NICO BRUGGE: Hello and welcome back. Here's why you should watch today's Real Vision Crypto Daily Briefing. Accusations and denials are flying high about the company behind the Ethereum rival Avalanche. We'll recap the key developments since Crypto Leaks' report on Ava Labs. Plus, we're going to do another deep dive into arguably the biggest story in the crypto world right now. Ethereum enthusiast Ryan Berckmans tells us why he thinks the upcoming merge is a game changer. We'll break this conversation down into key takeaways as always.
My name is Nico Brugge. We have, as always, Ash Bennington. Don't forget to hit that subscribe button on YouTube or join us on the Real Vision platform. Now, let's get right into the latest price action.
We're seeing some recovery after a lot of read late last week. Bitcoin dropped once again below $20,000 after Federal Reserve Chair Jay Powell reiterated the need for more interest rate hikes. Risk assets like crypto fell sharply after his speech on Friday. Right now, though, Bitcoin is trading higher and has once again bounced back above $20,000 levels. Ash, what are you seeing on the Ethereum side?
ASH BENNINGTON: Thanks, Nico. We've seen lately ether is making bigger moves than Bitcoin. It also suffered a steeper drop following Powell's speech but is recovering more quickly. It was up as much as 10% on the day and is now back above $1,500, which has become something of a psychological level in Ethereum. However, Bank of America warns Ether's recent price jump may continue to fade as the merge nears.
In a rather bearish note as reported by CoinDesk, the B of A report says the longer-term macro-economic situation remains weak. It also says, critically, the merge will not solve scalability issues or high transaction fees. This comes against a backdrop of very low trading volume in Ether. Decrypt Media points to a report from crypto asset managers CoinShares, it said, trading volume among institutional investors for crypto funds fell to $1 billion last week.
That was the second lowest level all year. It follows a report from Glassnote warning that low volume transactions, that's transactions below the $1,000 threshold, have continued to fall. Nico, it may still be summer in the Northern Hemisphere but the market remains gripped by crypto winter cold.
NICO BRUGGE: I have to say, Ash, I wouldn't mind some of the actual cold air considering we're in New York and we got ourselves another heatwave. But let's turn our attention to one more cryptocurrency we want to highlight. AVAX, the native token of the Avalanche blockchain is up double digits in the past 24 hours after heavy falls late last week. That brings us to our top story.
This is a wild one that has caught the attention of some of the biggest crypto players. It requires careful unpacking, so here's what we know as of now. Crypto Leaks is an investigative platform that says it's run by blockchain enthusiasts to hope to expose wrongdoing in the crypto industry. On Friday, it posted explosive whistleblower allegations against Ava Labs, the company behind the so called Ethereum killer blockchain Avalanche and its native token AVAX. Ash, what did the Crypto Leaks report say?
ASH BENNINGTON: Well, in a nutshell, Nico, Crypto Leaks alleges Ava Labs has been involved in a smear campaign. A smear campaign is how CoinDesk characterized this story in their headlines. A Crypto Leaks article claims Ava Labs paid lawyers to go after Avalanche's rivals. The article also says these actions were aimed at distracting regulators.
The article alleges Ava Labs paid law firm Roche Freedman in both Ava Labs stock and in AVAX tokens. That's the native token of Avalanche. The report is quite lengthy and also includes surreptitiously recorded video purportedly showing the law firm's founder Kyle Roche talking about the nature of his partnership with Ava Labs, Nico.
NICO BRUGGE: Indeed, this story has caught the attention of the likes of Binance's CEO CZ and BlockTower CIO Ari Paul. CZ even made a note in his tweet that if the video linked is indeed real and not a deepfake, it's a massive story. But in terms of the people actually involved in the story itself, what are they saying, Ash?
