RAOUL PAL: Alex Saunders, finally we get you on Real Vision. I've been on your podcast and on your YouTube channel, but finally I've got you on Real Vision. So good to be here with you. You're in where?
ALEX SAUNDERS: I'm down in Tasmania, which is a nice place to be at the moment, Raoul. So yeah, thanks for having me on.
RAOUL PAL: Yeah, great . Tell people a little bit about your background, just so they know who you are, what you do, and even how you got into the crypto space. And then we'll talk a bit more after that.
ALEX SAUNDERS: For sure. So I'm actually a pharmacist by trade who was always very interested in the world of finance and investing and lost a lot of money in the GFC when my parents gave me some shares for my 21st birthday-- which shows my age a little bit. And I would continue to go down that rabbit hole. And I just loved the world of options, and derivatives, and Black-Scholes, because I had a science and mathematics background and interests.
And then I became a bit of a gold and silver bug after the GFC, when you watch all those documentaries and try and find out what happened and how no one could possibly see this coming. And that led me to find Bitcoin in 2012, and I fell down that rabbit hole in an even bigger way and committed a lot of time to that.
And then, in 2015-16, Ethereum came along. And that expanded the horizons. And just, wow, this technology is honestly going to change the world. And annoying all my friends and family with that. And then, in 2017, I finally quit pharmacy altogether and went full-time educating people on crypto.
And we've now got around 200,000 followers. A lot of free consent, some premium research, and we try and keep people up to date with everything that's happening in that world.
RAOUL PAL: And that's Nugget News, right?
ALEX SAUNDERS: Yeah, Nuggets News, yes.
RAOUL PAL: So listen, obviously, the whole crypto world is about change anyway. And I've bored, ad nauseum, our audience about the future financial system. But over this whole coded period and coming out the other side, I feel like everything has changed in this space, too. So it started off without me, because you're much closer and deeper into the space. I'm macro, so I look very top-down.
The first thing I notice is that Ethereum starts do a lot better than Bitcoin. What was that all about, and how did you start figuring out what was going on? Because what's gone on from that, when it started a few months ago, to here has been unbelievable.
ALEX SAUNDERS: I think it's all relative, because Bitcoin could argue that Ethereum underperformed Bitcoin for a couple of years, and it's having its time now. So Ethereum has had a lot of setbacks along each journey of where he wants it to be, and it ebbs and flows between being behind on that timeline and then being really exciting and very promising again.
And we're in one of those stages where everything looks really good and set to upgrade. And the previous boom was all about the ICOs and that mania. And I think this boom is more real in terms of finance, and lending, and we are now doing things which you can't do in the traditional finance world.
That's attracted a lot of capital, very high yields, and things that we didn't really expected to take the lead here, like stablecoins. That market cap was around a billion dollars and mainly just Tether, which was a very shadowy area. And that's now $10, $12 billion, yeah.
RAOUL PAL: So I want to break these two things down for people who aren't so familiar because a lot of people have come in on their Bitcoin journey, and they're like, OK, I hear about Ethereum. What is it? Is it different? Is it the same? Is it not? It's not hard currency. What is it?
So we need to go through that first. Then we'll get through stablecoins as well, just so people get an understanding what this is and why it's a bit different.
ALEX SAUNDERS: Yeah, so people will hopefully have a very good understanding of Bitcoin and that idea of being scarce in a digital currency. Ethereum is slightly different in that it's trying to be a platform-- or, it's more of a technology play, in the way that I see it. So it certainly has some monetary aspects, and they're trying to change their monetary policy in some way to be a hard currency and be scarce and finite.
So that's one important aspect. But the main play here is that they're trying to rebuild a ledger, or a platform, or a protocol where anyone can build on top of it freely. So just like Bitcoin is trying to build a new financial system where I can send money to Raoul freely anywhere in the world, and we have to worry about banks, or being censored, or anything like that, Ethereum is trying to create a new internet-- Web 3.0, you might have heard this called-- where anyone can build an application.
And all of a sudden, Twitter can't take down Trump's tweet, or YouTube can't take down my video because I said the word "COVID" in it. So they're trying to build this censorship-resistant protocol for the flow of data or information where anyone can build an app on top of it, a website. So it's very much a technology play.
RAOUL PAL: So this is not, necessarily, just about-- we'll come into the money aspects later. But this is not necessarily about money. This is a whole protocol, platform, technology for anything that needs to be recorded in some sort of ledger-- whether it's information, whether it's money, or whether it's assets, or whether it's-- is that right?
ALEX SAUNDERS: Yeah, well, I think people might have heard this term "smart contract." And it's kind of funny, because I think of it as a dumb program. So it allows you to do a few more things than what Bitcoin can do.
So rather than just send money from A to B, you can program in characteristics or traits. And the first, I guess, application of that was the ICO mania. And being able to raise capital from anywhere in the world was a very cool concept.
Now, the second iteration of that was stablecoins in this world of DeFi-- so decentralized finance and lending. So anything is possible, and the next things that we might get to in future episodes or whatnot, are gaming. And there's all sorts of things. You can build anything on Ethereum, like you can build anything on the internet.
