Bitcoin

Bitcoin and the Blockchain Will Stomp Out Wall Street Fraud

Q&A with Caitlin Long, a former Morgan Stanley managing director, cryptocurrency enthusiast, and recent convert to Austrian economics.

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Bitcoin, the world's first and largest cryptocurrency, and the blockchain, which is its underlying technology, have the potential to change everything from record keeping to the global financial system.

The blockchain is a decentralized database that allows individuals to trade directly without the need for a third-party intermediary. Bitcoin is free-market money that runs on the internet, and it isn't controlled by a political entity or central bank.

It's easy to see bitcoin and the blockchain as logical extensions of the internet, with the potential to shift power from governments to individuals. It's also not clear how a fully decentralized money and public-ledger system are going to be implemented and brought to bear on everyday life.

Reason's Nick Gillespie sat down with Caitlin Long, one of Inc. magazine's "10 business leaders changing the world through tech," a former managing director at Morgan Stanley, and the current president of Symbiont, which is bringing blockchain technology to Wall Street.

Interview edited by Mark McDaniel. Introduction edited by Jim Epstein. Cameras by Jim Epstein and Sarah Siskind.

"Modum" by Kai Engel is licensed under Creative Commons.

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This is a rush transcript. Check all quotes against the audio for accuracy.

Nick Gillespie: You became interested in the Austrian School of economics in 2008 during the financial crisis.

Caitlin Long: Yes.

Gillespie: Why did it take the financial crisis to make you interested in the Austrian School, and what are its essential insights into kind of Bitcoin or blockchain technology?

Long: Sure. I was in the industry for 16 years before the financial crisis happened, and the system worked pretty well. Even today, it still does, but that hiccup, I knew there was a bigger story than what we were reading in the mainstream press, and it was, ironically, Tim Geithner's interviews that he gave very close together, in the first one of which he said interest [rates] were too low, and that's why the mortgage market imploded. The second one, he said we should lower interest rates even more, and that-

Gillespie: So you had somebody who clearly was talking out of both sides of his mouth-

Long: Yes.

Gillespie: … or didn't understand from minute to minute what was going on.

Long: Potentially both. I don't know, but that's what got me curious, and I started asking all of my big thinker friends, who were more thoughtful about the way the system really worked, and one of them said, "Start reading the Mises Daily [emails], and you'll figure out how the Fed works." Because by that point, I knew the Fed was at the center of the financial system, and there was something that just didn't quite make sense, so I went deep down the rabbit hole.

Gillespie: What is it about the Fed's role that you think was central to the financial crisis, and then how does the Austrian School kind of respond to that, or clarify that for you?

Long: Sure, and by the way, I didn't just go into Austrian School. I looked at everything, because I just didn't accept the mainstream explanation, but what I figured out was that we didn't have a free market in money. The most important price in the economy that should absolutely never be tampered with is the price of borrowing money. In other words, the interest rates. Specifically, it's the money market rate of interest that should always be free, because that's what gives entrepreneurs the red, yellow, green signals as to which sector to invest in, and over what tenor to invest, short term versus long term, and-

Gillespie: And so the Fed, by manipulating interest rates and the money supply and things like that, it screws with, we don't really know what money costs at any given point.

Long: That's exactly right. I am confident in saying that interest rates would be a lot higher today, a lot, than they would be if we lived, than they are today, if we actually had a free market in money, no question, because you'd have to compensate savers for the risk.

Gillespie: What about the Austrian School appeals to you, then?

Long: There was an aha moment for me when I read an essay that had two graphs that described, there was just simple supply demand for money, and it showed the disconnect. The Hayekian triangle was really what it was in a simplistic form, and it showed the disconnect and made me realize, 'Oh, my gosh, there's no question that supply and demand for borrowing money are out of whack and that rates should be higher, and by rates being lower, we are subsidizing capital destruction.' It just was coming out, of course, with a vengeance, at that point, but we're back at it. We're doing the same thing today.

Gillespie: Now, the Austrians that will also tend to believe, they hate fiat currency, and they love the gold standard. Do you believe in a gold standard? Because you're a big Bitcoin, blockchain person, and it seems like the gold bugs and the Bitcoin people don't get along very well.

Long: Yes, it's so true. It's fascinating, because I'll be at Austrian events, and folks will come running up to me, 'How does this work again?' I think it's because the … Bitcoin fits in the Mengerian definition of money better than it fits in the Misesian definition of money. I'm really in the weeds now.

