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July 13, 2023 - Truth Podcast - Vivek Ramaswamy
30:13
The Crypto Frontier: Regulatory Frameworks and their Future with Mark Lurie | The TRUTH Podcast #36
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So, episode of the podcast from the road, I
I actually am in New Hampshire and I called up one of my friends who has been actually helping me get educated about cryptocurrency, but also happens to be a guy I went to college with who lives in New Hampshire.
So, he came out to the event and we hung out afterwards.
We're now upstairs in a conference room after doing a grassroots event here in New Hampshire, which went great with a great audience, but we didn't get any questions about cryptocurrency.
Which I think is a good thing because I think that, you know, I think that there are other issues we needed to cover.
But a lot of the issues that we did cover related to relate to many of the problems that crypto advocates also share concerns about.
Stability of the financial system, integrity of the monetary system.
What does it even mean to have full faith and credit backing a currency if the full faith and credit of that government is itself a questionable proposition?
So to talk about that, we actually came upstairs and doing a road edition of the podcast with none other than my friend, Mark Lurie, who is one of the leading minds in the country, if you ask me, on issues on all things relating to crypto.
He lives in New Hampshire.
Here we are close to your hometown.
Welcome to the podcast, Mark.
Thanks for coming near my home.
Yeah, it's good to be here.
So we'll just go about 30 minutes, maybe a little less, and just get right into it.
So here's the thing that I've been, as you know, struggling with in my framework for developing crypto policy, which is that the initial concept was very tantalizing.
And I embrace wholeheartedly of Bitcoin, but I think it's true of blockchain-based systems, but currency in general, which is to say that this created an opt-out.
Of the way the normal financial system works, right?
That's under the rule of law.
You have a government that issues a fiat currency, a government that funds its operations through that fiat currency that also has laws and you abide by that system of norms and rules and regulations.
And if you want to just opt out of that to sort of create a space in the extra-sovereign world where the rules of the jungle apply and nothing more, then have at it.
It's sort of like you put on the VR goggles.
It's like a second life.
And say, you just do what you do in that space, and you're good to go.
And then there was the overreach of government to say, no, no, no, no.
That happens under our watch, and we're going to regulate you.
And, you know, a lot of crypto advocates and, you know, freedom advocates were sort of saying, no, stay out of our hair.
But then it seems like when I look at the modern crypto policy contours, I know there's a lot that happened in between, but that sort of says that, well, actually, we want to participate in the existing legal frameworks and banking system and whatnot.
And so we need some level of regulation, but Not all the ones that you apply to other things that look and walk like a duck and quack like a duck, but we don't want to call it security.
And so I think that to me is the fundamental tension and interesting issue here.
But maybe you want to just riff off of that a little bit and talk about What you see as the original philosophical promise of crypto, and how that can, starting with Bitcoin, but in ways in which we can still preserve that promise against the backdrop of what looks like more of an internecine mess today about what the relationship between regulations and crypto should actually be.
Yeah, well, I think that's a good way of starting to frame it.
So crypto emerged with Bitcoin after the 2008 financial crisis.
And the initial goal was to create an opt-out from the traditional financial system that couldn't be tinkered with by governments, central banks, etc.
It was a stable currency, kind of like gold, that Was more portable and secure in many ways by goal.
And that would be a check and balance on the traditional financial system just because it existed as an opt-out.
Now, crypto has grown a lot from there.
And I think one of the things that people struggle with is that it's not actually monolithic anymore, right?
It's a whole economy.
There's a lot of different things when we think about crypto.
It's not just a currency.
And so that makes it really confusing to have conversations around crypto because like, well...
They are interacting with the traditional financial system, right?
They want to do all these things.
They want to have no regulations apply.
And part of the reason it's hard to grapple with those and it's confusing is because it's not a they, right?
It's a diverse set of needs and use cases and purposes, right?
And so it's much more than just Bitcoin.
Bitcoin is only half of crypto market cap today.
