Episode 448: Elena Nadolinski and Craig Timm, CEO and General Counsel at Iron Fish

In this episode, Mike Townsend interviews Elena Nadolinski, CEO at Iron Fish and Craig Timm, General Counsel at Iron Fish, a layer-1 project building ZKP-based privacy for many assets across many chains.

Elena was previously an avid hackathoner and software engineer at Airbnb and Microsoft.

Craig Timm is General Counsel at Iron Fish.  Iron Fish is building a Layer 1 blockchain to become the universal privacy layer for all of Web3. Prior to joining Iron Fish, Craig was an AML executive at Bank of America.  While at Bank of America, he spent time as the designated AML Compliance Officer for Merrill Lynch and led strategic initiatives related to financial crime, including participation in the Bank Secrecy Act Advisory Group, 314(b) information sharing initiatives, and the Wolfsberg Group as well as managing the day-to-day liaison with FinCEN, the U.S. Treasury, senior financial crimes policy officials at the OCC and Federal Reserve Board, key law enforcement agencies, and the U.S. Department of Justice.  

Prior to Bank of America, Craig was a prosecutor with the Department of Justice leading the Money Laundering and Bank Integrity Unit in what was then the Asset Forfeiture and Money Laundering Section (now Money Laundering and Asset Recovery Section) in the Criminal Division at headquarters in Washington, DC.  Before moving to headquarters, Craig was an Assistant U.S. Attorney in Arizona.

Host: Mike Townsend

Guests: Elena Nadolinski & Craig Timm

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Episode Transcript

Mike Townsend: Today I have ElenaNadolinski and Craig Timm from Iron Fish on the podcast. Iron Fish is a layerone project building a ZKP based privacy for many assets on Ethereum. There areprivacy chain. They have launched 30 million from Andreesen Horowitz and otherinvestors. We talked about how they structure the company and the protocol.

Mike Townsend: We talked about whatprivacy is, technically, how it works. And then we talked about Tornado Cashand the 650 million hack from North Korea and the subsequent sanctions thatwere put on a protocol. So for the first time in history, there have been ussanctions on a decentralized. Protocol a piece of code GitHub removed theproject.

Mike Townsend: We talked all aboutthat. I mean, these guys are front and center. Craig has worked at thedepartment of justice previous to this, so he understands what goes on behindthe scenes. We even talked about silk road and then obviously Atlanta knowseverything there is to know front Le on the front lines of building a privacy project.

Mike Townsend: So fascinatingconversation. And I hope you enjoy.  

Mike Townsend: Elena, Craig, I'm veryexcited to chat with you guys. So Iron Fish, why don't we start there? Elena,this is your baby. You started this project initially. Do you wanna give abrief oversight as to what the inspiration was when you first started theproject and just the general scope of what you guys have accomplished so far?

Elena Nadolinski: Yeah. So would it behelpful for me to kind of walk you through how I got into crypto? Because itdoes tie into Iron Fish a little bit question, but sure. Cool. Yeah. So I gotinto crypto in 2017. So I live in San Francisco and San Francisco is quite anamazing city primarily because whenever there's a new technology that kind ofcomes into the forefront.

Elena Nadolinski: Everyone in the citytalks about it. And so my introduction was actually going to a dinner and itwas a dinner at Juan bonnets house. Juan bonnet runs a company called protocollabs. And they have launched a project called Pico if anyone's been familiarwith that. And this was, you know, much prior before any of that.

Elena Nadolinski: And everyone was veryexcited because theum, I think reached to $30 and so you know, kind of theentire space was kind of buzzing with the technology behind it the potentialand so on. And so a few months later the very first Ethereum focused hackathonwas announced called E Waterloo.

Elena Nadolinski: And this was like thefirst Ethereum sponsored hackathon that happened. And I decided to go all Iknew was IP fast, which is product that particle labs developed. And I knew alittle bit solidity. And so my project was decentralized video stream. So therewas two kind of things that were brought to my attention.

Elena Nadolinski: One is blockchains areinherently transparent. You know, any major blockchain that you can think ofBitcoin Ethereum and many others, you know, they work on transparency andvalidation works on transparency. So if I were to send you a Bitcoin or anEthereum, every minor in the world has to see that transaction in order tovalidate it.

Elena Nadolinski: And if a minor has tovalidate that, that my transaction of one Bitcoin is correct, they have to seemy wallet and they have to see all prior transactions related to my wallet tomake sure that I actually have that balance. So that was one surprising thingbecause, you know, even back then, like ether scan did exist.

Elena Nadolinski: Ether scan today isway more advanced than it was back in 2017. But even back then, you know, youcan click on any, on any wallet and look at all their transactions. The otherthing that was surprising to me is you know, doing decentralized computation isan extremely hard problem. So for instance, my project was decentralized videostreaming.

Elena Nadolinski: So the way I did itwas you take a, you know, a video file. You, you know, upload to a for thatparticular project was an AWS kind of Ned that the, the transcoding and then itwould upload those chunks to IV Fest. And so what I realized is that there,like Ethereum is not a decentralized computer, so to speak it's kind of adifferent concept.

Elena Nadolinski: Like you wouldn't do,you know, video streaming on Ethereum, that doesn't quite make sense. And so theproblem that I was running into is how do you do decentralized compute? How doyou how do you have a system that proves like a certain computation was donecorrectly? And this problem in particular is addressed by something called zeroknowledge proofs.

Elena Nadolinski: So I don't know if youknow what zero knowledge proofs are, but they are a very, very niche part ofcryptography that was first started in the sixties, sorry, in the eighties bygold Wasser and and a few others. And it's this concept that you can provehonest computation that I can do certain computation, and I can give you theoutput of that com of that computation and give you proof that the computationwas done correctly without necessarily requiring, requiring you to redo thecomputation yourself.

Elena Nadolinski: So fast forward totoday, you know, so you're knowledge proofs are actually pretty large topic incrypto for both privacy and scalability. But the thing that I wanted to focuson particularly was privacy. You know, I, if you kind of work backwards and youassume that, you know, regard, regardless of what time price in crypto doesbecome.

Elena Nadolinski: The dominant paymentstructure. The lack of privacy to me is kind of a bizarre feature. Like I don'tthink most people understand how transparent the system is. And so for me,whoever unlocks this privacy for crypto, you know, that is a huge, hugepotential. So I'll kind of pause here, but that was, that was like the startof, of Iron Fish and, and how that idea evolved.

Mike Townsend: Yeah. At that time,did you feel that privacy was a, a strong concern from the people working andbuilding these early layer one layer, two protocols, or was it not yet on theforefront of people's minds?  

Elena Nadolinski: It depends on who youasked. It was very, very binary. So roughly that time, like, like 2018, I gotto know Zuko who was working on something called Zcash, which is one of theolder privacy coin projects.

Elena Nadolinski: And, you know,obviously if you ask people who are, are already working on privacy, they thinkit's a. Very important problem. Like of course, how are we gonna build a, likea payments financial system with this level of transparency just doesn't makeany sense. But when we raised our seed round, we actually did get pushback frominvestors of why are you working on this?

