Podcast

Crypto Cappuccino S01E03: Michael Bacina, Piper Alderman

Article cover image with head shot of guest, Michael Bacina

Episode notes

Dr. Michael Kollo is joined by Michael Bacina, partner at Piper Alderman. They discuss the latest developments in blockchain and its application in business, as well as a view of the types of projects and people within the crypto landscape.

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Michael Bacina
Piper Alderman
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Transcript

Dr. Michael Kollo

Hi everybody. This is Michael Kollo from Crypto Cappuccino. Today. I will be speaking with Michael Bacina. Fresh after heels of the emergence 2022 conference here in Sydney, Australia. We're gonna be talking about all the latest developments in blockchain technology, its applications, different kinds of businesses. Essentially, what Michael can provide us, which few other people can't, which is a wonderful view of the entire landscape of this ecosystem and all the different kinds of projects and companies and people that occupy it. So I hope you can join us. Cheers!

Hi everybody. This is Michael Kollo. And we're here with Crypto Cappuccino with Michael Bacina.

Michael Bacina

Thanks for having me.

Dr. Michael Kollo

And we're live in person. Would you believe it? We're actually sitting right next to each other in the offices in downtown Sydney. This is so crazy. I didn't know that I would fit into this suit.

Michael Bacina

I think a lot of people have that challenge after Covid. I know, I did. Yeah, yeah, yeah. Yeah. It's, quite common, but I'm so glad to be here while we're not having

Dr. Michael Kollo

coffee. We have tea. I think nonetheless, we can, we can say that we're we're genuinely doing the the podcast. So Michael, just for all the folks listening, I'd love for you to introduce yourself a little bit and how you came to be here in this moment of your career.

Michael Bacina

Well, most immediately coming in hot from the end of blockchain week, which has been a very full on and wonderful week with a huge number of people tuning in seeing videos, lots of videos will be released online in the next week or so. And then more broadly, I once upon a time as a software developer, I, I won't pretend that my development skills are great.

Now, my coding is great. I can help my kids in, in learning how they can code but. During http://the.com  days of the late nineties, early two thousands, I ran a small startup, which was acquired by one of our clients, thankfully, just before I finished my law degree. So back then I, it was, you know, it was unusual to be carrying a laptop to university, which makes me feel my age, where I go to universities now.

Cause it's just a sea of apple logos. And, and what were you coding? Is it? I was off PHP, my SQL good old days of the, of every web serving customized pred drag and drop code. That's it, which was great. Fun. And just, you know, near making it up along the way, because there was just critical shortages of people doing that.

So we had fantastic clients from world vision to people involved in Sydney Olympics to video stores that now no longer exist. Which, which was an interesting, was that a how those have gone along but really a really excellent thing to do. You know, during university and you know, probably spending a little less attention to my subjects than I should have at the time, but that's all right.

Dr. Michael Kollo

That's a different of education university.

Michael Bacina

And so I did my undergrad at Macquarie and I did a master's at U N S w. Oh, awesome. So you know, that, I think rounded, rounded me out there as well, so good, good times. And then you one or two career law, I guess that's right. So originally did quite a, a sting litigation and, and a commercial law as well.

And increasingly my tech clients. Particularly from when I was running that startup was just incre taking over my practice more and more so. And then after ethere end came out, I was invited to speak to a lawyer's conference about smart contracts. I think I've written something online about, these are a cool little thing that people should be paying attention to.

So was invited to speak there. Foolishly said yes. And then they said, great, can you write a paper? So I started writing that paper. And then as I started falling down the rabbit hole, canceled everything for the next three days and just smashed that paper out, paused for a moment to, to acquire some E and play with it.

And then, and then was lucky enough to have that paper picked up in, in a few minor journals. And from that conference, a number of lawyers who were in attendance. Referred me work that they didn't understand. So I went from sort of zero to a hundred very, very quickly, and having my practice taken over with that ICO, boom, firing off then, and that we acted for a number of big projects back then.

And then since then, it's just been a, an amazing ride and the most fun I've had in my entire legal career, because I get to blend all the exciting. Feeling of those early days of the internet, which, you know, late nineties, I sort of felt like I was on that downhill part of the wave where it was fun, lots of stuff going on, but it wasn't at the start.

Whereas I very much had that feeling diving into blockchain six years ago of. You know, this is the start of something that's really gonna change everything in the same way that the internet did, but possibly faster. And I won't try and make predictions on how fast everything will change, but this year really feels like things are changing in a meaningful way with things like that.

ANZ, stable coin announcement, and whole raft. Other amazing announcements coming out last week really feels like the needle is moving in a meaningful way and the government's starting to move toward. Proper regulatory frameworks, that'll help, you know, boost Australia's position. It's really incredible to have that support from, you know, government, which on something really technical it's hard to understand.

Dr. Michael Kollo

Yeah, for sure. No, I mean, how did you find that conversation as well? Is it blockchain? 20, 20, 22 was yesterday last week.

Michael Bacina

So all last week. So I, I, I serve on the board of blockchain Australia, so we've all been hard at work, but mostly Steve Alice, our CEO, and his. And the conference ran Monday, Tuesday, Sydney Wednesday Melbourne, Thursday was Perth and Friday was Brisbane.

Dr. Michael Kollo

It's incredible.

Michael Bacina

So it was more than 200 speakers. I don't even know. I think we went into the millions of impressions on various things, and I know we had 6,000 people on the live feeds for the Monday, which for a, a blockchain conference out of Australia is pretty incredible. I hit. Great pleasure of interviewing Sam Bankman free Monday morning and Anna to of Lana on Tuesday morning.