Okay, so that's one thing.
The other thing is that, you know, this provides an opt-out.
There's kind of two ways to think about how crypto can affect the traditional financial system in the world, right?
One is, it's a whole different world.
You can be in crypto, you can stay in crypto, you use crypto, you don't really have to interact with the traditional financial or economic world.
You can be entirely in crypto world if you want to be.
So I'm cool with that.
Yeah, and there are many purists who still very vehemently believe in doing that, right?
Then there's other people who say, well, the goal is to help change the real world.
And in order to disrupt the way things are done, you want to interact with the real world.
You want to disrupt it.
And so that requires interfacing.
You know, it's a better way of doing things.
Disrupting is sometimes a scary way of describing something, but it can just be a better way of doing things.
And so there's no reason you'd want to separate that from the traditional financial system.
I think the last thing to say is that there's a lot of people who, it's not necessarily that they want favors.
It's not necessarily that they want different treatment.
It's that the reasons we created the frameworks around regulation policy that we did for the financial system, as it traditionally is known, are not Relevant.
They're not useful for what crypto is, right?
They were built for a way of doing things that is different than what crypto enables.
I mean, that concedes one premise that...
Those regulations were largely useful for the thing that they were doing either.
They might be equally useless in that context as they are for crypto.
Could be, yes.
But at least they were designed with that in mind, right?
So a lot of our financial regulations hinge around the idea that in order to do anything with money, you pretty much have to give that money to someone.
A bank, a payment processor, a brokerage, right?
Within the crypto ecosystem, you hold your own money and you can exchange it with other people without going through an intermediary.
And so, it's like, well, why would we apply all the rules we created in order to make sure that these custodians didn't run away or do something problematic with their money to an environment where like there's no custodian.
It's just in people's wallets, right?
There's no concept of fairness where you have to apply the same regulations just because, right?
The regulations existed for a reason.
If those reasons are different, those regulations shouldn't apply the same.
And so I think that's less like- So forget the fairness piece of this because I find that persuasive.
It's not like, okay, so you regulate securities this way, so it's only fair if crypto has to compete in the same way.
Like what is fairness in that context?
It's a meaningless word.
But what if the premise is – and I don't – like I have deep skepticism of much of that regulatory apparatus, financial regulation broadly, but that is neither here nor there for the purpose of our discussion.
Like what if the bargain is that, okay, in order to have the protections of the rule of law – And protect against things like theft or, you know, whatever, confiscation or, you know, different ways of saying theft, misappropriation, whatever it is.
In order for having that legal regime, you have to then opt into feeding the beast.
And feeding the beast is that regulatory regime that you create.
And so...
If you crypto people want, so I'm taking from the standpoint of government here, if you crypto people want some kind of protection according to that same legal regime and rules of property rights and whatever that are enforced by the government, then you have to opt into that same regime.
But if you want rules of the jungle, then we're Operating in parallel ecosystems.
Like, what would be the best response to that?
I think most crypto people would say, sounds great to me.
They would rather- I think so too.
Yeah, they would rather operate on their own with some separation than As compared to be subject to a bunch of laws and rules which don't make a ton of sense and are applied because they're there already, not because they achieve the goal they were originally created to achieve.
And so if those are the choices, yes, I think most crypto people would say we'd rather separate ourselves.
Right.
But then now the point is, okay, but so long as your government are going to overreach – That bargain, then let's at least do it in a way that's like sensible.
Exactly.
Yeah.
Okay.
Then that's against the status quo.
Because I still like the – I don't mind – I quite don't mind the hardline philosophical distinction.
But that's never going to happen.
And so therefore, let's talk about what reasonable regulatory framework looks like.
It's kind of your position.
It could happen.
I mean, if you could figure out the contours for a separation, I mean, it's feasible that everyone would be happy with that.
But that's certainly not on the table right now.
And so it's not something that I think most people are grappling with.
The other thing is, you know, it is tricky to draw those lines because this economic activity and financial activity is happening in this crypto universe, right?