Elena Nadolinski: Nobody cares aboutprivacy. DeFi is happening and it's exploding without privacy. Why are you notfocusing on that? Why are you trying to focus on privacy? So it really dependson who you ask and to this day, like we do get people who say, I have nothingto hide. I don't need privacy. It's cool that you're working on this, but Idon't think this is a big issue.

Elena Nadolinski: And then we do haveother people who are pretty shocked when they find out how transparent cryptois and what, like, what are some of the implications of what that would meanfor them? If they were to use crypto a day to day basis.  

Mike Townsend: Yeah, it seems likethe use cases to me would be pretty obvious and very motivating for people ifthey understood just simply that if somebody had access to your public Bitcoinaddress and that is, you know, public, it's what you send to people when theyshould pay you, then they have access to every person that you've ever everyaddress that you've ever transacted with and how much money you have in youraddress.

Mike Townsend: So if you went to astore and, and bought something, using any public blockchain, that store isgonna know everyone that you've transacted with. So it only takes anintelligent layer on top to kind of organize and say, okay, this is, you know,Seven houses in this city have collectively, you know, all the Bitcoin.

Mike Townsend: And so it's like, Icould imagine all sorts of criminal activity that starts to happen, or evenjust in a more minor way, just oversight and collective data aggregation acrossdifferent merchants or people that wanna better understand their customers.It's like you don't, you know, just in the same way that Facebook now gets alot of hate because of their data aggregation practices that led to effectivelyincentivized through their business model.

Mike Townsend: The same thing I wouldsuspect starts to happen here if given enough time and enough people actuallyusing the currencies. Mm-hmm is that generally the approach that you take whentrying to explain why this is such a big problem, or is there certain examplesyou tend to give to communicate why it's so important?

Elena Nadolinski: Yeah. So one examplethat popped to mind is actually Craig. So during his interview process heactually shared a story. And so I'll kind of pass on the mic to you. Sure.About like what made him realize privacy plus crypto is an important topic.  

Craig Timm: Yeah. So my backgroundis as a prosecutor, I spent many years with the department of justice and thenfor the last several years was in traditional finance in, in bank of America.

Craig Timm: So my, my firstexposure to crypto was back in the silk road days. And so my immediateassociation was crypto bad. Right? It's dark web. That's what it's for. And itsort of stayed that way for a number of years. Yeah. I started to get moreinterested in 2017 and then with NFTs, I, I really started to, to see thepotential and so started to get more involved, got my own wallet, started to dosome things, but I was definitely in that camp of people who did not appreciatehow transparent it really is.

Craig Timm: And so, you know, fastforward to late last year or early this year, actually, when Russia's about toinvade Ukraine and, and I, I donated a very small amount of money in my, youknow, my wallet to to their fund, to raise money for defensive equipment for,for Ukrainian fighters. And almost immediately I get a, a scam NFT airdropback.

Craig Timm: And I think that wasmy like light bulb moment. Right. Like, you know, I don't know for sure if itwas a scam, but almost certainly it is. Right. Like, and, and so one, you know,I'm like, oh my gosh, right? This transparency is probably leading to a lot ofcrime, right. Because criminals will target their crimes to you.

Craig Timm: And so now they knowthat I have sympathy for Ukraine and now they're targeting their scheme to me.Right. So one that's leading to a lot of, of, of probably the crime that doesexist today. And then two, if the scammers can see it, the Russian governmentcan almost certainly see it too. And, and, and then I'm, I'm rewinding andthinking about when I bought my first NFT and I post on social media and now.

Craig Timm: My pseudonymous walletis not so pseudo anymore because it links up to my real name and you know, meand thousands or tens of thousands or hundreds of thousands of others areprobably on a list somewhere in Russia. Right. And that that's scary stuff. So,you know, it, it, I, I think there's a number of reasons why privacy'simportant, but what I, I didn't expect coming from a sort of crime fightingworld was that the lack of privacy is bad for crime and is bad for nationalsecurity.

Craig Timm: And that if we hadmore privacy, we'd actually prevent a lot of crime that's occurring today. Andit'd be much, much better for national security aside from all the fundamentalhuman rights, freedom of speech, all those things that it, it facilitates. It,it was really sort of the light bulb moment for me.

Craig Timm: And then when I heardabout what Elena was trying to do and, and bring a privacy project forward butone that also recognizes there's a balance of interest, right? It it's, it'snever anything at all costs. And so could we figure out a way with this projectwhere we can bring more privacy to the community, but, but also at the sametime, find a way that we're not abused by north Korean hackers or terrorists.

Craig Timm: You know, we don'twanna be a part of that. I think if, if we can solve that as a cryptocommunity, much less Iron Fish, that's when we really unlock the potential thatI think is there.  

Mike Townsend: Yeah. And what yearswere you at? The department of justice?  

Craig Timm: So I was at thedepartment of justice from 2008 until early 2016.

Craig Timm: And then at bank ofAmerica from 2016 until earlier this year.

Mike Townsend: So was that was cryptoon the minds of people in the 20 14, 15, 16 timeframe? Or is it still. Prettyearly.  

Craig Timm: So it, it was on theminds of people cuz that's right about the silk road time. Right. I can'tremember when that happened. 20 13, 20 14.

Craig Timm: And I was working atheadquarters in charge of, of the money laundering section at the department ofjustice. And so we worked with offices all over the country and so it wascertainly on our radar. It was, it was very sort of, you know, very small backthen. I, I am certain, I didn't appreciate the cryptography, right.

Craig Timm: There were a lot ofwell digital currencies at that time that were coming out that were being usedby criminals. And so I remember getting my first briefing from the FBI probablysometime in that 20 13, 20 14 time period. Very focused on the negative, right?The use cases there, I, I don't have data to support this, but the informationwe were getting was was largely dark web criminal use and so focused on it, butnot intently because it's still.

Craig Timm: You know, there,wasn't a lot of liquidity there for, for criminals to move money, you know,just like anybody else, you know, if you're moving, you know, monitoring money,you need liquidity to do it. And so back at that time, there just, there wasn'ta lot. So it was very niche at that point, but it was definitely on the radar.

Mike Townsend: How big a projectinternally within the government do you think? Or did you see the silk road?Just call it project the endeavor? Was it like multiple years involving tens ofpeople or what was the general scale? I would imagine that it took quite a bitof work to be able to track track and track the guy down or anyone else at thesubsequently track down.

Craig Timm: Yeah. So, so I wasn'tinvolved directly, but as I understand it, there were, you know, several agentsfrom several different agencies, you know, a couple of prosecutors. I, I thinkit was just about that time where the department of justice was forming a, acrypto task force. Katie Hahn, who many, and this audience will know helped tosort of lead that.

Craig Timm: So it was. You know,an emerging threat, I think at that point is what the, the, how the departmentof justice would've thought about it. I mean, obviously now they appreciate itas much more. There's actually a lot of people in government who are verysophisticated when it comes to, to crypto and the benefits and the good thingsnow.