Gillespie: Yeah, now. That's, yeah, we're all like, 'Okay.'

Long: Right, but-

Gillespie: Karl with a K Menger, yeah.

Long: Jeffrey Tucker wrote a tremendous essay in 2014 explaining how Bitcoin actually does fit with Mises' regression theory of money, and I think he's right that the value, the use value of Bitcoin isn't just the coin itself. It's that Bitcoin is intertwined with a payment system, and so you've got the unit of value, a small-b bitcoin, along with the payment system itself, capital-B Bitcoin, and they're intertwined. That's what the Austrians could use if they so chose.

Gillespie: It's just that in the 19th century or 20th, early 20th century, it was gold that performed that function.

Long: Right, and actually, you asked earlier what should be money. My answer is, whatever the free market says money is, so I don't necessarily advocate a return to the gold standard, though, as you and I were chatting before the interview, there are some central banks that are quietly stockpiling gold, going the exact opposite direction as other central banks in the world. I find that fascinating, because they understand that backing a fiat currency with real assets may someday have value, even though today it's certainly not part of the zeitgeist of central banks to do that.

Gillespie: Well, let's talk about Symbiont and smart contracts, because that's one of the ways you describe it, is that it's a smart contract company. Aren't all contracts smart, or at least for one of the, maybe the person writing it, or the person signing it? What do you mean by smart contracts?

Long: Smart contract is a piece of code that autonomously runs, and it's essentially an automated if-then statement. What we interact with that might feel like a smart contract today is something like online banking, so on the 30th of the month, the computer hits the atomic clock and says, 'Time to pay your utility bill. If there's money in your account, the bill gets paid,' and you don't intervene at all. Now, that's not really a smart contract in the blockchain context, because when you run that smart contract on a blockchain, what happens is that the payment goes immediately to the payee.

Right now, you've got that sexy front end of online bill pay. Most users probably think they're actually paying their bill at the moment that they set that up, or when the computer hits the atomic clock on the 30th of the month, but in reality, the payment is going through a spaghetti labyrinth behind the scenes before it ends up at the payee, and they get it usually the next day and sometimes even longer, depending upon if it's a foreign exchange payment. Smart contract is essentially autonomous computer programs that will feel like an online bill pay that automates workflows that used to be manual, but it's going to be on steroids relative to what we experience today.

Gillespie: It'll be instantaneous, or-

Long: Instantaneous, or-

Gillespie: … virtually … Yeah.

Long: Yeah. These are distributed systems, so there is latency. The speed of light is the limitation on how fast data can move, so there is latency. They're not always going to be in sync-

Gillespie: This means-

Long: … in every millisecond.

Gillespie: … I think, if I'm remembering the theory of relativity, my twin who goes out to Alpha Centauri, he'll owe me a lot of money by the time he gets back-

Long: There you go.

Gillespie: … because I'm an old man, or he's an old man. Another way of talking about this is that it's a distributed ledger system, so explain how, I mean, that seems very close to the kind of smart contract, but it's at, the payment will be put through the system, and everybody will be able to account for it immediately.

Long: Yes. The distributed ledger is essentially the golden ledger. That's the aha of Bitcoin. That is the payment system that Satoshi Nakamoto invented that enables multiple parties to see the same data at essentially the same time and trust that it's valid. When we say essentially the same time, we're talking milliseconds of latency, but that's the aha that multiple untrusting parties, who may not even know each other, and certainly don't necessarily trust each other, can share one and only one copy of data and trust that it's valid.

Gillespie: Right. You spend a lot of time talking to risk managers and insurance companies. Last year, you gave a speech to the National Association of Insurance Commissioners, which sounds like the most boring conference of all time, but where you said that blockchain technology could fix, and I'm quoting you, the 'lack of beneficial ownership tracking of securities by the securities industry.' Now, the content of the speech is really fascinating, but are you saying that people in the stocks and bonds business don't really have any idea of who owns what?

Long: That's exactly right.

Gillespie: Okay, and so that's really scary, right?

Long: It is, and it should be. Most people don't understand that, again-

Gillespie: Explain, how is it? Because I think everybody thinks they know who owns this or that.