But the people still live in the real world, right?
And so, it's impossible to completely separate them, right?
I mean, maybe you don't apply financial or securities regulation, right?
But you still can't have people like funding terrorists or You know, kidnapping people and holding a gun to their head so they give them crypto, right?
Like that's a real world implication.
You can't just totally separate, let's say, crime, right?
And so I think it's a little more difficult than it seems to draw that line where you just separate the two worlds.
Well, I mean, crime is unrelated to crypto is the point.
Like I'm saying, if somebody does a hack, it's internal to crypto, and steals crypto out of your wallet, then you're operating under rules of the jungle, and sorry, you opted out of the regulatory regime, no police coming in and sort of restoring your money.
Yeah, I would agree with you.
But if you kidnap somebody and you're holding ransom, like, I don't think that that's – the essence of that act isn't the currency you're demanding the ransom on, it's – I agree.
So maybe that's one place where you can draw that separation and like everyone agrees on.
But I think you have to work through a lot of those issues because it's not always so cut and dry.
Right?
I mean, what about money laundering?
Yeah.
So if you could snap your fingers and sort of lay out – Three to four crypto policy tenets that you think get us to a better place relative to the status quo in a way that's actually achievable for, say, the next president of the United States, what would it be?
I think there are two in particular.
The first is revising the Bank Secrecy Act.
Okay.
The second is...
So say more about that one.
So the money laundering, the namesake of money laundering is Al Capone, right?
Who, during Prohibition, laundered, like, pretended money was coming through laundromats instead of alcohol sales.
And, you know, it's a very complex process to launder money.
Yep.
And so, obviously, we don't want criminals to be doing that.
Trial traffickers are bad.
Cartels are bad.
You know, terrorism is bad.
And so, we created this framework that basically said, okay, it assumes that money has to go through some sort of intermediary, a bank, a brokerage, a money transmitter, what have you.
You know, obviously, there's cash, but people don't walk around with millions of dollars in their cash, you know, in their pocket normally.
Yeah.
And so we created this framework where it's like, okay, all financial institutions, you have to do KYC on your customers so you know who they are, right?
You look at their IDs.
And then second, you know, you have to kind of monitor transactions.
And if you see any suspicious transactions, you have to report them to the government.
So you would revise that how?
Okay.
So the way I would revise it is say, look...
The goal is to prevent money laundering and terrorist financing.
Any means to do that that is effective should be allowable.
In crypto, it's really hard to know who the people holding money are, but it's really easy to trace the transactions.
It's like imagine if all the money in the world were in a bank vault, right?
Everyone had the key to their safe deposit boxes and all the safety deposit boxes were clear, right?
And the bank logged the transfers between every safety deposit box.
It'd be pretty easy to stop money laundering because you can follow the money.
You don't know who's who, but you can follow the money.
And it turns out like following the money net-net is like kind of more effective than like knowing, screening each person each time they go to each different bank.
I like it.
Really hard to know who owns the money.
Really easy to follow the transactions.
Yes.
And so KYT, you know, your transaction, you know, would be probably more effective eventually than KYC. And it would prevent a lot of the problems which create friction between the crypto world and the traditional financial world today.
So that's number one.
The second is securities legislation.
So, in general, securities law assumes that if you are buying something, you're giving money to someone else.
And so, there's always an issuer, right?
They're holding their money for you, and they're producing value for you.
In crypto, you have this concept of smart contracts, which is basically you have code, which you kind of set up the rules, like what trades should be done when and how to calculate prices.
And it kind of runs on its own, right, on the blockchain.
And you can't really stop it.
You can put your money in the code, but no one else can kind of take that money out.
And so, it doesn't really fit into securities legislation because there's no issuer.
Right?
You're not giving your money to anyone else, and yet you're still required to adhere to the securities laws.
Is that the current state of play right now?
Yes.
Okay, that even like Ethereum or whatever is regulated under the Securities Act of 1933 or whatever.