Craig Timm: But back then, it wascertainly focused more on the negative, but, but silk road, would've hadseveral agents working on it. It would've taken several years. The nature ofthose kind of things are, they just take a while, you know, undercoveroperations, you know, all those, those types of things that that's not unusual.

Craig Timm: And, and it was runout of the, the us attorney's office in Manhattan, which is one of the eliteoffices in the country. So really, you know, top-notch folks are working onit.  

Mike Townsend: Yeah. Crazy story. Huhso would that have been possible had Iron Fish or other subsequent privacy, youknow, hypothetically if silk road was built today using a zero knowledge proof.

Mike Townsend: Underlying protocol.Would it be even possible for people to trace the creators or, or people whohave access like, or is that gonna be an inevitable pathway? Like, I, I'm notaware of any place now where you can exchange anything you want, but I wouldimagine that there's a market for it clearly silk road existed and all sorts ofillegal things were traded there.

Mike Townsend: Technically. Is it,does anything exist now or is it possible or what, what generally holds backpeople from recreating that? Or is it just fear of the repeating history? Iguess I'll, I dunno, whoever feels most interested in that maybe Craig sure. OrElena here.

Craig Timm: Go ahead.  

Elena Nadolinski: Okay, cool. I'll gofirst, but actually wanna, really wanna hear your answer too?

Elena Nadolinski: So two full kind ofquestion or answer. So one is, I'm not aware of dark markets that are inoperation today. I'm sure there are some. So Zcash actually did fund kind ofresearch and investigation into dark markets today. This was a few years ago.And what kind of cryptocurrencies do they use?

Elena Nadolinski: And even though wehave Manero Z cash and we have a lot of privacy solutions their findings werethat vast, vast majority, we're still using Bitcoin at ICO because liquiditymatters more to them than anything else. So that was kind of a surprisingthing. The other answer that I wanna kinda give is, you know, kind what Craigmentioned earlier, you know, compliance and privacy don't have to be at odds.

Elena Nadolinski: Like there are ways ofbuilding systems that protect the user by making things private, but also havecontrols and kind of, you know, guidelines and, and built in technology thatwould you know, that would open up an account. Be, you know, authenticatedperson. So for iron 50 in particular, you know, if every wallet has a view keyand the person that has the view key can see all the contents of that wallet.

Elena Nadolinski: So for instance, if anexchange or an individuals being audited, or, you know, if you need to provideyou know, your wallet for any reason, there is a way for you to do so. Sothat's kind of one thing. But I actually do really wanna hear a Craig's answeras well.  

Craig Timm: Yeah. So, so shortanswer is, is yes, absolutely.

Craig Timm: If, if they wereusing, you know, cryptocurrency with zero to knowledge proofs, you could stillcatch criminals, criminals have used cash forever. Right. And, and, you know,cash is, is sort of the same way. You know, if you think about cash as Fiatcurrencies layer one, right. It's, it's private and for a lot of good reasons,right.

Craig Timm: That privacy is reallyimportant. And we can, we can talk more about that, but then controls are builton top of that. Right. So, so if you think about. You know, just like, youknow, anyone else, you know, you want to put cash somewhere where it's safe,right? A lot of people will wanna do that with cryptocurrency, right?

Craig Timm: It, it can bedangerous to try to hold too much yourself. Right. So you've got regulated onramps and off ramps, right. Criminals, wanna be able to use their money. Theywanna be able to use it in all sorts of different ways. And so they're gonna begoing to exchanges and otherwise. And so there there's lots of opportunitiesbecause there's privacy at a base layer, you know, which, which has all thesesocietal benefits.

Craig Timm: And otherwise there'splenty of ways to layer controls on top of that, you know, in the crypto sense,through bridges and otherwise, you know, looking for, you know, past badactors. And then on top of that, a lot of these things come down to good oldfashion. You know, law enforcement, investigative work, you know, really goodinvestigators doing good work and go back to silk road.

Craig Timm: You know, a lot oftheir evidence was undercover, right. They, they were posing as users and, andthat's the best evidence. Right? So, so I think, I, I think that is a narrativeout there, right? That, and one that, that we're working to counter that look,privacy just facilitates crime. And, and, and what we wanna try to share isthat actually private, the, the lack of privacy causes a lot of crime.

Craig Timm: And, and when there'sprivacy you know, there are still ways to catch criminals. And, and it's, it'sreally a, a balancing of the cost benefit in terms of all of the things we'reusing, the lack of adoption, all the things Elena talked about earlier, butabsolutely, you know, you could, if silk road were using a privacy.

Craig Timm: You could absolutelystill catch them and do all the things they did.  

Mike Townsend: And do you thinkthat's true if people are I'm, I'm curious your thoughts on domestic versusinternational. So obviously crypto being just international by default and thedepartment of justice, the FBI, every other, you know, three letter acronymdepartment in the United States is really concerned about ultimately the UnitedStates citizens, the United States federal bank account, like collecting taxes.

Mike Townsend: There's probably nottoo many things they're concerned about, but if it's something happening toanother person of another citizenship in another place it's out of, out of, outof the jurisdiction, crypto is so international people move and travel all thetime. These companies are often not even companies or just protocols.

Mike Townsend: Do you see there beingany kind of like organizational. Pursuit of criminals across multiplecountries, or how is it handled now? And is this something that's top of mindin, in just the general pursuit? Cause when it used to be just bank robbers,like you're, you're not gonna hop on a plane and leave with your cash, but nowit's, it's so much, you know, you might have seven different people in severaldifferent countries, all traveling and difficult to pin down and ultimatelylike the rubber meets the road when I'm in person.

Mike Townsend: Right. There's only soyou can, there's only so much you can do if you're not actually in person tolike the, the moment with the silk road was like they're in the library,they've got the guy with the laptop. Like it was the physical interaction inwhich the executive force really exemplifies their might.

Mike Townsend: And I, I, I justwonder about how the dynamic is changing now that everything's inter.  

Craig Timm: Yeah. So the, thedynamic in crypto really isn't different than organized crime in general, whichis international, right? And so if you look at the way, criminals move theirmoney, even if they want to, it starts in the us and they wanna bring it backto the us.

Craig Timm: They route the moneyall around the world, right? They, they establish these things called shellcompanies, which are companies and name only. They don't really exist. They'rejust a shell. And so they'll move it to a shell company in Dubai and a shellcompany in Hong Kong. Both jurisdictions may not share information with the us.

Craig Timm: So even if there areKYC in records, the FBI's not gonna get 'em anyways. And so, so absolutely the internationalnature of crime is a challenge. There's a lot more partnership from lawenforcement across borders than there used to be. But that challenge is, is nodifferent. In fact, it's a bigger challenge just given at scale in traditionalFiat type crime than it is in crypto, but it it's a hundred percent a challengeeverywhere.

Mike Townsend: Yeah, and it almostseems like there's a temptation to go too far with it, right? Like every, theeverything's a pendulum swing where I could see some international police forceset up that, you know, has, and this is people's worry. And, and probably partof your motivation starting this, this privacy network is there can be atemptation for the government to just keep climbing deeper and deeper into thepersonal lives of people all across the world.

