We're talking about like top 10% types of individuals. And so effectively, this $1 trillion per year, David, it goes to them. And what are they going to do with it? This is what Arthur is saying. They're going to. They're not going to buy. They're going to buy more assets because what do they need most? You know, maybe some services, maybe some kind of luxury vacations, that sort of thing. Maybe some college tuition. I don't know. But the rest of that goes into assets. That's why property values are rising. That's why asset prices continue to increase in this higher interest rate environment. And he calls this kind of the rich person stimulus check. So what we end up getting here, David, is interest rates are up, but so our asset prices. And so wealth inequality continues to increase. It just feels like the pot is getting closer and closer to that boiling point. And what is the next era, the next phase of this? Well, actually, there was a Fed official from the St. Louis Fed who wrote a fantastic paper that I've skimmed, but I'm getting ready to read this weekend because it looks fantastic.

B

That's what Ryan does on weekends.

A

Seriously. They're spelling it out. And he talks about this new era of fiscal dominance that is the key phrase here. And fiscal dominance occurs when the central bank must set up policies not to maintain stable prices, but to ensure the federal government can afford to fund itself in the debt market. What this means is the central bank is no longer in charge and the fiscal government spending is more in charge, and they are going to have to print more money. This is following the trajectory of bank of Japan kind of thing. Anyway, the net of this is, as you could expect, more money printing. Asset prices continue to rise. The Fed and the us government really painting itself into a corner. This is not like the 1980s when we raised interest rates there because our debt to GDP was something like 40% and now it's 130%. So that is maybe a taste of the article. And as always, I found it tremendously insightful.

B

Well, thank you for distilling that, brother.

A

I feel bullish on what, though?

B

My takeaway is that I am bullish on assets.

A

There you go.

B

Specifically risk on assets.

A

There you go. In crypto, assets that aren't tied to fiat. David, what's this? What are we looking at here?

B

Yeah, just something to add to the markets. Lido staked ether. Mantle, formerly bitdao, which got funded out of this bybit exchange. So this bybit exchange was just printing money throughout the bull market. They realized that, hey, eventually the best case thing to do is to decentralize. So we're gonna make bitdao. And so we had the centralized exchange that slowly evolved over time to what we now know as the mantle ecosystem. Really cool story. Regardless, Xerox mantle has staked 40,000 ether from their treasury, the Bitdao treasury, to stake ether with Lido. So that is a big dub for Lido. 40,000 ether into the lido staked ether supply. So congrats to Lido.

A

This dow as well. The mantle Dao has a ton of ether on the balance sheet.

B

Yeah, 40,000 is not all of it. Like a few hundred thousand. Minority of it. Yeah.

A

And they're investing a lot of this into the, into the mantle ecosystem.

B

Mantle is a sponsor of bankless.

A

Disclaimer, David, what do we have coming up next?

B

Coming up next, one of the Tornado cash co founders, developers was arrested and the other sanctioned. So bad day. We're going to talk about these details and the significance of them and what they represent in the crypto Wars 2.0, which does not seem to be ending anytime soon. Ethereum about to launch a brand new testnet. This is the den kun testnet. So EIP 4844 is on the horizon. Layer twos, a bunch of new upgrades in layer two week. The layer two summer continues to go on. There's an airdrop to talk about that you need to claim there is a new exploit that we have to talk about. So all of this and more coming up as soon as we talk to some of these fantastic sponsors that make this show possible.

A

An open source developer of privacy technology was just arrested by the us government. Name is Roman. There's another co founder who has not been located but was also sanctioned. David, this is really bad news in the Tornado cash case. Not the first time this has happened. Of course, we've talked about Alexei Purcev, who was arrested I believe over a year ago by authorities in the Netherlands, but this is the first time the us government is directly taking action. What went on here? What are we looking at?

B

So before we get confused, there are two romans that we need to talk about. There is roman storm and Roman Semenov. Both are co founders of Tornado Cache. It's coincidence that their names are both Roman. Roman storm, resident of Auburn, Washington, not too far away from where I grew up. And then Roman Semenov of Russia, both co founders, creators of Tornado Cache, which is the privacy tool that we have previously, I have previously used to achieve privacy in crypto before it was sanctioned by OFAC. The Department of justice arrested Roman Storm. And OFAC has sanctioned Roman Semenov. They were both charged with us federal money laundering upwards over a billion dollars in sanctions violations. So a quote from us attorney Damian Williams says, while publicly claiming to offer a technically sophisticated privacy service, storm and Semenov in fact knew that they were helping hackers and fraudsters conceal the fruits of their crimes. The action taken against Seminov and Storm was part of the government disrupting the ability of North Korea to raise funds through illicit activity and was aimed at protecting the integrity of our financial system, including the virtual currency ecosystem. So Brian Klein, who's a famous attorney, a pro crypto attorney who has done some landmark cases in the crypto ecosystem, is the attorney for roman storm, his statement is, we are incredibly disappointed that the prosecutors chose to charge mister Storm because he helped developed software and they did so based on the novel legal theory with dangerous implications for all software developers. Mister Storm has been cooperating with the prosecutor's investigation since last year and disputes that he engaged in any criminal conduct. There's a lot more to the story that will come out in the trial. So basically, Roman Storm has been living inside the United States because a United States citizen, being a United States developer, a cryptographer, an open source developer, and so he's lived probably with this cloud of like, the Department of Justice really didn't like this tornado cache thing, but nonetheless stayed in the United States as a patriot of freedom. I'd say understanding that this day might come, and sadly, it sounds like this day has indeed come.

A

Yeah, I guess a few. This is definitely a gut punch, as I said earlier, for all of crypto, and we'll talk about the reactions and implications. Just a few points. So what you were reading from was partially a press release from the US Department of Treasury. They are the ones kind of authoring the full press behind this. And those were some of the quotes that you mentioned here. And so the developers are being charged for creating and deploying the privacy mixing software called tornado. And so if you've never used privacy software before on Jane, you of course know on something like Ethereum, your address is completely public. Right? And so if that address is kind of linked to your name somehow, you have no way to, like, maintain your privacy. There's no SSL or HTTPs or secure encrypted communication for crypto. Right. All of that metadata is kind of leaked. So tornado is akin to almost using encryption software for money. Sort of like, I don't know, David or any listeners have ever used the signal app before. Right. So signal encrypts all of your communications. This did that for money. Failing doing that on chain, people use sort of exchanges as a mixing service. Of course, it's not completely private, but you could bounce your money into Kraken Coinbase and then bounce it to a new address to sort of pseudo protect your anonymity. But of course, it's not pure privacy protection. It appears that these developers did not do anything more than deploy to tornado cache code.

B

And importantly, they are not being charged for anything more than that. They're not being charged for aiding and abetting. We weren't liaising with anyone so far. As far as we know, they are only being charged for being builders of tornado cash.

A

Well, for deploying it. And then this is the other key point, not taking preventative measures to block North Korea from accessing. So it's very clear that North Korea and this Lazarus group, they are unsafe reactors, they are stealing money from crypto hacks and bridges and that sort of thing. They did use tornado as a privacy technology. And the charge is that these developers did nothing to block them. The question, though, is how would it even be possible to block North Korea? Okay, remember, guys, you know, crypto, this is code deployed to an immutable smart contract on Ethereum. You can't stop anybody from using it, right? How? How would you even do that? You can't do that.

B

This is the big missing thing from this charge from the Department of Justice is they said they could have taken preventative measures without actually, they just are waving this idea around without actually providing any details.