I, the NFT panel on Wednesday really incredible, just the brains that were in the room and sharing knowledge and just getting to see people, as you say earlier, it's wonderful. Being able to see people again, quite a few people go down with COVID during the week, but so far. I'm justed clean.

Everyone's everyone's okay. But really getting back to see people is people are so much of the, and community is so much of any industry and blockchain and cryptocurrencies is no different.

Dr. Michael Kollo

I, I think what I, what I loved about it was that it was the only conference where. It was properly shared around the states. So you didn't have the sense that, oh no, we only gonna do this in one city. If you, if you're interested in stopping, you have to be in that city. And usually Sydney or Melbourne will kind of get that. Whereas in this case, it was really properly like around the country. Absolutely. Maybe next time stopping in Tasmania. But you know,

There was some, there was some satellite events in one system, so I didn't get to, I didn't get outta Tasmania, but Adelaide had some events as well. A couple weeks earlier in south starts, so. Huge hats off to the blockchain Australia team who just knocked it outta the park. Last year, it was just Sydney and Melbourne and was completely oversubscribed.

But all of the events were waitlisted for the in real life events. I think we had 10 times oversubscribed for the ASX. Unfortunately, still some COVID restrictions in place. So some of the venues couldn't take more people, but it was the, the overwhelming response was huge. Having, you know, two senators present on Monday as well in the ASX auditorium is, is a big deal.

ASX kindly hosted us last year. To have that back second year in a row is, is really amazing. And just the names coming in that that came and presented again, mostly remote, but that's just the nature of, I think many of were worried if they came to Australia, they could end up with these COVID camps they've heard about, which I think is just, just in Queensland, not down here, all finished now.

Right? I mean, I think from April, they don't even need to take, I think I. Test to get on a plane. But I mean, it it's it's, as you say, the the feeling is still there, but I'm curious about to your impression of the week. What were some of the highlights? I mean, you've already mentioned, said, well, maybe to elaborate on that, but some of the other highlights where you think over the last six years, you've seen this industry grow. And grow in sophistication awareness adoption, essentially. And what do you think kind of stood out to you in this week where you thought, oh, that that really changed something that there's something really happening?

Michael Bacina

Well, I think that The ANZ announcement is probably the big or, or second biggest announcement of the week. Also, you know, personal self interest, we saw FTX Australian launch which had a little bit to do with and that's fantastic to see such a major global player coming in and having an official Australian presence. Australia is really taken seriously in the, in the space. And we punch above our weight in crypto and blockchain, which is fantastic.

Having the whole day on Wednesday of NFT day was also a real. Point of the week having, you know, NBL commissioner, cricket, Australia, and tennis Australia on panel, all talking about their journeys. We've been lucky enough to be involved with tennis Australia on the AO art ball, which was absolute world leading.

They're gonna continue to lead the way on that. And I, it wasn't noticed, I think as much, it certainly wasn't picked up in the press, but Ridley, the director of NFTM metaverses there said during his panel. This NFT will become like the V I P paths to the Australian open in future. And that was just a little comment that that was made on the panel that I certainly sat up on. And. People need to pay attention to this NFTs are the, are still a sleeper. You see all the bullet articles in the AFR saying, oh, it's all just, it's not investing. It's wild speculation and whatnot, but it's a brand new product. And having that whole day that people could really be learning about it. And hearing from particularly sports sport will lead the way massively in Australia for NFTs.

Everyone's gonna be slicing up the golf green or the finish line or something Andre or creating player NFTs or turning their tickets into NFT. That is going to be the part that is visible to a lot of people. And that's gonna spread into the real world as it were because something like the AO project was put together in something like nine weeks, the whole thing, and that open source code that lives in blockchain and that crypto world can be leveraged in ways that.

Proprietary code basis. Can't you could not put together an entire new digital product. That is a quasi loyalty system in nine weeks from the start. You just can't do it. It's not gonna happen. But with all of the open source tools that are there using Ethereum in exactly the same way that the ANZ bank issued their payment on the Ethereum blockchains, the $30 million transaction, it was not fully public.

You know, anyone participate. It was a closed loop for testing. But it wasn't done on a private permission change. It was done live. You can look it up on if ACAN and see the test transactions and then a 30 million transaction that they did. And that's really impressive that you're seeing businesses recognize.

All these open source tools are incredible and that's no different to the internet, right? Linex and Apache, you know, they've run the internet. All these open source tools are operating in servers globally and put and keep it all together. And that open source movement has been the subject of criticism over time.

It's got an entire amazing community around it. When it came out, people were very threatened as against their proprietary code bases. But now it's embraced as saying, this is a better way to work and build in code and in blockchain, certainly when everything is under constant attack. People are starting to recognize, hang on, because this has been under constant attack from when it was built from day one, it ends up being better than the perimeter security that exists under existing systems that if that gets breached it's a really serious problem that people run are racing around to fix.

Versus that inbuilt protection that you simply get ongoing. Now, of course it doesn't mean that smart contracts are perfect as they get more sophisticated, there will be more sophisticated attacks and attempted hacks and things get complicated there as well. But the rigor that has to be brought to that code and the fact that what comes out in the libraries.