Mike Townsend: Right. Edward Snowdencame out with, and then everyone is kind of at a fork, like is Edward Snowden,a trader or hero. And it's an interesting question to just pose because why didhe do what he did? It seems like it was for good reasons. The, the governmentcan certainly make mistakes. And I do believe in the concept of whistleblower,but it's like, it is still up for grabs, right.

Mike Townsend: He's still living in,I think Russia and still hasn't been given asylum. So it's like, there's just,there's just very topical conversations. Maybe shifting a little bit, Elena. Soyou guys, you saw this opportunity after working on the project the videostreaming project, and then privacy became something you wanted to focus on asopposed to scaling.

Mike Townsend: Was theimplementation, at least in your mind at the time, pretty, not simple, but wasit clear to you seeing zero knowledge proof seeing Z cash? Did you have a, apathway that was in your mind distinguished enough from what Zcash Manero weredoing, but also at the same time? Interesting enough, or like where, how do youview that niche that you were going after initially?

Elena Nadolinski: Yeah, so our intenthas always been to provide a privacy solution for crypto. Our path was fairlynon-linear . So the first, I would say six months was all about research. So welearned about Manero and at the time there was a project called grin which wasthere was a lot of hype about it. And when it launched, unfortunately, didn't,it didn't quite pan.

Elena Nadolinski: Zcash obviously youknow, the way my, my forcing function to learn things is to sign myself up fortalks . And so one of my earlier talks was on zero know proofs. And so as aforcing function, you know, I spoke to some of the founding scientists of, ofzero knowledge proofs and the, the Zcash team as well, to kind of understandhow this technology worked.

Elena Nadolinski: So from all thatresearch, the conclusion was that the best privacy was the one that wassupported by zero knowledge proofs, not all privacy solutions actually use yourknowledge. Proofs manera for instance, uses a different privacy mechanism. Andour, you know, we kind of bootstrapped Iron Fish to use sapling, which is ZCash's privacy mechanism.

Elena Nadolinski: And right now we'reworking on basically expanding the protocol to have something like, like amulti-asset support and you know, potentially different features as well. So itis evolving. And when I say like our path is nonlinear we actually started theentire code base in rust, which is kind of a little known fact.

Elena Nadolinski: at least to somepeople today. And we made a pretty drastic switch to type script. So Iron Fishis open sourced. Anyone can look at it now, anyone can actually run it. Theyhave a Testnet running so they can participate. Participate, participate in theR fish Testnet as well. And the majority of code base is in TypeScript, whichis a very typical language choice for a layer, one implementation.

Elena Nadolinski: And so our kind of visionhas evolved from, you know, building a better privacy coin to building privacysolution for other crypto assets. And so right now our efforts are, you know,how do we expand Iron Fish to have multi-asset support? So Iron Fish canrecognize the concept of other assets. The second layer is how do we buildbridges?

Elena Nadolinski: So how do we buildbridges from RN fish to Ethereum or R and fish to near RN fish, to Solana, or,you know, any other kind of chain so that existing crypto holders, if you havean asset on top of Ethereum and you want the benefit of privacy, you could actuallytransfer that asset from something like Ethereum to Iron Fish, and now have thefull benefit of privacy.

Elena Nadolinski: That's kind of likeour, you know, next goal. And then for privacy in particular like the holygrail is privacy plus programmability. You know, how do we have the richness ofDeFi or, you know, something with programmability, but also have the benefit ofprivacy. And so kind of our third effort which, you know, I'll be verytransparent is very, very much down the line.

Elena Nadolinski: There's a lot ofthings that are going to take priority over this in the short term is how do wesupport a layer too? That does have a gram ability. So we're looking into.Layer two Z KVMs. And so the SAP and protocol that we kind of started off is,is, you know, we are evolving it to our needs, to have a platform that is it'sstill a layer one, but think of it more of a privacy platform for all curve toassets that we bridge to.

Elena Nadolinski: And then the futurehave the ability to have a growability as well.

Mike Townsend: Hmm. Okay. A couplequestions on that, but I wanna ask you just general size of the project so faror company, project, not sure how you label it, but raised about 30 million inventure capital. Is that right? Or what's the funding?

Elena Nadolinski: Yeah. That's prettyclose. So we raised our seed round for, or 5 million by electric capital orthere with the lead. And then we closed our series a with Andreen and that was27. Yeah.  

Mike Townsend: And where did thatmoney go? Was it, did it go into the private company building the token, orlike how, how did you structure the organization.

Elena Nadolinski: So Iron Fish is youknow, a C Corp , it's a actually fairly standard structure. And we can have anentire podcast on corporate structures in the crypto world because there arequite a few of them for many, many different reasons. Right now Iron Fish is apretty vanilla, you know, C Corp. And so the money went is going intodeveloping the protocol itself.

Elena Nadolinski: So our, our kind oftarget right now is to hire the best talent and actually drive this thing tofruition. So that's kind of where the, the funds are going to.

Mike Townsend: So money going intodeveloping the protocol itself, meaning money went into the C Corp in exchangefor equity in, in the C Corp. Correct. Got it. And is the idea that the endvalue of the C Corp would be sold someday? Or I would imagine that what you'rebuilding is not owned by the C Corp in that it's a protocol.  

Elena Nadolinski: Yeah. So there aremany other layer, one companies. That are pretty great examples of how this isdone. I mean, three foundation is kind of one example, even though it'satypical in a lot of other ways.

Elena Nadolinski: But mostly layer oneteams or companies, the way they launch their protocol is when they when theylaunch may net, the first block is called the Genesis block. The Genesis blockusually has some preset amount that either goes to the company, the foundation,sometimes combination of the two sometimes none of that so it really depends onhow the, the company structures it or how the team structures it.

Elena Nadolinski: So for us currently,you know, the Genesis block would go into the company. The company has plans todo future grants, R and D operations. You know, future hires, maintaining theecosystem, building new features. You know, we're not thinking of, you know,that us launching the, the protocol is like us kind of.

Elena Nadolinski: You know, stopping ourefforts. So so yeah, I'm not sure if that answered your question or not,but  

Mike Townsend: there's a lot ofwork.  

Mike Townsend: So basically you'resaying that the, the sea corporation created the Genesis block allocatingitself to be the owner of what, 20% of the initial token, some, somepercentage, and then investors will look at the investment as, Hey, I own 30%of a C corporation that then in turn O owns 20% of the tokens of this project.

Mike Townsend: And so effectivelythey're tracing value to what are the tokens gonna be worth and tokens mightaccount for, you know, 99% of the value of the C Corp. So is, is that thegeneral, like mechanics of, of how it flows? I find it interesting because likeyou said, there are so many different consider.

Elena Nadolinski: Yeah. So we're, youknow, exact numbers are not published yet.

Elena Nadolinski: We're still actuallyworking on that. So I can't really commend to any of those numbers. But mostteams, like if you look at any other layer, one project, you know, they'repretty explicit into how the funds are being allocated and how they're beingdistributed. You know, we plan to do something similar in terms of being thattransparent in terms of how the dentist block funds getting get allocated.