Gensler, who's the chair of the SEC, has said he thinks everything except Bitcoin is a security.
The CFTC has said they think- Why does he give Bitcoin that's fast?
Because it behaves more like a commodity.
There really is no one to point to who's behind it.
No one even knows the founder.
Okay, fair enough.
Okay.
You know, it's decentralized enough.
Yeah, I at least understand the point.
Yeah.
Ethereum is probably the number two.
That's like maybe 20% of crypto market cap.
But he thinks everything other than Bitcoin is treated as security.
You know, that's what he says.
But the people he's gone after have tended to be the bad actors.
Mm-hmm.
Right?
And he's kind of caught between a rock and a hard place where it's like, you know, he doesn't really have the tools to regulate and protect investors in a good way.
So, he has to talk a big talk and then go after the bad actors.
But that creates uncertainty, which hurts everyone.
And so, you know, obviously, there's a lot of crypto that is not a security, right?
Crypto You can create these tokens.
A token is a representation of something, right?
A gift card is a representation of something.
A artwork is a representation of the history of that artwork, right?
It's why the Mona Lisa is worth more than a copy, right?
You know, my membership cards, my AAA card is a representation of my membership in AAA. And there are tokens That fill all those different purposes.
It is self-evident that many of those are not securities, right?
But they get painted with a broad brush and then it hurts a lot of innovation.
So what would you do with the securities law then?
Just not treat it as security basically?
This is really useful.
Revise the Bank Securities Act.
Very specific.
Securities laws are the issue.
What would you do with it?
Say you're the new Gensler.
Not offering a job, but...
Yeah.
I think the principle behind the securities laws we have now is disclosure, right?
Honesty and disclosure.
I think those principles are great, right?
Anyone who's doing anything should disclose a lot of stuff about what they're doing and be honest about it, right?
But the mechanics of what form they have to fill out, Right?
What liability they have to take.
How they have to sell things.
These things just kind of need to be, like, rethought.
And probably the most effective way to do that is to, like you suggested, ring-fence a lot of crypto and say, like, hey, it's the Wild West.
We're not ready to deal with this.
As it matures, like, we'll re-engage and we'll come up with common sense regulation that applies.
There's a list of, you know, specific things that I think could help, but I really think the securities acts need to be revised themselves.
It's certainly not something that can happen at the regulatory level.
It has to be the legislative level.
I agree with that in a way that has – What is that?
Right?
Yeah, legislative level.
I mean, the problem with the securities acts, one of them, is that they're purposefully vaguely written.
Right?
I mean, one of the things that bothers the heck out of me, this has nothing to do with crypto, has nothing to do with crypto, is that insider trading is nowhere defined in the securities laws.
And anytime someone's pushed to define it in the securities laws gets who objects.
The SEC, because they actually want them to be written vaguely.
That's one example among many, that's a famous example.
But, you know, I think that in some ways the vagueness again, as it applies to crypto, in that to use that analogy, may not be what they see as a bug, right?
They see that as a feature because it gives the Genslers of the world more authority than the people who are actually elected to Congress or the Senate to pass statutes.
The insider trading example is interesting because there was congressmen and senators, et cetera, that had – thinks that we need to change legislation on this.
Certainly, there are people who have called for greater clarity in industry and yet the SEC opposes the efforts to define it statutorily.
It would not surprise me if that same pattern of behavior actually purposefully what you're describing as just like a problem and assuming a well-intentioned, oh, well, like let's just all work together and fix it, I think presumes a sort of – Purity of intention that I don't think exists in most of the administrative state.
Not only does it not – And I think they like the vagueness, actually.
Yeah, not only – So Congress has to act, but they don't want Congress to act because that means they can't decide to do whatever the heck they want to do, which is what most of these bureaucrats actually – how they derive their power in their sense of what they call discretion, but what really is just arbitrariness, undermining the idea that we're a nation built on the rule of law when they actually would prefer it just be a nation of men.