Then pre-made code is already battle tested is really, really valuable. And that's a huge mind shift. So even people looking to say, oh, maybe I'll be looking to invest in a business that does sports collectibles. It's like, well, congratulations. They might have already got the hard, hard earned licenses, but now they don't need to spend whatever it would cost to build the proprietary system and, and a closed loop marketplace that then they have to build a user base for, they can shoot that out on BRC seven 20 ones or something else fast they can use.

A non proof of work blockchain, if they want to have, you know, like our grand or Lana or something to have really fast or E once that switches to proof of stake and have, you know, no environmental impact whatsoever, but all the benefits of super fast trading, collecting royalties. It's huge. I think that we're gonna see near all ticketing of near everything, switch to NFTs very rapidly, and I'll be very interested to see have a personal theory that perhaps we might even see things like concert.

Selling tickets cheaper by collecting money on the secondary transactions and allowing the scalers and allowing the market to do its work because there's a whole lot of work that goes into the selling of tickets at various events, that's very risky for the promoters and they might find that it's cheaper to sell everything the same price and let those prices move up and down where they belong and simply take five 10, whatever it is, percentage clip on secondary sales and the maths may very well work to say, this is better overall.

And you may find that fans like it better as well, because there isn't so much of a, oh scalers, get this block in advance in order to help fund the concert that might happen, which is something that I know happens in America. I'm not sure how much it happens here versus simply saying, well, we can release it to the market fast and easy and early.

And collect on the transactions going through in the back end without any expensive proprietary systems. So it's a fascinating way that it might end scalping as we know it and give everyone a fair distribution of, of ticketing, but then still allow people who want to go in there and speculate on.

Maybe I could pick up two swift tickets cheap and flip them. Because I get a better allocation or whatnot, which is then just fair to everyone. Everyone becomes a scalper bad, but everyone has a good opportunity. Good. And, and and good. You just created a new asset class with people perspective

Dr. Michael Kollo

Potentially

Michael Bacina

people speculate anyway.

Dr. Michael Kollo

Exactly.

Michael Bacina

So the answer question is more correct, but you can also then stop people buying hundred tickets at once through, you know, unless they're setting up lots of wallet. If you want KYC, it can be. All the tools are there and they're fast and cheap to deploy.

Dr. Michael Kollo

So this is quite interesting because now you're saying that the market forces a lot of these things that are a bit hunky are a more efficient way. So if I release tickets, if I'm a concert promoter, I've got this difficult decision on how much money do I. Spend how much I do. I charge people for that ticket. That's right. Then obviously, if, if I get in early on, I go buy at that price and later, and then won, be et cetera. But now I can release it into the circuit market where people can bid in real time and, and, and the price will fluctuate can use a bonding curve if they want.

Michael Bacina

So it gets more expensive, longer. You wait. Exactly. Same thing with everything. Sports tickets as well. So people waiting to see if they can pick up something cheap. That's right. They might be able to dive in earlier and faster,

Dr. Michael Kollo

30 seconds before it starts, you can probably just pick up something literally in the app.

Michael Bacina

That's right. And what holds that back at the moment? Is, you have to use crypto to pay for it. And that's why you have these interlocking really interesting things coming out. There's stable coins, which are there. That can be a little difficult to get hold of because there's uncertainty around regulation.

But now we have ANZ moving in and other banks getting interested as well because no one wants to be first, but no one wants to be last. So it'd be very interesting to see how the other banks respond to that. Because once we get to a point where you have retail access to a bank issued stable coin, the confidence in using that, I, I believe will dramatically increase.

And of course you do have crypto maxes who will say, oh, this was, I think someone commented on a, on a LinkedIn post domain saying, wasn't the point of crypto to replace the banks, which I applied to you better. You better set up a meeting and tell the banks, tell the banks. They're not allowed to use this open software.

Dr. Michael Kollo

Yeah, exactly.

Michael Bacina

Sorry, this isn't for you. This is for something else, but it's really important. I think there's always. A whole lot of things in the market and letting people have choices critical. And so there will be a, I think for quite a while, people will have trust in the banks because they already do.

And it's, as long as it's done in a win-win for the bank and you have a one-to-one backing that will unlock a huge amount of. Of benefits

Dr. Michael Kollo

and, and I think it's very interesting, cause I remember when fintechs were the big thing. So back in, I don't know, 20 10, 20 12, whatever it was. And there was a real sense of disrupt the financial system and then nothing happened for years and years. And I commenting on an article, which I learned into a lot of trouble for. Saying most fintechs, it's better for you to create a technology that a bank will buy than really, to be, tend to be a bank, because it's a lot more complex than that. A lot more sophisticated than that. And obviously with foreign exchange and these kinds of activities with the first ones to fall to the FinTech were that's right. Very transactional, but a whole bunch of things around risk assessment, maturity transformation, et cetera. And I think maybe in a similar kind of way when blockchain becomes sort of accepted to be secure and, and commonplace because it's evolving because it's getting better. And because people have heard it more after a while, you should absolutely expect that those big institutions that you've been framing this as, as being an alternative to. The first ones to go and invest in it and to embrace it and to use it if it's better.

Michael Bacina

Well, that's right. And they're moving in already and we're seeing amazing commission systems as well. So one of my favorite little projects is Ligon which, you know, disclosure, I'm a shareholder in for a very tiny and love it because they replace paperback guarantees, but nobody likes, so anyone taking up a retail lease or even an office lease.

And on construction projects. So many situations require a piece of paper from a bank, which is a bear instrument. You know, essentially now often made out to the company to say, if company X comes along and asks for this, we will pay the money and they can get lost. I worked in house for a while and on one horrible day, a big bank guarantee was lost, but we all had to, everybody had to stop work and find it.