Long: Right. What we own in our brokerage accounts is an IOU from our broker dealer, just like what we own in our bank account is an IOU from our bank. We don't really own our bank deposits, just like we don't really own the stocks. The company that owns the stocks is a company called the DTC, or technically a subsidiary called Cede and Company. It's the biggest company that nobody has ever heard of, and frankly, it owns 99.9% of the securities outstanding, and we think we have a capitalist system? Pause on that and think about that. How difficult would it be for that entity to be taken over by a hostile actor? Pause on that, but let's leave that aside and presume that doesn't happen. They literally, it's a bookkeeping entity. It's something called a clearinghouse that was created back in the '70s by the SEC to try to allow netting of securities transactions in a market where too many trades were happening to move the physical securities around fast enough, and so they allowed for …

It's almost like the Wells Fargo stagecoaches back in the 1800s with payments. Instead of moving all the cash, they just netted the incomes and outgoes, the debits and credits, and just moved the net amount of cash as a means by which to try to reduce risk in the system. At the time, it helped, but what we're stuck with now, 40 years later, is a market structure that requires all trades to clear through that central organization, which is part of the reason why it takes a lot of time to clear trades in-

Gillespie: How long does it take to clear a typical trade?

Long: Well, we just went from T+3 to T+2, in other words trade date plus two days, but of course, technology would enable us, essentially, in real time, to clear those trades, so we're stuck-

Gillespie: Then-

Long: … with that legacy market structure.

Gillespie: … how does, I mean, is it that people don't know who owns something at any given moment in time, or is it more kind of long-term than that?

Long: Well-

Gillespie: That, 'Well, we think we bought this company, but there are so many intermediaries that we're not really there.'

Long: That's right. The accounting systems can get out of whack, and it's a function of the latency and the number of intermediaries through which the transactions have to go. That's why the system occasionally does lose track of who really owns what. I've encountered it in my business, when I worked on the street, working with a pension fund, where there was securities lending happening that was unauthorized, and they wouldn't have discovered it but for the fact we were working on a pension transaction. Then, of course, there are a number of instances where naked short selling has been revealed, but the most prominent one is the Dole Food case that just came out of the Delaware Chancery Court in February of this year. There were 36.7 million shares of Dole Food outstanding, and 49.2 million applications with valid brokerage statements for those 36.7 million shares outstanding, so that delta between 36.7 and 49.2 was just phantom shares that were created from the accounting system out of thin air.

Gillespie: Wow, so it's like old-time stock watering, but this is fully within the system.

Long: It's fully within the system. It's fractional reserving within securities as opposed to fractional reserve banking, which is what the Austrian School was so right about on payments.

Gillespie: You've written that the biggest beneficiaries of blockchain technology are long-only investors, insurance companies, pension funds, mutual funds, and mom-and-pop investors. They're the biggest losers from today's lack of beneficial ownership tracking in the securities industry. Walk through how blockchain technology fixes this.

Long: It restores the property right back to those of us who think we actually own what we think we own today, but don't.

Gillespie: I mean, in that case of Dole Foods, there's no way that there could be more shares outstanding-

Long: Exactly.

Gillespie: … than we're actually creating-

Long: Exactly.

Gillespie: … at a given time, because everything gets accounted for immediately, or at the speed of light.

Long: Well, and we also can track it. We own it, so if somebody is actually out there doing something with our securities that aren't authorized, then we would know. We would be able to see it.

Gillespie: This is one of the things I find fascinating about blockchain, Bitcoin and blockchain, is that when Bitcoin really emerged, one of the … Particularly on kind of dark web sites like Silk Road and whatnot, the idea that it was fully anonymous, cash-like transactions, but in fact, it's not. It's the-

Long: Not true.

Gillespie: … reverse of fully anonymous. It is fully tied to specific individuals, specific institutions, specific moments in time. Does that trouble you at all?

Long: Well, it's hard to IP address this, right?

Gillespie: Right.

Long: Which is how … It's pseudo-anonymous, I think is a more accurate term. Does it trouble me? It depends on the use case, right? Because, let's put it this way, for those who are looking for better privacy in Bitcoin, there are next-generation projects that have come out, Zcash, Monero, with much greater levels of anonymity, but in the institutional world, this is exactly the sort of thing that we want. We want to be able to have clarity on who really owns what, and so the shenanigans that have happened in the industry, which have skimmed value off people's securities accounts undetectably, those sorts of shenanigans need to stop. Within the institutional world, that transparency is a good thing, because guess what? Today, we don't have it at all. It's not, nobody knew until the very end that there were that many extra shares of Dole Food outstanding.