ASH BENNINGTON: Well, the CEO and founder of Ava Labs, this is Emin Sirer, has called the allegations "categorically false". He said, "neither I nor anyone else at Ava Labs ever directed Roche in his selection of cases", among other rebuttals are from Sirer. The Ava Labs CEO says Roche has only handled what Emin Sirer characterized as "minor legal cases" regarding Avalanche. Sirer also further called Crypto Leaks a "disreputable site".
As for Kyle Roche, Roche says the report "contains numerous unsourced false statements and illegally obtained highly edited video clips that are not presented with accurate context", Nico.
NICO BRUGGE: Obviously, this is a very chaotic story but thank you for laying out the facts. Now, Ash, what do you think about the story more in general? Obviously, this is one of our-- we have these type of stories about once or twice a year with crypto.
ASH BENNINGTON: Yeah, Nico. This is a crypto food fight. We've seen them before, obviously, as people who've been following the space for some time. No, the reality is we're going to have to wait and see. Markets move on rumor and innuendo. You hear people say things like buy the rumor, sell the news, but we're going to have to be careful about how we report the facts here as we indeed are doing.
Look, I would just say, Nico, I've been covering these stories in the crypto news cycle since there was a crypto news cycle, probably starting back in 2017. Before that, it was just a Twitter flow cycle. But we see these stories come up from time to time. Often they involve these very intense statements. And we're going to have to wait and see what happens as the facts come out, Nico.
NICO BRUGGE: Very well said, Ash. And we'll be keeping an eye on this story as to how it develops and affects the AVAX price. Here are some other stories we're looking at. Meta, the company behind Facebook, Instagram, and WhatsApp, has added NFT support to another one of their platforms. Users will now be able to post there NFTs on Facebook. Ash, this sounds like a big deal for mainstream NFT adoption. How is this going to work exactly?
ASH BENNINGTON: Well, this is really an interesting story because what this is about is about the ability to basically have Facebook slash Meta slash Instagram connect with the underlying NFT wallet so that you can see the entire chain of custody, you can see the validated ownership.
People have joked before, obviously, about NFTs, you can just right click on them and Save As. What this is really about is showing the actual architecture, the chain of custody, the chain of ownership, which makes it unique and I think makes it incredibly interesting in the way it could be integrated into the Meta ecosystem as we go forward, Nico.
NICO BRUGGE: Yeah, lots to keep an eye on there and seeing if this very, very cold crypto winter for NFTs thaws at all on top of this news. In other stories, the world's largest derivatives marketplace, CME Group, has launched two new crypto products. Ash, what are they and why should we care?
ASH BENNINGTON: Well, that's exactly right, Nico. CME has added two new products, Bitcoin Euro and Ether Euro. These are futures contracts on CME. We should care because ultimately, it shows some demand, current demand or the projected future demand that CME Group sees for these trading pairs.
Look, here's what's interesting. Folks at CME Group aren't cryptocurrency activist, they're not enthusiasts. They look at this with a very cold eye. They look at it to try and figure out where the demand is and frankly, where they can make money. I would say this is a very interesting proxy for what we're going to see developing in terms of future demand for Euro denominated Bitcoin and Ether contracts, Nico.
NICO BRUGGE: Very well said. Indeed, the CME announcement is another example of a growing institutional expansion of crypto products. This is one step on a long road to a wider mainstream adoption of crypto. We're not going to get there overnight, and crypto is far from our finished product as we all know. Even long established blockchains continue to evolve. In fact, Ethereum is just weeks away from an event that will dramatically change its entire engine.
Some, like Bank of America, have cautioned that this will not have as big of a positive impact as hoped for. Others like Ryan Berckmans, an Ethereum investor and community member, are highly bullish. Ash asked Ryan why the move from proof of work to proof of stake is needed. Let's take a listen.
RYAN BERCKMANS: The merge is really about taking Ethereum from proof of work, a venerable technology that invented distributed consensus, invented the concept of a blockchain where you can have computers that talk to each other and reach a stable correct state, even if up to half of them are malicious and incompetent. Proof of work is an incredible innovation that gave the world the promise of these public computer networks.