And goodness, those inefficiencies of everyone's stopping work to find the in the basement train guarantee, it was, it was locked in a cabinet. It was found pretty quickly. That's super inefficient and that is a permissioned on IBM hyperreligious. So it's not a, you know, it's not a public blockchain, but that that's the baby steps that happen and such that we have now been the first law firm in the country to accept a payment guarantee instead of trust money for a matter.

And that's really exciting from my perspective, because it's just as safe for a client. Has dramatically lower costs versus trust accounting and audits and those kinds of things. And we never need to call on it, but if we did, it's just a button push away and all the banks and that, that company is owned principally buy banks and has property developers coming in as well and saying, well, we wish to use this now because bank guarantees are really expensive and slow way to do things versus being able to issue something straight out of internet banking, click a button and issue it.

And that's not too dissimilar in some ways to a stable point of sorts. It's just a one. Unique token that can be issued to say, right, Michael needs a bank guarantee for something, you can take it 5,000, 10,000, whatever it is the cost of issuing. It is so minuscule now because it's all used this open source tech to come in.

That it's easy to roll out. It's not something that the banks had to spend huge amounts of money building, and therefore wished to find a way to recover it as someone, you know, said to me, well, what's in it for AZ to. A stable coin. I said, what's in it for any bank to have cheaper, faster transactions for their customers.

It's better. They don't make a huge amount of money on transactional matters. It's a cost to run payment rails like that. If there's a better payment rails that can be used and integrated, then why wouldn't they want to you know, our systems in banking are incredibly old and they're very tested and, and, and super high security, but in ways that, that you can interface now with amazing technology and particularly unlocking the real promise of smart contracts for.

Automated escrow arrangements for payments of things deposits. It's wonderful because equally law firms, don't love to hold people's money in escrow for transactions, which we can do for, for business transactions. But it's painful. It has a very administrative heavy, it's got a lot of risk to it and worries people keeps them up late at night to make sure everything works perfectly.

Running that out of a smart contract where everything is set up to keep it safe. And does the automatic logic, if this then with two to sign off or two or three to sign with backups to work is a fantastic way of simply unlocking automation and efficiency. So I always say to people, all blockchain and cryptocurrency is at the end of the day.

Is automation and efficiency like any technology. And it's got some incredible promise and there's a lot of experimentation and some of them that experimentation feeds into, you know, narratives that naysayers like to push down the down the road in their wheelbarrow. But those wheelbarrows are running outta air and the tires or falling over increasingly.

Hmm. Because when you see people like ANZ moving into the space, when you see all of these sporting organizations going well, this works and it's a new revenue source for in many cases, what are not for profits at the end of the day, they're there to deliver sports to people that really starts to shift the conversation.

I mean, even. You know, Elizabeth Warren in America and others have gotten up to say, oh, maybe, maybe Russia could be using this to get around sanctions. And instantly other people say, well, let's look at the data. No yes. Transactions went up 10 times from 2 million to 20 million a day, 20 million a day is not sanction evading transaction levels.

And that transparency is incredible. And now, you know, within a week chain analysis had issued tools to exchanges to allow free tools. They said everyone can have. So that you can make sure that you are not dealing with Russian crypto, just because they saw as well. I think the narrative of, Ooh, crypto bad that this will be used to evade sanctions going.

No, it's the worst system to be used to try and avoid laws or commit crimes because of that traceable nature. And that's slowly cutting through, you know, seven years of, of I suppose bad news because it, it was used. Bitcoin was used heavily in the early silk road days and it meant that the academic papers came.

You know, 2018, 2019 saying, oh, look at all this bad use. And those papers are only catching up now for the data to say, well, actually, you know, it's 0.3, four, or something less than that. So 0.1 0.15 of tr percent of transactions. Which overall still works out to I think, 14 billion, but I'll tell you what, if there was 0.1, 5% of money laundering and illicit activity in the cash economy, the government will be patting itself on the back to say what an amazing system we have that has almost only one 10th of a percent of illicit activity that we can track.

Like it's extraordinary that. That narrative continues to be pushed of. Isn't it just for, you know, put for criminals and drug dealers and you go, no, the data is right there, guys. And you can't argue with the data.

Dr. Michael Kollo

I think the other, the other big argument isn't it is about ity usage and mining. And so on. I remember there's a bunch of articles that came out that said Bitcoin uses the, you know, the electricity consumption of UK and so on. And that is an interesting area, but I, whenever I read that kind of thing, first of all, it's hard to know what the of comparison is like. So how much electricity does a us dollar take to get around or stay much bigger?

Then then Bitcoin is in terms of volume. But I suppose the other question for me is also the fact that this is version one of these technologies. And so phase that we're doing well. That's right. You see coming out with the next version, you see proof of state, proof of work, kind of differences. You see just to say the kind of energy reduction to some of these improvements is 99 point.

So percent is crazy. I haven't read all the details behind them, but it feels to me like. Again, to your point about it's being a starting industry over the last six years, it's probably attracted some incredible engineering brains. So we see every week articles about Google, Facebook, losing people to blockchain.

And now increasingly we're seeing from my industry, Goldman Sachs, JP morgans, going into the space, it feels like it's got a huge brain drain on nearby industries. It does. It's, it's become. You know, almost PayPal mafia effect, right? There's been so many businesses that grew so fast and this creation of wealth has been so gigantic that.