Gillespie: This is probably a stretch, but this is kind of like there's going to be moments in the institutional investing world where we open the safe, and it's like Geraldo Rivera going into Al Capone's vault, and what we thought was stockpiled with good, old-fashioned booze, there's like-

Long: There's nothing there.

Gillespie: … nothing there. Yeah.

Long: Right, and it-

Gillespie: Or there's a bunch of bears that are about to eat you or something like that.

Long: Well, and in the financial crisis, as we were talking about earlier, one of the things that clearly happened was, the repo market seized, and it was a bank run. It was not a bank run like we expected where people were lined up during the Depression around the block, waiting to take their money out of the bank, and we realized what fractional reserve banking was. This was fractional reserve banking in the Treasury bond market, and it happened electronically. It was a bank run electronically, and there's an economist at the IMF who's tried to get a handle on how many extra Treasury securities have been created out of thin air, just because of the way the accounting systems of Wall Street work. He calls it the velocity of collateral.

I won't go into the details about why he calls it that, but in plain English, what that means is, how many times has one institution who owns a Treasury bond lent it to someone else who also reports that they own it, who's lent it to someone else who also reports that they own it? You've got three, and that's the number he came up with. It used to be four. Now it's three institutions who are all reporting that they own the very same Treasury bond, when there's really only one. This is how the Fed is conducting monetary policy in today's day and age. I think that the Austrian School is stuck in the old traditional banking system where it's all about money, and M0, M1, M2, etc. It's now being done through Treasury bonds in what's called rehypothecation, but it's exactly the same pattern, where you're creating phantom assets that don't exist and allowing the accounting systems to get out of whack to do that.

Gillespie: Wall Street is famously averse to any sort of reform, whether it's imposed by the government, or it bubbles up through the markets. How is it reacting to blockchain, Bitcoin, and associated technology?

Long: Well, this is funny, because I was working, running a business inside Morgan Stanley, when I discovered Bitcoin and then discovered blockchain. Believe it or not, in the beginning, I kept my head down, assuming, like Jamie Dimon just recently said, that anyone involved in Bitcoin would be fired. That was my presumption, that that was going to happen at that point in time, but shockingly, what happened is, as this got going, the mainstream folks actually reached out to people like me at the different firms. They found us through an internal Bitcoin forum. The Chief Technology Officer at Morgan Stanley reached out and said, 'Hey, you know something about this. Come talk to me,' and I was running a business, so he trusted me and pulled me into a group of five people who vetted everything that came through Morgan Stanley.

Gillespie: Can it be good if Morgan Stanley is interested in it? I mean, is it just going to be co-opted into maintaining the status quo?

Long: No. Well, there are going to be attempts of that. There are backdoor attempts of that, right? There are a number of projects that are supported by the incumbents that have come out and admitted they're blockchain-inspired, but … In other words, not truly blockchain, but if you adhere to the principle of decentralization, you can't have a central actor co-opt it, and that's what's so interesting about the approach of Symbiont to the marketplace. We're looking for places within the market that are naturally decentralized. By the way, guess what? Most markets are naturally decentralized. Most markets are naturally peer-to-peer. When I'm paying my utility bill, why does there have to be anybody intermediating between my utility and me? Right? So over time, I think that decentralization will actually tip, so to speak.

Gillespie: What are markets, then, at, say, Wall Street is particularly interested in keeping decentralized or bringing decentralization back? Because it seems like Wall Street, I mean, the whole idea of, we're talking in New York, it's concentrated in a few-block area, or was for centuries, really, or the trading districts, they want centralization, don't they?

Long: Well, for that, it was concentrated simply because they had to move the paper stock certificates around. That settlement was when I delivered you the actual paper stock certificate. Now that's no longer the case, but I think that Dodd-Frank actually pushed us in a direction of centralization, ironically. They missed an incredible opportunity to push decentralization and make the financial sector healthier. They did do some things right, in increasing the capital requirements, so there are certain things that have gotten better about the financial system, but those central organizations have become ensconced. Any time you get somebody who's just stick in the mud, ensconced, 'We are not going to change,' that's an incumbent that is difficult to disrupt. There are lots of examples of central actors like that, but I do believe what will happen over time is that decentralization will show that it's that much more efficient and actually that much less risky, and that the market will eventually move in that direction naturally.