And then, as the years have passed, someone about maybe 8, 10 years ago had an idea, well, what if there was a better way? And it took them, the researchers and engineers, a very long time to really get to the bottom of that mousetrap and operationalize it. But what's come out is a system that is almost in every way, except for its complexity, superior to proof of work. And I think that's a controversial statement, not everyone would agree with that and I'm happy to get in to the line items.
ASH BENNINGTON: Yeah, break down your view of why you believe that to be the case in every way.
RYAN BERCKMANS: Right. With the exception of complexity and the longevity of the track record of proof of work, at its core, Ash, proof of stake is a system which is both more secure, as well as significantly more capital efficient and inexpensive for the Ethereum network to run. Over the past seven years of R&D leading to this rollout in a few weeks, we've taken the idea of crypto mining, where computers in isolation with no knowledge of each other solve those cryptographic puzzles and consume vast quantities of energy to secure the network.
And we've replaced it with the so-called staking system where anyone in the world is able to take their Ether tokens and lock them up in the system to help run the system. And at its core, the proof of stake system is about checks and balances of all of the staking computers, all of the computers where these Ether tokens are locked up staking, keeping each other in check. It's much more like a community of computers. Whereas in proof of work, security is created by lots of independent computers competing to race towards this goal of solving that next cryptographic puzzle.
In proof of stake, it's more like a symphony, it's a concert of staking computers that has a complex set of rules. And the result is that it's able to produce the exact same end customer benefit as proof of work, which is secure, decentralized public chain block space. This is a global public utility, where anyone can pay a fee to use it, only now, the engine underneath is totally different. It's much more socially coordinated. It doesn't require any electricity consumption on a large scale more so than my laptop or your phone, Ash.
And then there's this incredible property where now, Ethereum as a network at the high level is going to be truly profitable. And so when the merge comes, Ethereum will for the first time be the only public blockchain in the world with significant profitability. We've got security, we've got reduced environmental impact, economic profitability. These are just incredible line items. And what's the cost here? Well, the cost really is that it's a much more complex system that just took time to develop and time to ensure that it's safe and ready for the big leak.
NICO BRUGGE: So Ash, we've been hearing a lot about proof of stake as we've been covering the merge the last couple of weeks, but one question for me remains. Besides your general thoughts on Ryan's answer, why don't other protocols adopt proof of stake?
ASH BENNINGTON: Alright, well, the last question first, general thoughts, I think Ryan does a very good job of explaining the overall context here. He says it himself with great humility. I think, that not everyone will agree with his views. I'm sure that's true considering the nature of this ecosystem. To get to your first question, why don't other protocols adopt proof of stake? The short answer is lots already use proof of stake.
Proof of stake coins currently include Cosmos, Cardano, Polkadot, Solana, Tezos and Algorand. It's interesting because there's slightly modified versions of proof of stake. You'll hear for example, about DPOS, that's delegated proof of stake. PPOS, pure proof of stake as in the case of Algorand. These are just slightly different inflections on the same theme.
Bitcoin, on the other hand, is highly likely to remain proof of work, at least for the foreseeable future. It's just such an incredibly important part of the ethos of that community. By the way, other proof of work coins include Bitcoin Cash, Dogecoin, Monero and Litecoin, Nico.
NICO BRUGGE: Ash, you've repeatedly compared this Ethereum merge to changing the engine on a jet plane while flying 50,000 feet in the air. This is huge. This is complex. Things could go wrong. Here's Ryan talking about those very concerns. Let's take a listen.
RYAN BERCKMANS: When we think about the safety of the Ethereum merge and why we know it's going to work, that really starts at the beginning of that story with the Ethereum community's long term decision to decentralize the development and maintenance of the protocol to these separate teams, as well as a distinct research community that produces a textbook specification that you could print out, and then that specification is studied by software teams that turn it into multiple independent programs, any of which can do the job, any one of which can do the job of running the Ethereum blockchain in proof of stake.