Michael Bacina

That's now being reinvested back in, and that's the proof of the pudding. When you see you know, element of research, sandbank and Fried's investment vehicle is just reinvesting in so many amazing projects and, and Coinbase ventures and long. So many exchanges have now got venture arms and, and are in some ways giving back, but they also recognize it.

But if the money's not put in to help keep development, moving along, That's not good for the industry. So rising tide lifts or boats kind of thing, really that reinvestment is massive. And the Pekar mafia has been behind a huge amount of the fame extension of, of the internet. So there's a, there's a model there of people reinvesting a lot of what they've made back in, which is great for them and great for the industry as well.

Look, the electric electricity one, I don't usually like to engage in what about, but there was a great paper that pointed out that during one year more electricity was burned in, on watching cat videos than cryptocurrency it's a few years ago, but like that's the biggest one I've often go to and say, okay, what about is not great, except that if you want to criticize stuff, that's fine, but let's measure apples.

It's very, very hard to measure the real world or of financials. Because you say, okay, well, a payment rails that's global and near instant. How do you replicate that? Well, you have a lot of armed cards. You have physical banks, you. The entire swift network, you have planes flying cash around. You have printing of currency.

What is there to create an in a global currency system is dare say, near unmeasurable in terms of carbon, carbon footprint, and all of the lights on and, and security that go into it. It may very well be bigger than blockchain's consumption. Now, when you look at a per transaction basis, I don't even know how that comes through because.

It's probably less, right. Let's be fair. An FBO transaction or, or a MasterCard or visa transaction when they do, you know, hundreds of thousands a second. I do not think that could be anywhere near the Bitcoin per transaction consumption, but you are seeing this incredible rise of ESG concerns and renewables.

And we are seeing even in Australia, as well as overseas, the dramatic increase in mining lo operations being located. The source because there's a significant 20 to 30% step down of electricity lost when it goes through high voltage transmission. And so if you locate your mining rates at the wind turbines at the coal plant at the gas plant at the solar farms, Instantly there's a 20, 30% uplift of what you can, what they can take in electricity.

And there's this very interesting point about people criticizing, oh, it's not always sunny or windy, and there's a mismatch of solar and renewables to the stabilization of the grid. And there's two ways to solve that. Or three ways. One is do nothing and just lose the money. One is to put very expensive batteries in and battery tech is moving, but it's just not at a point where that.

Viable for a lot of projects, or I think someone used the description, a money battery where they say you put in mining rigs, that's right. You're using a hundred percent renewables when the price of electricity is dropped below. Basically the value of putting it in the rigs and instantly those projects have a return, which they wouldn't otherwise have.

And that can help. We're seeing it start to emerge in our projects are saying we will put this in because it helps us have a ROI faster on our renewable. There was a, a big hit when China pushed out a lot of mining because China has significant hydroelectric resources. And a lot of the rigs in Canada are, you know, hydro electricity fact in Canada, they refer to electricity as their hydro bills and whatnot, because so much of it is on hydroelectric systems.

But we have significant hydro in Australia, down south huge solar coming online and that balancing. You know, you only have to look at Tesla battery in south Australia that paid for itself in a fraction of the expected time because of its stabilization effect on the grid there. And these interconnectors coming in to say, this is, you know, we're gonna have mismatch.

We're gonna have negative prices on electricity that can be used in. Right now, proof of work, pretty heavily proof of stake, as you point out is incredibly low energy costs. There are some other tradeoffs, but that is all solving and, and being moved through to, you know, not high gas fees, very, very cheap transactions.

These sort of true next generation blockchains like a brand and Solander and things like that. That can move things. At near fraction of penny fees and near zero electricity costs. They're the ones that are sort of coming for the old school world because they can compete on a level playing field.

You're right. Bitcoin's interesting. Cuz it's also designed to be slow to change and I'm not sure it'll ever move from proof of work. There are people who are very firmly of the view that proof of work is the only way to secure a network of that size and of a view that proof of stake has fundamental concerns.

And then maybe won't, I don't know, at that level, my technical knowledge starts to get into the, into, you know, some of these Eary and analysis of how. Proof of stake compares to proof of work, but fundamentally for most people, there will be enough convenience of shifting into a more secure system that offers benefits and interoperability that they won't mind some of those issues.

And there's other ways to, to manage those issues that on a net position might be better than those overall proof of work. But, you know, essentially those narratives are falling away now because they can't survive against the data of, well, no, there are solutions right here that are perfectly fine and cheap to use.

Dr. Michael Kollo

Yeah. It also kind of reminds me a little bit of the, of self driving. Kind of argument at the beginning kind of said that you have to have the perfect driving car and then you had to correct it and say, no, no, no, you just have to have better than humans and humans. Aren't that good? So, so having the right benchmark, which is obviously in this particular case, what is the consumption of a financial economy as the movement of money around so that we understand what

Michael Bacina

that's right.

Dr. Michael Kollo

Benchmark is today. So we understand if we introduce tentative Bitcoin or anything else we understand where that, that line is. If we think that line is zero. And basically any, anything that consumes electricity, then obviously it feels like it's a really bad thing. I mean the same kind of way with the self-driving cars.

As soon as we went, what is the average driver? How many accidents do they cost? How many fatalities do they cause, et cetera, then you able to say, well, we think the autonomous cars are 30%, 40% lower than the average driver. They still have accidents. They're not flawless, but that's okay. That the goal is not to be flawless.

Michael Bacina

And they can strive for that. Yeah. I view it similar to airplanes. Right. You're never gonna have a world without airplane accidents, but. The mindset of that design is what is needed, but the amount of ink that's been printed or digitally printed on, you know, oh, how will we deal with the ethics of how a car will choose?