So at the moment, the things that are being disrupted are probably those things that are ripe for disruption. The world of finance, and being able to get a loan, and the rates, and everything that we see, it's really out of whack. So there's this new Cambrian explosion. It's just like this free-market capitalism.
And who would have thought that a boring old stable coin, in a world of volatility and huge run-ups in price, would be the thing that is so popular and just tie this all together? 12 or 18 months ago, the central banks basically said that crypto is too small to even acknowledge and it's not going to affect monetary policy. Here we are 18 months later with every central bank, government, even the commercial banks. Jamie Dimon wants JP Coin. So everyone is talking about these stablecoins.
RAOUL PAL: So talk to people who aren't familiar with stablecoin, because we've got a very split audience. Some people are deep down the rabbit hole, and others don't really know. So what is a stablecoin, and why have we got them? Because when I first saw them, I'm like, I don't really get this. It just feels like money laundering via Tether. And now it's become, actually, a payment rail, and all sorts of stuff. Explain stablecoin now, and then we'll talk a bit about where it's going.
ALEX SAUNDERS: So a stablecoin, there's a few different iterations of these, but the most common ones that you hear about, like Tether or USDC, basically, we have a digital version of a dollar, and it becomes a token. And in a bank somewhere, we have a dollar that is backing that up 1 to 1.
So Tether is always in the news, and it's a little bit shady because they've got banking relationships all around the world. And over the years, they haven't been able to find good banking partners. So it's very hard for them to, I guess, be transparent about that dollar-for-dollar backing.
Whereas now, we have things that are highly regulated like USDC or the Gemini. The Winklevoss twins have got the Gemini US dollar. So that is all very transparent and highly regulated. And it's just a one-for-one peg, and they give you a digital dollar.
Now, once you've got that digital dollar in your hands, you can use that on any crypto app and anywhere on Ethereum. And I can send it to Raoul. I can send it to anyone, anywhere in the world, through my app. And that is far superior system to being able to send a dollar to you anywhere in the world through the legacy financial system. That's basically impossible to do.
RAOUL PAL: So how fast is it? So if I send you $1 via Tether-- or not Tether, whichever one it is, whichever stablecoin-- how fast do you get it? Because right now, if I'm to get it-- if you say, hey, Raoul, send me $10 for something, and I go to log onto my bank account, I put in the thing, put in the transfer, they have to confirm the payment, usually the next day because it's the Cayman Islands.
Then it goes, it's three days in the middle of nowhere going through the SWIFT payment system. Then it goes through your sorting. Then it goes to you. And it's like, if you're lucky, you'll get it in three days. Well, if you're very lucky, you'll get it in a day. If you're normal, it's three days. And sometimes up to five. How does this work?
ALEX SAUNDERS: Absolutely. So this is one of the things that sent me down the rabbit hole to Bitcoin. Because when I'd been traveling the world, it costs $50, and the spreads were 10% to 20% depending on the country you were going to and the currency you needed.
And with Bitcoin, it's a 10-minute block time. And most exchanges will let your deposits show up after two confirmations. So if the blockchain is not too busy, then you'll get it in 20 minutes. Whereas, if it's very, very busy on Bitcoin, and there's lots of transactions waiting to get in those blocks, you might be waiting an hour or so.
Whereas Ethereum is slightly different. It has block times of around 10 or 15 seconds. And some exchanges will want to wait for-- it varies-- let's say 10 of those, 20 of those. So it might be a few minutes for an exchange to confirm that that transaction is there. But if I'm just sending it to you directly, and you trust me, it'll basically show up within 10 seconds. And you can say, I know Alex. I trust Alex. It's there.
Now, that's when the network is chugging along nicely. At the moment, it's just been horribly congested because of how popular it has become. So the big battle for Bitcoin, but particularly Ethereum at the moment, is how do we scale this?
So some people, at the moment, are paying fees of $20. Now, obviously, you can't send me a dollar and pay $20 of fees. Well, you can if you want, but it's not very efficient. So where we're at now is there's a lot of technologies that are either layer 1 on Ethereum itself, or layer 2-- a little bit like how Bitcoin has its Lightning network.
So there's layers on top of Ethereum, and some of these are now production-ready. And if you wanted to right now, I could send you some Ethereum over a layer 2 solution. And that would be instant and cost 1/100 of a cent, for example. So that's where we're at.
RAOUL PAL: And what's the compromise for doing that, then? Because if you're not on the main network, what's the compromise of doing it on a second layer?
ALEX SAUNDERS: So there's about a dozen different scaling solutions, and all of them have different trade-offs. Now, some people say that, obviously, you don't have the security of the whole blockchain and all the nodes. And in the Bitcoin world and Ethereum world, at the moment, it's proof of work, where every node confirms every transaction.
So in some solutions, you're giving your trust to that other company. But they also have to-- without getting too technical, you can always challenge things and, say, report back to the blockchain from the layer 2, back to that original Ethereum chain, and say, hey, is that right? Is that guy ripping me off. And they can say, yeah, no, that's right. We'll validate that.