Elena Nadolinski: But yeah, at the time,I can't, like, I can't say that those numbers are correct because we, those arejust not finalized yet. But yeah, traditionally been fairly, very liketransparent with our community. We actually have an incentivized test that,that is currently running with the expectation that for eligible participantswere able to distribute some of those coins to them as well.

Mike Townsend: And has, has theGenesis block been issued.  

Elena Nadolinski: so Iron Fish is stillin Testnet. Okay. So it's not mean net yet. So the answer is no, but you canparticipate in the Testnet today. and we definitely want more testers.  

Mike Townsend: And do you, did youhave to, are you still in negotiations with Andreesen on how much of the, how muchof the Genesis block is that involve investors or is it just kind of.

Mike Townsend: Do you have, like, sayfor instance, you were to just decide your, the corporation's gonna take 1% ofthe tokens that are issued on the Genesis block. Is that something that has tobe approved internally with investors? Or can you just decide that? I wouldimagine that that would be part of the deal. So I'm just trying to understandgeneral patterns to these structures.

Mike Townsend: Cause that that dealwas like almost a year ago. Mm-hmm and I would think it's unlikely. Maybe we'rein such a boom cycle. They're like, Hey, just figure it out later. But Itypically, from my experience raising all of that is explicitly definedupfront. I was just curious the, the structure of it, obviously not thespecific terms, but.

Elena Nadolinski: No, it was definitelydefined upfront.

Elena Nadolinski: So I can't like, youknow, crypto is a growing new industry. And so there are different formats forhow people raise money and the industry for better or worse has experimentedwith different instruments for how to raise money. Some of those instrumentsare no longer applicable for various reasons.

Elena Nadolinski: Some strategies thatwere, you know, tried and true, like in 2017 are no longer applicable today.So, you know, what we did at the time was actually atypical. Now it's fairlystandard, which is, you know in a normal startup when you raise from investors,you would inflate your, you know, the, the number of shares the company has tointroduce that new investor.

Elena Nadolinski: And if you raise asubsequent round into this process again and so for us, we did the exact samething and we kept it pretty clean. So we are going to keep a one to one ratio.So if you have 1% of the company have 1% of Genesis at, you know, a time of launchso this format is now fairly standard.

Elena Nadolinski: And believe it or not,this format was not standard in 2017.  

Mike Townsend: Yeah. Yeah. TypicallyI would think it's it's it's capital going straight from investors to thetokens. Like they have a presales they're actually selling the tokens toinvestors using the power of the LLC that owns the distribution of the Genesisblock as kind of the medium for exchange, so to speak.

Mike Townsend: But it did, it didalways seem kind of cloudy to me cuz it's like, you know, how do you, how doyou effectively you're like bargaining for pre-sale tokens of a project that isbeing created by a private company. And then the, the private company itselfdissolves into nothing is generally the, the goal of the projects.

Mike Townsend: So, yeah, fun, fun,egg to crack. And, and how you structured is this the typical approach thatcompanies will take now is they'll start a C Corp and then aim to dissolve thatin the future.  

Elena Nadolinski: Again, I can't speakfor all comp of all companies. And again, it's like a pretty evolving space.Yeah, so, you know, like in 2017, SAS were pretty popular.

Elena Nadolinski: And SAS did somewhatof what you just described, which is like the price a token ahead of time.People very quickly figured out that that was not a good idea for variousreasons. You know, we specifically never mentioned tokens. You know, we workwith investors that understand the space extremely well.

Elena Nadolinski: They understand theproject extremely well. As our investors are crypto investors, we wanted tomake sure that, you know, we have investors that know exactly what they'regetting themselves into. And yeah, I mean, the process that I described issomewhat typical, but the space is also evolving.

Elena Nadolinski: Like we're seeing alot fewer L one S coming on and we're seeing a lot more DeFi protocols, somelayer twos. So this, you know, obviously your company structure, how you issuetokens or shares or whatnot, is very tied to what your product is. You know, ifyou're a DeFi protocol, you might have a totally different structure than alayer one or a layer two.

Elena Nadolinski: And so it is, youknow, it, it honestly is a case by case basis. Depending on how your protocolis set up, what your project is doing, what your future plans are. You know,you were talking about dissolving the company in the future. Some teams plan ondoing that. Still some plans do not plan on doing that.

Elena Nadolinski: Some plans, some teamskind of are focusing on supporting the foundation so that the company in thefuture, some teams do not plan to do that. Some teams only have a foundation,some teams only have a company, some teams have both. So, you know, some teamshave a Dow, some teams have the community and, you know, full anarchy.

Elena Nadolinski: So it really is like ahuge spectrum of how the team decides to structure their governance model inthe future. So it is pretty hard to say like what the standard is yeah. It isfairly evolving, but we are definitely, as an industry, at least in the us inparticular are definitely moving away from pricing tokens and kind of havingthis model that was popular in like 2017 era of, you know, investors get apremium on like a presale tokens.

Elena Nadolinski: We're definitely notdoing that as an industry anymore, for sure.

Mike Townsend: Hmm. Let's talk aboutthings that are more, more recent. So not specifically with Iron Fish, buttoday for instance, is the Ethereum merge. I think in. Five hours or something.Yes. Some relatively new time Celsius and Luna went through major collapses afew months ago.

Mike Townsend: What are other thingsthat you feel are either going to happen soon or have happened soon that arevery relevant and are actively shaping the crypto world? Does any particularstories or things that you guys have stayed particularly attuned to given yourspace?  

Elena Nadolinski: So one thing inparticular that, you know, I really you know, I I'm sure that Craig has a lotto say about is Tornado Cash.

Elena Nadolinski: So I can kind of setthe stage a little bit and then, you know, hopefully Craig can add some morecolor. So Tornado Cash W was, and I, I guess still is to some degree a privacyprotocol on top of Ethereum. So what it allowed you to do is you know, it waslabeled kind of as a mixer where people can put funds into the protocol andthen withdraw them to a different address.

Elena Nadolinski: For instance, with theattempt to break linkability between like one wallet that put the money in versusthe wallet that took the money out. And so, unfortunately it was used mostlynot mostly, but there was a quite, you know, quite a large volume of activitythat was used by hackers. So if, you know, if a hacker, for instance stolemoney from a protocol you know, they would use Tornado Cash to try andobfuscate that line of, you know, funds.

Elena Nadolinski: And so OFAC or the ustreasury department actually sanctioned Tornado Cash, Ethereum addresses, whichwas. Very surprising, unprecedented in a lot of ways, because this was thefirst time that they sanctioned code. Yeah. And not a person or an entity whichwas very shocking and strange for a lot of reasons, you know, code cannotdefend itself versus an entity or person can the code can mean a lot of things.

Elena Nadolinski: And so the cryptocommunity kind of as a whole you know, it was a Pandora's box of questions. Isit illegal for me to write cryptography code? Am I going to get in trouble? AmI gonna get arrested if I write cryptography code? Right. Am I responsible ifmy open source library is being used for nefarious reasons?