Gillespie: As, I mean, kind of a philosophical, sociological, economic observation, that one of the things that is great about capitalism as we generally talk about it is the role of intermediaries, because a lot of times people don't understand the value of what they own over here versus what it would bring over here. Intermediaries, often, are the people who create value, and this is … The rise of anti-Semitism in Europe is traced specifically to their being involved in capital markets. The overseas Chinese are intermediaries. They're shopkeepers. They're people who import something to a place where it has more value. Is, in that sense, does blockchain kind of, is it a threat to capitalism as we understand it, and that essential function of the intermediary?

Long: No. By the way, intermediaries won't entirely go away. You're talking about the example of shopkeepers. They won't go away if they add value by creating a marketplace. A grocery store where I know I can go get my various and sundry items in one place, I don't have to go to lots of different places. That's a service that is valuable. The same thing will be true of other intermediaries. I don't think that the investment banks, for example, will completely go away. They do provide a real value in bringing buyers and sellers together. The stock exchanges provide value in bringing buyers and sellers together. Look at it in the Bitcoin world. There are now cryptocurrency exchanges that bring buyers and sellers together, there's value. But what they're doing is taking a fee.

This is the big difference. In today's day and age, what they're doing is running the assets through their balance sheet and taking a cut of the value, and, oh, by the way, if Lehman Brothers goes bust before your trade settles, uh-oh, you're suddenly a creditor of Lehman. You thought you were buying a share of stock and suddenly, you've got an IOU from a bankrupt institution. That's the piece that will and should go away. There's absolutely no reason why financial intermediaries need to have our assets moving through their balance sheets on the way between buyer and seller of a financial asset.

Gillespie: You've written about how nobody knows how leveraged the economy really is. Explain why that presents risk, and, obviously, blockchain addresses it by kind of clarifying who owns what at any given moment.

Long: Yeah, so this gets back to what I was talking about in the Treasury bond market, where there are three Treasury bonds owned, reported as owned by every, for every one Treasury bond that actually exists. That makes each financial institution look solvent, but if you actually try to pull out the double counting, guess what? The financial system is not as solvent as it appears. Right? The Austrians would say it's actually not solvent at all if everybody were to actually grab their assets and take them home, so to speak. If the musical chairs never stop, you realize just how insolvent the system is, and just like the traditional banking system works that way, so does the securities industry. It works that way. The challenge, and actually, there's a regulator, Chris Giancarlo at the CFTC, who's been a big and early supporter of blockchain. He's the one who's out there saying, 'Hey, this is the tool that will allow regulators to realize just how leveraged the financial system really is.' He's out there admitting this not from an ideological perspective, but from a practical perspective.

Gillespie: Do you think most regulators, either kind of would-be regulators, like Senator Elizabeth Warren, or the actual people who are going through financial ledgers and balance sheets, do they understand that, and are they asking the right questions and just giving the wrong answers, or are they not even asking the right questions?

Long: Look, I was in the industry for 16 years in the weeds, before I figured it out, so I think a lot of people probably don't understand it, yeah, but there are some who do. You asked about Senator Warren. That wing of the Democratic Party has diagnosed the problem correctly, just like the Ron Paul wing of the Republican Party has.

Gillespie: It's really-

Long: They've got very different solutions, but-

Gillespie: … that if there's a … I mean, you would argue that there's a kind of fundamental fraud going on in our financial system.

Long: Well, to the extent that multiple institutions are reporting that they own the same asset at the same time when there's only one asset, what would you call that?

Gillespie: Yeah.

Long: Yeah.

Gillespie: I would like to get in on that action before it collapses, but well-

Long: Well, that's what the hedge funds have done. That's what they've figured out, right? All these folks in the Dole Food case, how many people got a free double-dip and stole value from mom and pop? In fact, I was invited to speak-

Gillespie: Yeah, by the way, if it was my mom and pop, they're welcome to rip them off.

Long: Well, I mean, that's how the hedge funds think. Sometimes I wonder whether, when they see those opportunities to sort of arm the system, because the system doesn't keep accurate track, and they knew they wouldn't get caught, or presumed they wouldn't get caught, I wonder how many of the folks who are doing that actually stop and think about what that means.

Gillespie: That is part of the settlement process for, kind of, stock trades. I mean, by … You were talking about T+3 down to T+2, and that can become basically where the trade is instantaneous. What is the issue with the stock trades taking so long to settle? What kind of funny business goes on between them?