Today, there are four different programs, which are perfectly safe and ready to run the Ethereum proof of stake network, no other blockchain community has even one, pardon me, two, they do have one. And now beyond the four, there's even a longer tail of research clients and up and coming clients with various flavors and specializations. And the Ethereum Foundation, which provides a fair amount of centralized direction of the Ethereum effort, has what we call a subtractive philosophy.
That's something they espouse, that they've written about. And in their subtractive philosophy, it is explicitly the mandate of the Ethereum Foundation to give away as much of their money as makes sense over time to empower truly independent teams in different jurisdictions. When we think about the safety of the merge, this story really started and hit the middle of it with many different teams in different jurisdictions building different code bases that have all been tested, that have both their own private tests, as well as a shared Public Test Suite across all of them, as well as all of these software efforts are based on a PDF protocol specification, like a Word document, that has been the focus of a world class research community for many years.
The foundations here are just like no other ecosystem has this level of dedication to integrity, security, and decentralization. And that was really just setting the stage. And over the past four or five months, there has been an intense tactical effort to test every single aspect of these proof of stake software clients. We've seen multiple test nets, we've seen application layer testing, where we as a community will invite Ethereum application developers who are not involved in the transition to the merge.
They're the customers of the merge. And we'll say, hey, do your applications still work on this test net fork of Ethereum that's running proof of stake? We've engaged in bug bounties, Ash, and different kinds of research initiatives to engage the security community, not just at the protocol level, but in terms of the bits and bytes inside these programs to make sure they're doing what they need to do.
The effort to test the merge has truly been world class and judicious. And I think it shows in the many delays that the world is familiar with where there was an Ethereum who cried wolf phenomenon where the merge just got pushed back so many times that nobody believed us. And I have some good college buddies that I love to get into the crypto weeds with. And I told them some weeks ago, I said, guys, the merge is coming for real this time. And they said, yeah, right. Lo and behold, here we are.
NICO BRUGGE: Really love this question, especially after our discussion regarding security last week with Corby Pryor. Ash, what's your reaction to this clip? And what would you say Bitcoiners would argue against Ryan's answer here?
ASH BENNINGTON: Well, Nico, Bitcoiners just see the world very differently than Ethereum folks do. It's a very different worldview. It's a different set of values, different priorities, different ethos. And importantly, I would say those different views are expressed in the community, but also in the code itself. It's just an incredibly different way of seeing the world, a different way of thinking about functionality.
On the one hand, the store of value function, on the other hand, everything else that Ethereum provides in terms of an ecosystem to do all kinds of calculations, a so-called Turing complete computer where you can really truly have programmable money. On the Bitcoin side, some of that may be coming in layer-twos in the future. But as of right now, we're not seeing the level that we do see right now in Ethereum.
In terms of the probability of success of the merge, this is the $200 billion question. There are lots of very smart people in this space, who believe that the merge will be successful. Ryan, obviously, is one of them. He's an investor now, but it's important to point out he was a developer in a past life before becoming a full-time investor.
To me, and this is a very highly unscientific view, but the people that we talked to here on Real Vision who know Ethereum the best, believe that the merge will be successful, but, but for me, there is still this fundamental question about the unknowns here. This just feels like Knightian uncertainty. That's the $10 phrase from finance, which means unquantifiable risk. And I think Ryan actually touches on that directly in the next clip.
NICO BRUGGE: Well, thank you for teeing us up right there, Ash. Let's take a look at that very next clip.
ASH BENNINGTON: Stanley Baldwin, the British politician once said, the bomber always gets through. There's always a flaw. There's always a vulnerability. There's always something you can't plan for. When someone makes that argument, and you obviously come down on the other side of it, what do you respond? And how do you think about why that view may be excessively