Elena Nadolinski: Tornado Cash is code,but it was de platformed on GitHub because the sanctioned language was veryvague. It said we're gonna sanction Tornado Cash, but Tornado Cash is justcode. And so GitHub de platform the entire project. So then we had a lot ofquestions about, wait a minute, isn't code. Equal to free speech.

Elena Nadolinski: Why is that happening?Non privacy, crypto projects also had, you know a lot of questions. Is it resis it our responsibility? Is it the responsibility of the protocol to havethese extensive measures to make sure that bad activity is not happening in myprotocol? To what extent do I need to monitor this activity?

Elena Nadolinski: You know, is this,this is, you know, this is a lot like, like if you were a startup trying tolike launch a DeFi protocol all of a sudden I have to care so deeply about whatis going on my protocol and like, what does that mean for monitoring in myside? So I'll kind of pause here, cuz I think Craig has a, you know, a ton moreto say about this, but this has definitely been top of mind for us becauseTornado Cash, despite its flaws was a privacy coin, sorry.

Elena Nadolinski: Privacy protocol. Andobviously here at Iron Fish, we're trying to build privacy layer for crypto. SoI can tell, you know, I can talk in a lot of ways of how we are different fromcash and the compliance kind of perspective. But at the end of the day, youknow, it's definitely a top of mind thing for, you know, for, for basicallyeveryone in crypto right now, even people that are not working in the privacyworld directly.  

Mike Townsend: Yeah. Wow. Craigtuning to you. What's going on. That's crazy sanction. I mean, typically inaddition to people, OFAC would sanction countries. So there is kind of aprecedent for kind of a collective, but what do you think of this?  

Craig Timm: Well, so, so there'sabsolutely is a precedent. So the, the O the laws that OFAC operates underallow them to sanction foreign persons or entities.

Craig Timm: And so that caninclude countries and it can include the property of those people. Us peoplecan't be subject to sanctions. They can be told what to do, but they're, theycan't be sanctioned. So and we've seen it in the context of mixers before. Soso a couple of months before Tornado Cash, blender IO was sanctioned and, andthat didn't raise a lot of eyebrows.

Craig Timm: I, I mean, thesanctioning of it, and whether that was the right thing to do or not, but froma, a sort of legal standpoint, blender was a more centralized group, right. Itmight not have been a, a legal entity, but it was a, it was an organization of,of, you know, people that, that were clearly not code. Right.

Craig Timm: And so the sanctionswere on that organization. And so didn't really get a huge amount of attention.In either the mainstream media or, or I think within, within crypto, whatwhat's different here is, is the sanctioning of the code. And, and it'ssanctioning of code that you know, there were, I think something like 40addresses give or take sanctioned and, and the majority of them, I think evenvast majority of them were, were code in addresses without an admin key.

Craig Timm: So, so they could notbe changed or controlled by anyone if they wanted to. And so that's, that wasreally striking because the whole purpose of. OFAC sanctions are to changebehavior. They're not punishment. Like that's the department of justice. Thoseare criminal laws, you know? So North Korea is sanctioned with the goal ofhaving them give up their nuclear weapons program.

Craig Timm: Right? Like if they dothat, you know, you sort of sanction a country, you establish a goal. And thenif they act consistently that the sanctions are removed, that happens all thetime for both people and countries. And so here, you know, when you have codethat can't be changed or controlled, it, it sort of raises a question of, well,well, what, how is, how does that fit with the goal?

Craig Timm: Right? It, it actuallycan't be. Changed. So so a lot of legal questions, right? What does that mean?You know, is it authorized under the statue? Does it create otherconstitutional issues? Right. There, there's a line of case law that says codeof speech. But there's also another line that said, you know, deploying codecan be action and, and, and can be.

Craig Timm: But I think in termsof, you know, sort of, and, and unfortunately there's still a lot of questionsout there. We've got some guidance from the treasury department just yesterday.The first thing they've said since their press release where they said for uscitizens out there whose money's currently stuck in Tornado Cash because ifyou're a us person, you cannot use it.

Craig Timm: Now it is against thelaw to use Tornado Cash. And so there were some people who just had their moneystuck. They did say that you can apply with them for a license to get yourmoney back. So long as you can prove that it wasn't nefarious, it wasn't northKorean money. There was a lot of dusting that went on.

Craig Timm: I don't know if yousaw this, but, but sort of host sanctioning. People sent very small amounts ofmoney through Tornado Cash to famous people. So Jimmy Fallon Elon Musk, you know,and that transaction that's technically illegal. You know, sort of I, I think,you know, not for an nefarious purpose, but to sort of point out, like, how doyou do this with code?

Craig Timm: That can't be changed.Right. And so they said that that's okay, look, that's not maybe a technicalviolation of the law, but we're not gonna worry about that. But they didreiterate that for us people, it is still illegal to use Tornado Cash. And Ithink, you know, so a lot of that'll be dealt with in the courts, right?

Craig Timm: Like there are alreadychallenges to it. Coinbase on behalf of several, their employees has alreadyfiled a lawsuit, challenging it they'll they'll be others. So, so that'll getsorted out. But I think in terms of, you know, what can we learn from it in theinterim? You know, the estimates that I've seen from TRM labs and chainanalysis and otherwise is that somewhere.

Craig Timm: You know, in theneighborhood of 30 to 40% of the activity going through Tornado Cash wasidentified as being bad. So, so clearly from a us government perspective, thatwas too much right. Like they, that, that made them willing to take thataction. So right or wrong, like we've gotta know that as a community.

Craig Timm: Right. Like, and, andI don't think anybody wants their protocol to have 30 to 40% of, of criminalactivity. Right. That, that that's a failure. So we've gotta figure out goingforward. How do we get that numbered down? Right. And, and part of it isthrough controls, which we can talk a little bit about how we think we might dothat.

Craig Timm: But, but also it's,it's, it's raising the denominator of good users that use this, right. It'shelping, you know, there are a lot of good people that use this service becauseof all the transparency issues we said, so one lesson is we we've gotta learnfrom that. That's, that's too much in the us government's view.

Craig Timm: That's too much. Andso if that happens again, they're gonna, I think you can assume they're gonnatake action again. And they were willing to take some legal risk on their end.You know, to, in order to do that, the, the second thing was they said thatdespite what Tornado Cash said about their controls, they weren't put in place.

Craig Timm: So I don't think weknow anything about what that means, but, but they weren't satisfied thatTornado Cash was doing what they said they were gonna be doing. And so, sothat, you know, I think it it's really, you know, it's been an awakening to thecommunity in a number of ways, one, you know, just the, the sort of, you know,potential assault on code and open source software and, and the need to reallydefend that.

Craig Timm: But I think alsoreally thinking through, getting back to our conversation from earlier, it'ssort of, you know, it's this age old balancing of privacy versus security thatgoes back, you know, to the beginning of time. Right. And how do we get thatbalance? Right? How do we get it right to where we can.