So there's different trade-offs about speed, security, decentralization, and that's, I guess, the experimentation.
RAOUL PAL: So they're basically batching stuff and then putting it back onto the main chain, is that right?
ALEX SAUNDERS: Batching is one of the scaling techniques, yeah. And others are doing channels, like the Lightning network style. Others are having a separate blockchain off to the side and saying, hey, we trust you guys, that company.
It might be a company or a project, but there might still be a 100 nodes. But that's, obviously, a lot better than 10,000 nodes doing Bitcoin or Ethereum at the moment. So they're all the little trade-offs and experimentation that's happening at the moment.
RAOUL PAL: And so why the explosion of stablecoins? Who's using it? What's its uses? What the hell is going on? Because this has gone from a small-ish market, and it's like it's gone exponential.
ALEX SAUNDERS: I think you did a really interesting interview with Crypto Hayes from BitMEX. And he was talking about the fact that the collateral in that world-- and they were the number one exchange for a very long time-- is Bitcoin. So in the world of trading and speculation, a lot of the time, the assets that were collateral and underpinning this were Bitcoin or Ethereum, and they're very volatile.
So all of a, sudden, we can now have stablecoins. I'm not going to go off on that tangent. We might get to that in the future. But basically, we have a stable collateral. And that's a bit of a game-changer when you consider the volatility of the old assets that we used to have to use.
RAOUL PAL: But it's kind of weird that you have to use the US dollar as your collateral for crypto, right? It's kind of an imperfect world.
ALEX SAUNDERS: It's better than something that falls 94%, like Ethereum did in the bear market, when you're trying to build a project, or make a bet, or something like that. But I think it also just comes back to the fact that traditional finance has just not served so many people. And if you can say to someone anywhere on the planet, rather than your hyperinflating currency, you can now save in US dollars, it gets very, very interesting.
And this is where I have gone down rabbit holes with you, and Brent Johnson, and others talking about what's going on with US dollar at the moment, and the eurodollar system, and Brent's milkshake theory, and saying, well, if every person on the planet has a smartphone, and they now have a digital rail via Ethereum to get a dollar, a US dollar, that completely throws everything on its head in terms of, oh, the Fed need to do a swap line to this country, and the RBA are trying to get some more dollars from this other central bank, this, that, and the other, and the commercial banking system being too afraid to lend to each other through the repo markets. Now, every person on the planet can get a digital dollar over Ethereum. And that's very-- that's a game changer.
RAOUL PAL: So what happens in countries where there's capital restrictions? Let's say Turkey, or wherever it is. I mean, there's tons of them-- South Africa. Does this get around that? Is this the best way of getting around capital restrictions?
ALEX SAUNDERS: So in those countries, we get mixed data. Some people say that the adoption of Bitcoin is very high in those countries. Other people say that the adoption of stablecoins is very high. To these people, Bitcoin is interesting. But it still has the volatility. To them, the US dollar is almost like gold in these countries where the currency is just hyperinflating.
So I think we are going to see a huge demand, and we already are. But the question becomes, how does the government control, and censor, and regulate the on and offramps? That's basically the way that they can shut it down.
So when people say, they'll never let this happen, for example, well, you can't ever stop it, because it's just the internet. And even if they shut down the internet, people will have satellite connections.
So any time that someone can get online and has a digital device, they have access to Ethereum or Bitcoin-- this web, this blockchain that exists everywhere in the ether, pardon the pun. But I think the only way that they can regulate is those onramps and offramps. And then you say, well, even if they don't allow any business to serve the banking system and for people to get money into Ethereum or stablecoins, well, then, we have these local peer-to-peer markets spring up. And it's a sort of a gray market, a black market.
So someone says, I know Raoul. You go there. If you've got the cash, or he's got a banking relationship in Panama-- whatever it is. So there's always a route in somewhere, a way to work around it. And it's just, well, they can slow it down. They can add friction. But sometimes, that actually creates a premium rather than making it harder to get, yeah.
RAOUL PAL: Yeah, because we saw-- we've seen in various countries, even India, crypto is traded at a premium, just because of capital restrictions and stuff like that. So there's a huge demand for it.
ALEX SAUNDERS: Yeah.
RAOUL PAL: So the private sector has jumped the gun on the central bank digital currency, isn't it?
ALEX SAUNDERS: Absolutely. So Libra was the one that everyone heard about. And that, in a lot of ways--
RAOUL PAL: Which was a basket currency.
ALEX SAUNDERS: Yeah, so I think that's where they messed up. If they had said that they were just doing a stablecoin, a US dollar stablecoin, that's not much different to the Gemini dollar, or Tether, or USDC. So the fact that they basically went after everyone's currencies, you're really treading on some toes when you say that.
And you're going to choose the winners. Well, euro, we're only going to have you as 10%. Yuan, we're only going to have you as 15%. So you're never going to keep everyone happy. You're treading on everyone's toes. And it's no wonder that