Long: It's a market structure issue, so we talked about the creation of the DTC. Don't need the DTC anymore from a technology perspective, because we could settle trades instantly between buyers and sellers or their agents, like a brokerage, for a new brokerage firm. But what happens is, right now, literally, each institution that touches a stock trade is sequentially processing that trade, so from your broker to the custodian. Then the custodian has to sequentially process at the DTC. Then they sequentially process to the next custodian to the broker. It's five institutions who are touching a trade, literally having it run through their balance sheet, so again, they're leveraged institutions. If anything fails in that chain, you're stuck with an IOU, and each one has to be processed in sequence. That's why, under the current market structure, it's really tough to speed this up, because five institutions have to process something in sequence.

Gillespie: Are there specific illegalities that creep into the system that you can talk about?

Long: Well, the naked short selling is technically illegal, right?

Gillespie: Explain that.

Long: It's where you create … Securities are lent out, and it's not required to find an actual security. You just have to verify that you could borrow it if you wanted to, so you can see how there's room for interpretation on how many securities there are outstanding. If you get a borrow, you can borrow the shares. That creates a phantom share of stock if it's not tied to an actual share of stock. That is illegal, and our friend Patrick Byrne at Overstock.com, 10-plus years ago, really made a lot of noise about that, because you can see how that artificially suppresses the price of a security. Again, this gets back to how the mechanisms in the capital markets that skim value unfairly from mom and pop-

Gillespie: Because nobody is quite sure who owns what at any given point in time, or-

Long: There are too many shares outstanding, right? Back then, it really did suppress the value of Overstock's shares, and I believe Patrick had to sell some assets at a fire sale value at the time.

Gillespie: But now, short selling is not a bad thing, right? Short selling is also-

Long: No.

Gillespie: … a way … So why is-

Long: It's a form of liquidity.

Gillespie: Why is naked short selling bad?

Long: Because it creates phantom shares. Right? If I'm going to short a share of stock, as long as I can tie my short to the actual share of stock, there's tremendous value, and pension funds and insurance companies do securities lending all the time, and they can collect extra income for that. That's absolutely legitimate and should be done all day, and about 20% of the trades in the securities markets are done on a short basis, so it's very much a part of the liquidity in the market. Where it starts to become a gray area is when you're allowed to say, 'Well, gosh, maybe the … I don't have an actual share of stock. I can point to one over there, but that one might also have been pointed to by somebody else,' and that's how you get into the accounting being out of whack and value being skimmed off.

Gillespie: Last year, you made a prediction that involved Overstock.com, Patrick Byrne's company, who is one of the great kind of evangelists for Bitcoin and blockchain, especially. The prediction was that Overstock would issue public securities that exist only in the blockchain. In December, last December, they did just that.

Long: They did, yeah.

Gillespie: Why is that a good thing, or what does that prove?

Long: Well, that paved a trail for the rest of us to follow, because they went through the SEC approval process. That is an SEC-registered security. Full disclosure, I own it personally. Overstock, in summer of this year, made an investment in my company, so full disclosure.

Gillespie: Sure.

Long: We're philosophically aligned and working on some things together, but that blazed the trail for other issuers to follow the legal documentation that Overstock went through the heavy lifting to get approval to do. Now, that security doesn't trade very much, because it actually is in this one place, you have to have an account with that one brokerage firm, and so the next-generation versions of those securities will be more liquid in trade in more venues.

Gillespie: Tell me a bit about how different national banks are starting to use Bitcoin or blockchain technology to transform their business. Particularly, the Russian national bank seems to be doing something, or central bank, rather. That is forward-looking in a way. We don't associate with Russia with anything other than looking back at either the Czars or the Communists.

Long: Right. What's so fascinating, Russia itself is a country that's tended to be on a different cycle than the rest of the world, because they haven't been as connected to the OECD-type countries. Of course, they've, in the last 10 years, been frozen out because of sanctions from the global financial system, and so it isn't a shock to me that Russia's the first central bank that came out and said that there will be a CryptoRuble. We don't know how they will be implementing it, but it remains to be seen. I look at the fact that Russia's been buying gold, and its central bank. All the Keynesian economists were saying, 'You should … ' When the ruble had a rough patch a couple of years ago, the Keynesian economists, the IMF, were telling them, 'Sell your gold. Protect the value of the ruble,' and no, they just let it drop, and they actually bought gold at that point in time. It's fascinating.