Craig Timm: Maximum privacy. Youknow, but not be abused to that extent by, by north Koreans and people thatnobody wants. And I think that's been an interesting discussion in thecommunity since then. And I think we'll be really interesting to follow as, asus and others, try to sort of figure that out in the months and years goingforward.

Mike Townsend: Two things I wanna diginto one, technically, can anybody stop tornado from running?

Mike Townsend: I mean, are they,yeah, they, they sent a letter to GitHub saying, we're gonna come into youroffice with guns. Right. In theory, if you don't take this down, so they tookit down. There's other places you can host it, like, is this technicallypossible to stop? Or is it just the threatening of the law to do it?

Mike Townsend: Elena, maybe I'llpoint that to you. Yeah.

Elena Nadolinski: Sure. Craig was aboutto answer something as well. So I wanna hear that answer as well, but so  

Craig Timm: I wanna jump on theGitHub thing, but go first on the,  

Elena Nadolinski: so yeah, I don'tthink, I don't think. Went in with guns  

Mike Townsend: but the threat isthere, right? Like that's why they took it down is right.

Mike Townsend: You're like, if youdon't what happens? Well, we're gonna come to your house and we're gonna cometo your office. Like, that's the end? That's the ultimate reason they do it iswell, right. I mean, if I were to send them an email to say, Hey, take it down,guys. They're not gonna take it down no matter how much I asked.

Craig Timm: Yeah. So, so sanctions,this is where this is, this is one of the challenges sanctions. So they are anarea of the law that's called strict liability. And, and it means that you canviolate sanctions. Even if you don't know you're doing it right. If you happento later violate. You don't usually, you know, to violate the law, you have tohave, you know, criminal intents, you gotta want to do it.

Craig Timm: You gotta be recklesssanctions is different. And so what you've seen, I think in the wake of TornadoCash and the lack of guidance, you know, even the guidance that came out fromthe us treasury department didn't address, you know, really some of these sideissues, you saw people being ultra conservative, right.

Craig Timm: With, you know, notwanting to get close because they know even if they're acting in good faith,you know, I'm sure the people you know, thought that the code they werepublishing on their website was protected by free speech. But but they didn'twanna take a chance because the us treasury department didn't tell them.

Craig Timm: So, so I, I, I thinkin, in some of these cases, you see the repercussions of sanctions being thissort of. You know, very strict application of them. And then also people justnot wanting to touch the line. And so when you don't get the guidance from fromthe government in terms of what if it means you actually see a lot of overcompliance over cautiousness, and I think that's a lot of what you sawhappening with, with GitHub and others.

Mike Townsend: Hmm. Okay. And, buttechnically the, the, the code can still run. People can still use it just thesame as they could a few weeks ago.  

Elena Nadolinski: So yeah. So Ethereumis an immutable ledger. And especially if you launch a smart contract the way theydid with no admin keys, it is immutable in nature, which means it will run onEthereum forever.

Elena Nadolinski: It will exist onEthereum forever. Right? So technically from a very technical perspective, itis there forever. Now logistically. because of us sanctions like crypto rightnow is like a multi-layered, you know, kind of industry. So for instance, ifyou wanna interact with Ethereum today, you're probably not going to run anEthereum full node in order to do so.

Elena Nadolinski: You're probably gonna,you know, use a third party service. If you use meta mask, which is a popularEthereum wallet, you're gonna be using something called infra, which is a thirdparty service that runs that full nod for you, that your wallet can talk to.Infra is a, I believe is a us company, right? If they, they are, if they'renot, they're still a complying with sanctions.

Elena Nadolinski: The alternative toinfra is alchemy, which is kind of their competitor which is not kind of kindalike overtaking that the space in terms of being this like full node serviceprovider, they're definitely us company. They're definitely compliant with ussanctions. So from a very logistical perspective, because there are so many uscompanies that are kind of propping up crypto as a, as a usable product becauseof those sanctions, it's logistically would be.

Elena Nadolinski: Very very difficultfor you as an individual to interact with Tornado Cash today. So it's kind of aweird answer of like, technically yes, it will live on there forever becausethat is how blockchain is constructed. But you know, it comes at a cost ofconvenience. You have all these tools that are us companies that, that do notsupport the protocol.

Elena Nadolinski: So logistically kindof know  

Mike Townsend: .But wouldn't therebe, I, I would imagine that us is still relatively, I mean, we're a significantplayer in the global space, but still there's, you know, many, many othercountries that play in crypto. Is there not one that I mean, if, if you, if noother country is sanctioned Tornado Cash, I would imagine people are usingTornado Cash, like crazy other places is that.

Mike Townsend: Not the case. Like, isit just kind of a monopoly of Tornado Cash providers in the us?  

Elena Nadolinski: Yeah, again, it's,it's like the tooling around it. So I haven't looked at Tornado Cash volume in,in, in a while, but, you know, days after sanctions, like people post a graphsin terms of usage or liquidity or volume, etcetera, and it definitely drop down.

Elena Nadolinski: So there was, youknow, practically very, very little activity happening in Tornado Cash. So. Theresult is, you know, yes. Like for better or worse, us actually has a ton ofsway in the crypto world. Because a lot of companies still are being producedin the United States that actually prop up the entire industry.

Mike Townsend: And then the otherthing I wanted ask is where is this coming from? Are there are so many hacksthat there's just a ton of cash and hackers just are like flowing 40% of thenetwork's volume with all their successful hacks or like, are these, would yoususpect that the vast majority of the money flowing through is like lower levelcrime?

Mike Townsend: Like people stealinggift cards from places under a hundred dollars or are these like, Hey, I justlike, where is all this coming from? That's go, that's running through thetornado network.  

Elena Nadolinski: That's a greatquestion. So the the article, or I don't know the official kind of statementthat OAC did when they when they did the sanctions, explain it quite well.

Elena Nadolinski: So they pointed out toa few hack. That were fairly big in magnitude in terms of like the volume thatwas directly tied to North Korea. So one of them was the Ronan hack. So Ronanwas a company, a gaming company, and through a pretty elaborate hack, they wereable to extract something like six or million from the protocol.

Elena Nadolinski: Roughly I don'tremember the exact numbers, but you can look up the, the sanctions article, theother article, sorry. The other hack that they mentioned was nomad, which to mewas a bit surprising because nomad hack happened days before the sanctionsthing happened. So like kind of like, you know, they're definitely payingattention to the crypto world in a, a pretty pretty like acute way.

Elena Nadolinski: And so that, that hackwas like 160, 170 million. I don't remember exactly, but somewhere in that, inthat ballpark obviously not all those funds from nomad, at least not all thosefunds were You know, that went to North Korea, but basically like Ethereum is avery transparent chain. So we can actually see where the funds that resultedfrom those hacks are going to and the road on hack in particular that was verymuch directly tied to, to North Korea.

Elena Nadolinski: And so the magnitudeswere just free. Staggering, I think like in the, in the, in the article itself,they mentioned, and again, like, you know, please check my numbers, but youknow, North Korea because of sanctions is able to get like less than a hundredmillion dollars into the country each year. And because of these hacks, they'reable to launder close to billion dollars with Tornado Cash.