You know, how we're crashing things that I look at and go, that's just silly. That's like saying we can't have autopilots because how would an autopilot work in a plane if it had to decide where to crash? But of course the answer is they never will. And so they're really interesting academic thought experiments, but they're like the trolley problem.

They simply never arise in reality. You know, if something goes wrong in an airplane, the airplane tries to keep itself going in the same way. A self-driving car will try to protect the people inside the car will stop. You won't ever have enough data coming in for those systems to learn enough, to figure out will we steer to, to run over the old lady instead of the young child.

And I think just it's it's, it's just not realistic. As you say, if there's an incremental improvement. You know, cars with auto breaking. There was no question about it. Yes, occasionally when I, you know, for cycle of zips spa me past me, when I'm in my wife's car, it lights up like Christmas tree and slams the brakes on because somebody's come too close for the sensors.

That's also not perfect because it freaks me and everyone in the car out when they're driving along. And we're no danger of someone who's who who's coming on, you know, in their bike lane. But it's just, technology's not quite perfect. However, a hundred percent feel safer having a car that will turn the brakes on.

I remember. That cast started breaking ones. Before I even saw the glass flying up of two cars in front of me crashing into each other. And I just went, this is incredible that the, that, you know, this car that's a couple years old. So the technology is not brand new, but had enough senses to somehow work out that the cars in front had slowed down enough before I realized, and I was fully paying attention, but everything just started breaking moments before I even started to hit the break.

And stopped well clear of that. And that was like a, to your example, I went, this was an amazing improvement. It doesn't mean to be perfect. It's not gonna save this in every circumstance, but. If it's better than what we have, and it doesn't have additional costs. And that's something we saw with, you know, the Facebook stable point.

The whole liberal project has got mercilessly attacked, trying to reach this. Like, how will you make it perfect. How will you address these? And to, to that credit? They got up and said, well, we will address it. So it will be as good as the current systems, but the political environment, certainly the, the recent forms reporting on it and for, and, and O other journalists coming out and saying, well, we've really died because it was Facebook behind it.

And it was the vitriol coming at them from their previous past issues, which was really unfortunate. But you saw that, that was, they were held up to a standard that was literally impossible to reach. And if you put every new technology under that standard, we wouldn't have the. You know? No.

Dr. Michael Kollo

And, and I think, I think with blockchain and with technologies like this, as you say, where people ask me, I'm sure they ask you a lot. What is blockchain can explain it to me. And the first few times you have a go then after, while you start to think, okay. Do you understand how concrete is mixed? no. Okay. So do you care? I mean, because it's a foundational part of a system. And so if you don't understand how today transactions or data is in inform, moved around or secured, and so on your ability to understand an alternative system to that, for example, traditional kind of blockchain idea, then if you're gonna be kind of coming at this from cold, and you're gonna be asking, what's kind of foundational questions about what, what a system like this should do, shouldn't it.

And so I I'm, I'm kind of, I think personally that probably the conversation will move on in the next four, five years, not to the concrete foundations. It's the things that we're building today. You know, the, the decorations in the house and, and the structure of the house and the kind of second layer, third layer projects that get built on top of these types of blockchains.

But speaking of which I, I feel like is a really important question. I wanna ask you, which is, what do you think about the, or the regulation part of this whole narrative? I feel like you mentioned there was two sentences there. At blockchain 2022, obviously there's a lot of questions. People are, are waiting and wondering, and it feels like it's a good thing to have regulation.

Like I think for most of us, we'll be like, this is a great thing. Now we can have some clarity about some areas. We can have some guidance in other areas. Perhaps we can even work with the government in different initiatives and those kinds of things. I mean, where, where do you see that, that kind of going this year or next,

Michael Bacina

or it'll? I think it'll depend heavily on the election outcome. So the liberal party has been quite active. Minister human Senator brag in particular, and just being across and understanding digital assets. The, you know, the entire originally started as a FinTech RegTech review then became, you know, Australia as a financial and technology center.

And the final report was all digital assets. So currently the liberal party is three to one on sports bat. Not, not, not phenomenal odds but someone was saying to this morning who founded amusing that Australians. On their election outcomes and no, and other countries don't tend to do that, but it's a good measure of where's where's the money going?

Prediction markets are a powerful thing. However, you know our prime minister has pulled rabbits out of hats before on elections, but I think that if the liberal party is returned, we will see that it, that come through relatively swiftly. I think it'll be a bit slower. If, if labor come in, they are working to understand it.

I have met with a number of senior labor figure. That education journey is really important. And you're right. We are not at the point of which we say it's like a light switch, turned it on, or it's say you can go to Bunnings and buy a light switch and you know, it will fit your house because of standards.

But I do explain to people and say, blockchain is nothing but standards at the end of the day. That's true. Email only works because your computer is reading the ones and zeros that are sent by somebody else's computer in the appropriate way to spit it out. As in, as in a, an email with a picture attach.

Without that common agreement to use a standard there's nothing and standards require education for people to understand why they should change to that standard. And that creates challenges. There's also the issue of people saying, Ooh, something's unregulated. Thus, it must be dangerous. And you go, well, most of our economy is unregulated in that there is a baseline of laws like the Australian consumer law, unfair contracts, a whole lot of laws that apply.