Yeah, I think that's right.
And the irony is, you know, these agencies are set up to accomplish a mission, right?
And they are going to Fulfill that mission.
If it's protecting investors, they're going to focus on protecting investors, right?
And they're going to say that they evaluate the trade-offs incrementally between their, you know, capital formation and encouraging economic growth.
But really, like, when things like FTX happened, right?
Or Madoff happens, like, it makes them really look bad.
They focus mostly on preventing bad actions, not encouraging good actions.
And striking that balance, you know...
That's hard and they were set up so that there is a check and balance on that.
They're set off on this mission and then the legislature and, you know, the executive branch check and balance them, right?
And when that falls away, you just get the mission, even if well-intentioned, and you don't have the check and balance.
And I'm not sure it's fair for them to check and balance themselves.
Yeah.
Yeah, I'm sure it's not fair, actually, because that's part of the problem with the fourth branch of the government is it's designed to exist outside of the bounds of checks and balances.
That's exactly why it was sort of a demonic creation of sort of a quiet bargain of the executive branch and the legislative branch.
Nobody wanted to actually be held politically accountable Even though they were politically empowered.
And so they decided to sort of kick it outside.
And so actually, it's this weird analogy to where we began the discussion, actually.
Right?
Is that we've got the Constitution, but we want the rules of the jungle.
We'll kick it off to the administrative state.
And that effectively exists as a parallel morass that Actually, occasionally interfaces with the legal system, but more or less increasingly has nothing to do with it.
About the statutes that are passed versus the regulations that go through in, you know, pick your favorite part of the alphabet soup, SEC to FDA to, you know, God knows what, TSA to FTC to, you know, whatever.
And I think that's kind of an analogy with what we do with the crypto system is like this system, like they said, Congress is so broken, let's just kick it out and create this new thing.
Called the administrative state.
It's sort of like the financial system is so broken.
Let's just sort of like, you know, that the good – this is almost a good version of it.
That was the perverted version.
This is the good version of it.
Kick it out and create sort of a parallel system.
But in one case, I think it's a betrayal of the constitutional system of self-governance.
Whereas in the other case, we'll find out how that experiment turns out.
It's still only 10 years in.
Yeah, I think there's – I mean, you pointed out a lot that organizations have a tendency to metastasize, right?
It's just the nature of organizations.
They want to do more, right?
And that happens.
And so the – you know, in the Constitution, we build in checks and balances to try to prevent that, right?
So like the Second Amendment is an example where, you know, you can say a lot of things about it, but there's kind of a hard check on the – Encroachment of the police state because, you know, people might have guns, right?
And that prevents a certain amount of creep of the state.
In the financial sphere and in the legal sphere, we tried to solve that problem with checks and balances, right?
Right?
But crypto in many ways, you know, and this, I think, goes back to what we were initially talking about, is an opt-out.
And because it's an opt-out, it puts a check and balance on the natural growth and encroachment of the administrative state, right?
Someone great comes in and they say, okay, we're going to reform the administrative state.
Great.
It's a little bit of a unicorn, right?
Yeah.
I hope you're that unicorn.
But like, tough thing to find.
Doesn't come around very often.
Yeah.
What would enforce that problem, enforce, you know, a limit on that problem is an opt-out.
So in this case of money, it is, you know, something like Bitcoin, which is kind of like gold.
Gold serves that purpose.
You can only do so much to inflate your currency, you know, to solve your problems before people really start opting out.
And that's a hard limit that countries come up against sometimes.
In the same way, the legal system can encroach, right?
And encoding your rules of organization with other people in code on a blockchain can provide an opt-out jurisdiction if you don't want to be part of the current legal system.
And that is a check and balance on the legal system that actually might make things better for us.
In the same way that when file sharing came out, right, it forced the music industry to convert to things like streaming and Spotify.
No one uses Napster anymore, but because of Napster, we have Spotify, right?