Gillespie: How does a country like Russia, which is a low-trust society to begin with, and then, in the international markets, it's very sketchy. I mean … How will blockchain technology or CryptoRubles, first, will they be able to make people actually confident that there's something there, or this is just another scam, but secondly, how will that transform the internal politics of Russia, which is a very secretive, closed society?

Long: Yeah. Well, I spent, I did the Trans-Siberian Express last year, so I spent a lot of time fascinated by the history of the country, and the fact that it-

Gillespie: Is it better than Amtrak, or about the same?

Long: Well, it's … I've got to tell you that Russia's vast. It is, I think, one and a half times the width of the United States. I mean, there are … When you're in Siberia, there's a lot of … Let's put it this way, train is the method of transportation because the highways are just, it's too sparsely populated for big highways, but what I saw was a tremendous amount of commerce, and especially a lot of oil tankers on the train tracks. But back on your question about the CryptoRuble, it all depends on how they implement it. If they implement it in a means by which you can verify that the central bank became a money warehouse, and it's backed one-for-one with something real, and Russia, remember, is a very rich natural resource economy, so in additional to having bought a lot of gold, they, in China, have been buying gold from the other central banks in the world in the last 10 years in large size. So they could actually back their currency with something real if they so choose. It's going to be interesting to see how they implement it.

Gillespie: Is that kind of ironic, though, that a CryptoRuble needs to be backed by gold coins sitting in a vault somewhere?

Long: Well, essentially, it becomes an electronic version of whatever is on the central bank's balance sheet, as long as it's one for one. Yeah, so that, and of course, a lot of the mainstream economists would be probably scratching their heads listening to us right now, saying, 'Why on Earth would that matter?' Well, it would matter because, all of a sudden, if your capital goes to the place where it's treated best, and if the central bank is not going to dilute you by playing shenanigans, like we were talking about in the government bond markets around the world, namely the Treasury market here, but it happens in all the government bond markets in OECD countries where there are more government bonds than there actually exist in the accounting systems. So yeah, it depends on if Russia implements it in a one for one manner.

Gillespie: How will we know … I mean, you had your aha moment in 2008, where you're like, 'Blockchain,' or, 'Bitcoin, blockchain.' When will the rest of us realize that the blockchain has won?

Long: Well, first of all, it was 2012 when I discovered Bitcoin.

Gillespie: Oh, okay. Okay.

Long: I can't take credit for, Satoshi invented … The whitepaper was in October 2008, but yeah, so the hardcore Bitcoiners would catch me there. I definitely need to verify that.

Gillespie: You, they're very annoying, yeah, so-

Long: Oh, no, I love them. I love them. I love them. How will we know it won?

Gillespie: They're worse than Rick & Morty fans. They're the absolute worst.

Long: No, no. Well, you see, at PorcFest, where you and I first met a few years, that, in the Agora Valley, every … At the time, everybody was buying everything in Bitcoin, so … I have to say, that's how I discovered Bitcoin for sure, and was early to it. But back to your question, how will we know that it actually tipped, so to speak, that it arrived? I think it's when you see big financial institutions deploying it as a means by which to create a shared back office and take out all of the expense, and the risk, and the latency in settling transactions, and essentially becoming service providers that enable the peer-to-peer market. We wouldn't necessarily, in our interactions with the blockchain, know that there is a blockchain, because what we'll see is just a nice web-based front-end like we experience today-

Gillespie: All of us, we already have, yeah.

Long: … with online banking, but the difference is, when you send money to your friend on Venmo, they're going to get the money right away, as opposed to waiting until the money shows up the next day, right? If you deposit a check in the bank today, it's usually T+3 before you get access to your funds, and that's because of those intermediaries that we're talking about. On a blockchain basis, you'll get it instantly.

Gillespie: I got to tell you, the prank phone caller in me is not looking forward to this future in the same way that caller ID ended prank phone calls. This is, there's … Let's have a moment of silence for what we'll lose in a perfectly transparent financial system.

Long: Well, and a very fast financial system, right, for sure. But this is, you need a capital market in order to have a vibrant economy. You need a true, fair, free capital market where most, especially interest rates, are set by the voluntary interaction of buyers and sellers of borrowing and lending money. We don't have that today, and that's what we gain by blockchain.

Gillespie: Well, that's a great note to end on. Thank you so much.

Long: Thank you.

Gillespie: We've been talking with Caitlin Long. She is a Bitcoin and blockchain enthusiast, and she's the president of Symbiont. Thanks, again, for talking to us.

Long: Thanks, Nick.