People just assume those away and say, oh, we don't regulate everything. We go, yes, we do. We are actually one of the highest regulated countries in the world. The Australian consumer law is very strong consumer protection and gives you a lot of rights if you wish to go to court. But people often think of regulation as there is someone overseeing it and giving a yes or no as to whether or not something should proceed.

And that's a very different kind of regulation. Cause that's. You know, cannot be done without permission versus here are baselines. And if there's a breach, there's a court system or, or regulators who can Sue. I mean, I mean the Facebook and Australian office of the Australian information commissioner cases about Cambridge and Analytica data breaches are still working their way through the courts.

So regulators have a role to play, but also when something is so new, just like the internet, the, the law lags behind as a feature, not a bug. And it takes the time to get across tech because you equally don't wanna accidentally Crimp, what is an innovative area with huge potential? Australia's punching above our weight.

We are attracting talent. I feel like we are finally stopping the movement offshore. And I had a number of clients who, who left offshore years ago saying we can get regulatory clarity from other regulators in a way that just doesn't happen in Australia. And there's cultural reasons for that. And there's reasons why.

Our regulators were set up in these ways that weren't perhaps as embracing as, you know, Berlin or Singapore regulators are, that can come forward and be highly engaging. That's not something we'll ever see in Australia, but certainly around when you have centralized exchanges saying we would like to be licensed, pleased.

We are sitting on, you know, as one said, a billion dollars of client assets with no rules around it. Other than we have told our clients what we're doing. And of course I say, well, there are rules. You're not allowed to engage in misleading and deceptive conduct. So you have to do what you've said. But their concern is not so much for them.

I think their concern is more for it is very easy for competitors to come in custody things in a similar way, which isn't, you know, financial services, custody, it's just colloquially referred to as custody. But when one person is in a position of being able to potentially steal someone else's money or stuff, that is a line over which.

Regulation often comes, which makes perfect sense. You know, citizens trust accounts and solicitors are highly regulated to make sure that people are there because people can steal other people's money. And there is unfortunately a circumstances of, you know, usually solve practice, practicing lawyers who get a gambling problem or something and, and then dip into their trust account.

And it doesn't happen very much, but it does happen. And banks and financial services are all highly regulated. Cause someone could steal someone else's money. Similarly. You know, the risk of hacks and things in digital currency exchanges is there. So, and they want the regulations. So I think that we will see that happen and we will see that, you know, the suggestion at the moment is that digital services act separate to the corporations act, which are really good idea.

Trying to put old laws on new tech is very, very hard and leads to very strange outcomes, but having a licensing regime that's fit for purpose. The consultation paper released last week says it'll be technology neutral. I have philosophical issues with tech neutrality because when you do anything, it is never neutral.

Cause the old saying goes, everything's political, simply doing nothing is also a position. And this is being designed for a particular technology. So I don't see how it can be, but at least trying to ensure that we're not endorsing, you know, you must do this in this such and such a smart contract way is what they often mean by technicality.

Saying no, no. We're setting the principles that you must meet. So that's, I think really, really important that, that, that aspect is followed. I think that kinda licensing regime will hopefully come through no matter who wins the election, it just might take a bit longer. Yeah. Under one party's UN under one result, but that's, that is important.

And I think for centralized stuff really helps cement the industry as, as serious players, because you may see tra fight people saying, oh, They don't even have regulations. They could run away with all the money at any time. Like we can't take them seriously, but you see people like fidelity offering custodial services all around the world.

It's it, it's amazing how you have traditional finances moving into this space and saying, we know how to do this. That in the, in the traditional world, we can learn how to deal with it in the cryptocurrency world. So therefore we can come in and help. That's that's also in the same way of having banks issues, stable coins, super beneficial, because they bring the trust for regulators and the trust for the people.

Who are not really familiar with it to say, well, you know, I've used them for a long time. Therefore I'll use them for this because they have looked into it. Yeah. And then, and they also have to meet PI insurance and other requirements. So in this black Swan event, there may be some protection. And again, there'll always be a max access to say, you know, not your keys, not your Bitcoin, keep it all yourself, you know, get your safety deposit box and keep everything locked away, safe and, and, and protect yourself that way.

And that's fine. That's a, that's a piece of the market that will operate in that way. Forever. And that's the same way that people might wanna kick cash under their, under their pillow or in their safety deposit box or bullying or something like that. There's a healthy market there and they shouldn't be deprived of that.

And similarly, there's exotic, highly decentralized things where there is very limited scope for regulation to play a part because it's, it's interesting in that the regulators here have to look at. The best, you know, the best alternative, classic negotiation analysis, what will happen if we regulate. And we've seen already examples around the world, that locations that put down something that amounts to a ban, or is so difficult to be unworkable, simply sees the technology move elsewhere.

And that's happened as well with the internet where countries are not friendly towards critical technology. They simply move. And that is a globalized world we live in. There is some level of regulatory arbitrage, which happens. And then it is very difficult to stop someone overseas from offering a product into another country by virtue of the way the internet works, because it itself is a distributed system designed to still keep working.

If there's, you know, a nuclear attack on, on parts of the network, it's a really robust network. And that network itself. Having a money layer on it. And cryptocurrency means that the regulation needs to strike a really important balance of attracting in and protecting both consumers and the innovation, which is a very hard balance.

So there's a lot of people in the room, fast, smart of their own eye that are consulting. I'm lucky enough to be in there helping just a little bit, but it's a very, very difficult balance to strike. So it will have to be principles. And then look at identifying bad actors to, to hold them to account because if it's too prescriptive and onerous, it simply won't work for Australia.