And in the same way, because of the Second Amendment, We have a lot of freedoms.
And because of Bitcoin, we may have a more constrained Fed.
And there wasn't really a good way to do that otherwise.
Yeah, I think so.
And I think the constrained Fed is – I mean, that would be a boon to economic growth in this country.
And if cryptocurrency advocates played a role in creating the competitive pressure – To deliver that result, we would owe crypto advocates a debt of gratitude in this country because as you know, that's a big part of my focus in the presidency is to put the Fed back in its place.
And I think that's a very long-term goal, right?
Obviously, that's not where it is today.
As our crypto is not cryptos today.
Believe me, putting the Fed back in its place, I think that is a nearer-term goal, to be clear.
Sure, but crypto is not going to accomplish that next year, right?
But I think encouraging that kernel of a check and balance, that doesn't come around very often.
Yeah.
And the ability to foster that is a long-term boon to all of our freedoms, right?
Ambitious, lofty, but I think I could buy the possibility of that.
But even still, you don't have to think about it on the scale of centuries, even in the short run and the way it shapes the terms of debate that I buy.
And I think it's- I mean, we're talking about it.
Exactly.
We're already seeing some of that.
If I'm successful, I'll be, by definition, influenced by- Ongoing debates like this one forced by cryptocurrency as an alternative that otherwise caused us to have a discussion about the Federal Reserve that we might not be having in the same way but for it.
So that's already – that's already the best proof we need that it's tilting the scales of discussion about Fed reform at least for the better.
Quick question.
So you live in New Hampshire, you're in Nashua, right?
Salem.
You're in Salem.
Oh, yeah.
Okay, okay.
So we're in Salem County now, but you're in Salem.
Yeah, Salem's the next town over.
Next town over.
We're in Wyndham, but...
Yes, good.
Are you pretty plugged into the Republican primary at all, or like, not really?
I probably am not.
You know, I moved to New Hampshire a year ago.
I'm a Boston native and a New England born and bred New Englander.
I was going to ask you what your pulse on the ground, but I know you're not super politics-y.
What I have noticed so far is that it is more politically vibrant than any other place I've ever lived, right?
It is, right?
It makes me really appreciate the primary system we have because everyone you meet is more willing to be engaged with these issues and takes it upon themselves to go see the candidates.
That is just not something you get in You know, deep blue and deep red states.
What was your takeaway from tonight?
From tonight?
Yeah.
Anything interesting?
You were at most of the event, right?
Yeah.
So what was something interesting?
You know, I haven't been to a lot of other candidates' political events, so it's hard for me to compare.
Someone cried.
I mean, I think...
You know, I think the stuff you say resonates.
You know, I'd say, like, personally, 85% in agreement, which is, like, way above the bar.
Phenomenal.
Yeah.
You know what I mean?
100 would be weird.
It would be weird, yeah.
And, you know, and I think people seem to get energized.
To me, you know, it's a basement with a breath of fresh air.
And so, you know, I'm very happy to be here.
I appreciate that, man.
I'm glad you came out.
And I've learned a lot from you on crypto.
And I think that...
Like most things, I think it requires delving into the complexity a little bit to get it right.
I think there's no hiding from it.
And at least our thesis in this campaign is that we're not going to hide from the complexity.
We're going to get our hands dirty.
And, you know, hopefully that's going to actually put us in a best position, not just to deliver slogans, but actually to deliver a result.
I look forward to watching it.
And, you know, I think in general, a lot of things you say are very aligned with a lot of the ethos of the crypto community.
It's generally a libertarian group, right?
And so I hope they learn more about you and, you know.
And follow your trail.
Cool.
And I'm going to be learning more about the issues affecting them as well.
It's been a good learning already so far.
Thanks for helping me get there.
We'll probably do this again maybe in a few months when I'm further along.
Sounds good.
But it's good to see you, man.
Likewise.
Thanks a lot.
I'm Vivek Ramaswamy, candidate for president, and I approve this message.
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