Our market isn't big enough. The us can get away with it because there's such an incredibly huge market that they can put quite a few requirements on it. But even so with the current position of the sec on say token sales, it's just meant that no Americans can exist. Initial token sales, because they've all moved away to other countries in geo blocked America, because the S sec has been so aggressive and, you know, the, the ripple and sec case continues.

And it'd be interesting to see how it turns out, but some people take the view that ripple seems to be winning. And maybe we might see some regulation in America in particular that slowly moves things towards a way that gives access to that market. But other countries simply don't have that benefit.

We have the, the risk of losing it, that the, that the government and regulators need to be more akin to. And they're so often skewed towards the consumer protection side. It's harder to have that innovation side, because those are two very popular talking points.

Dr. Michael Kollo

Well, and going back to the study of how do you quantify, right? So the GDP growth from industry investments and essentially growing up, this is an industry, the amount of jobs that it will create the amount of technology jobs that it will create, the amount of innovation. It will pull into this country. And if will be a leader in this industry, just like. Hydrogen, just like in other sort of space tech and various other initiatives that the government has, has to be quantified and put a number against the potential losses of the consumer on the other side.

But I think, I think the consumer losses is one angle and I can see that with the entry of the mainstream banks and bigger financial institutions. And that topic might just kind of go into the background. It might just be subsumed within their. Management and tolerance of these organizations, I guess for me, the part that's particularly interesting is somebody who is involved in the trading of these assets of kind of investment of these assets is, is primarily around how ARA and other institutions will think about systematic risks involved with the way that cryptocurrencies and various tokens behave through time and how that fits in with the asset allocation.

So it's slightly different things. I think, I think a lot of the conversation today's been talking about how blockchain can change and, and, and upscale industries and create efficiencies and automation efficiencies as you've. Succinctly put, which I think is exactly right. I mean, there's this whole other conversation, which is what happens when asset allocation across this country starts to favor this asset class and therefore the risk returns associated with it and all the other characteristics, but that feels like it's a whole other for,

Michael Bacina

but that's all that is a, an interesting one because then it gets into a consumer choice. And that is a, I, I think at a very high level, that's a regulators having to deal with. Here's some interesting stuff that people wish to do. Cause I, I read comments like that saying, well, we are concerned if there's a CBD, because what if people run to that and, and it creates, runs on the banks to which you look at and say, but if people wish to flee a gold right now, if they can, they could take all their money outta their account and move it around.

Into a gold ETF. Like people can run, run the bank right now. If they want to it's so D gold, they can have gold ETF. Well, that's why they, they, they can have gold itself relatively quickly as well, but the fastest movers into is into a financial product, but there is quick access to sure. So that almost then starts to pull the curtain back a little bit on, well, hang on a minute.

If anyone has to do a large transaction outta their internet banking, there's something run into their daily transfer limits, which is what I really think it's about saying, oh, hang on a minute. Most people don't run into those unless they're, you know, making a car purchase or a high value transaction where they start to hit them and then they get annoyed.

And there's a bit of that aspect to it as well. We say, Hey, well, hang on. If people start moving large amounts around quickly, they're gonna notice that there's all these breaks on shifting cash around in the existing system, which don't exist in the crypto system. And that I could see absolutely why you'd have our app and RBA looking at that and saying this, we have a system that has roadblocks and speed bumps and things to slow things down when there's trouble cryptocurrency world don't have that.

When, when things go bad or there's a fear in the market. There is no bottom. It can, it can shoot up or down fast, which is the volatility aspect that we've seen. And that, but that is just a, also, again, it's a feature, not a bug of that system because you don't want that, but there's certain things that could be built to have.

Those protections if you want, we just haven't seen them emerge yet. And that you're right. They may very well emerge in the banking context of okay. Big organization can offer these things. Yes. It's not what T's vision was at the start written into the first Genesis block, but they can use the open source tools like anybody else.

It's like large organizations starting to look at Dow. Contracts and voting tools to get information from people that they couldn't otherwise get at great cost because down frameworks are now voting and, and community input in a way that was too expensive to find before. And now that's quite easy to get, and it's all there. Again, open source software, ready to go.

Dr. Michael Kollo

That is a super interesting area for me, especially for ESG activism. But again, that's another hour later

Michael Bacina

on to get you some. Guests who know who are really into those dial points further than me, you know, for your, your viewers. There's an, there's a really fantastic thesis from Alex Sims.

Who's a open based lawyer who's done as a PhD under university, which a huge thesis on about 380 pages on Dows and law. If you, if you wish to really nerd out and see some fascinating examples of the governance tools there, that's a great starting point. But you know, it's, that's only gonna keep getting beer as well.

So the now. I don't think there was, you know, huge announcements around Dows around blockchain week, but NFTs a massive and growing bigger. These stable point aspects are massive growing bigger, the Dow space. There's so many elements that are growing larger. I almost feel like. Blockchain lawyers will end up specializing in some of these discreet areas because it's so big.

And it's growing so fast and the value being created there is cannot be ignored, which is really significant. So, you know, I think that's, that's really a huge takeaway to, to move from, from that what's, what's happened in the last, you know, three or four years, it feels like things are accelerating fast.

Yeah. But it's the years of hard work that have happened previously that have really led to that moving and the foundations

Dr. Michael Kollo

that are wonderfully sturdy. So listen on that beautiful note. How much growth and how are we going? Thank you so much for your time today.

Michael Bacina

No, thanks so much for having me.

Dr. Michael Kollo

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