Elena Nadolinski: So, you know, the, theratios are pretty, pretty drastic. And so even though, you know, OFAC mighthave acted. Too quickly, they might have done things that were incorrect. Theymight have done things that they didn't actually understand the ramificationsof but to them, they were directly protecting, you know, national security youknow, from their perspective, it's like, we're trying to keep our us citizenssafe.

Elena Nadolinski: And we're trying tomake sure that North Korea doesn't deploy nuclear weapons. And you know, this,this protocol is allowing them to get money, which might potentially contributeto that. So they acted, you know, in my opinion, very fast, but you know, atthe end of all this, like, we could have certain feelings about quotas, freespeech and whatnot, but one person asked me, do you agree with the intent ofthe treasury department?

Elena Nadolinski: And the answer is yes.I actually do agree with the intent. Even though I may not agree with the, withhow they. Executed kind of their, their actions.  

Mike Townsend: Yeah. Craig, what doyou, think's going on over there? Do you feel like it's just papers flyingpeople are like, we gotta do something banging desk, like ban M we can't banem, ban M we're gonna ban this protocol.

Mike Townsend: And then it's justlike, all right. PR team put out that news. Like it must be, I mean, if youlike to Elena's point, if there is a hack in two days later, they're doinglaunching some unprecedented sanction, it must be kind of chaos over there,right? Like,  

Craig Timm: Yeah. Well, you know,I think the, I think the, the two day that one was probably a late hat on,right?

Craig Timm: Yeah. They don't actthat quickly. What, what really was the game changer was the Ronan hack. Yeah.And I think that took it in the minds of the us government. You know, these arecriminals. These are bad people using mixers to this is a national securitythreat. You know, Elena and I, and our team had a chance to meet with a, aformer senior treasury department official just last week.

Craig Timm: It wasn't involved inthis isn't in office anymore, but she told us like she used to wake up at nightfrequently with nightmares, you know, because she was, you know, dreaming aboutan attack against the United States like this happened often. And so this,these, the stress, these people are under, right.

Craig Timm: They're in a zero failgame. And so I think what Elena was saying was really important, like and it'simportant for us as an industry when we think about how to advocate and who's onthe other side of the table that we're talking to, right? These, these aresmart people. They're people who don't always understand the technologyperfectly, but they're, they're trying to, and many of them actually.

Craig Timm: And they're coming. Likethey go to work every day to protect us. Right. That's their job and that'swhat they're trying to do. And so do they get everything right? You know, notalways do they, do they understand, you know, everything about, you know, theimportance of, of privacy in these technologies?

Craig Timm: Probably not yet, butI think there's an opportunity to, to educate us and, and we just have torecognize that, that, that changes everything. When it's a threat to thegovernment, when they're imagining North Korea building a nuclear bomb anddeploying it against us citizens someday, right? Like they're, they're going toact.

Craig Timm: And so I think, yes,it's chaos. Yes. It's all of those things, you know, because they, they can'tfail. Right. That that's what they're dealing with. And so what it, you know,it's then incumbent on us to sit down with them and explain it to them. Right.Help them learn, you know, be factual with, you know, where's the technologytoday, where are we going?

Craig Timm: And hopefully we canchange the discussion, you know, cuz part of the challenge with crypto ingeneral, You're you're trying to fit a square peg into a round hole in terms ofhow things have traditionally been done. But the advantage of crypto is that wecan use technology to solve problems in ways that are better, faster, cheaperthan before, both in terms of how we move money.

Craig Timm: But I think also interms of how we fight financial crime. And so I hope that's another, you know,it's hard to say positives coming out of these things, but that, you know, Ithink you're gonna start to see a lot more open discussion in Washington.Between the industry between, you know, privacy focused teams and thegovernment to figure out, okay, how do we get this right?

Craig Timm: What do, what do wedo? And so I think, you know that if, if there are, are like, you know, a goodside of it, that that's it.

Mike Townsend: My take on this isthat for what it's worth is that there's an over labeling or over-indexing of,of moralities on this. So you frequently hear like good, bad, be thrown aroundgood person, bad person, good country, bad person, bad country.

Mike Townsend: And I think that evenjust the idea of like a hacker, like as a hacker, even if they have all theintent to steal something from a company they're providing a value. I mean,there's, there's like imagine a world where you walk around and no bacteria tryto get into your system. Like you have no need for an immune system.

Mike Townsend: Like you, you have athere's something just so deeply fundamental to the concept of like investingin defense, investing in security, whether it's your body and your immunesystem, or whether it's a protocol and it's security, like hackers serve. Apurpose in the world. And we don't like when they win, you know, no one wantsto die from a disease in the same way that no protocol owner wants to gethacked and take their money away.

Mike Townsend: But I do think that ifyou like really distill it down, there is a value that hackers provide to theworld and that they, they provide the resistance to people to build up thestrength of the protocol that then develops the technology to help it propagatefurther. Of course, you know, we root for teams, right?

Mike Townsend: We're on the we're onthe we're on the good team. And then the other guys are the bad team and, youknow, they, they may even have that same label. They're like, you know, we'regoing around, we're trying to steal money, but they have their own story ofwhat they're trying to do. And not that I'm necessarily defending them, but I,I try to, I try.

Mike Townsend: Like pull away fromthe good, bad, because I think that that's the, that's the ultimate driver inthe whole thing. Like if you run it upstream far enough, it's like, well, whyis nuclear? Why is North Korea really trying to build bombs to blow otherpeople up? It's like, well, they think we're bad people.

Mike Townsend: And we think they'rebad people and we black 'em out and it's like, that's, that's ultimate. Like wecan, there's always gonna be this debate. Like you say, the security versussafety and or freedom. And I think it's like, how do you dissolve the momentumthat's coming downstream? Which is, I, I almost think of it as like, it's justa, it's just an unfolding process of, of decentralization that's happening thatwill never fit.

Mike Townsend: Like this round pegwill never fit in the round hole. And I, I view it as the tension growingbetween the centralized powers, particularly of the United States with thedecentralized protocols. Like these things are just gonna keep happening andpeople are gonna start to. Have to make a decision, like, are you on team USDor team BDC?

Mike Townsend: And it, it, it start,I think this starts to shake the whole structure of the world, frankly, atleast in the Western world. I don't know. I mean, I think, I think this is alarger much, this, my bet is that this, the first sprinkling of like a massivemonsoon for the next 10, 15, 20 years, like, oh, remember when Tornado Cash wasthe first one, would they, the USD try to shut down?

Mike Townsend: That's my take.  

Elena Nadolinski: Yeah. So I get, I getwhat you're saying in terms of like, you know, some stories are multifactor,like multi, I guess, fractured in terms like you can't just binary put thingsinto good and bad. There are certain things that are definitely bad. there arecertain things that are definitely good.

Elena Nadolinski: So for instance, ifyou were to ask me like, is child trafficking bad? I would say yes. There's no,there's no like other way to look at it. It is bad. So I, I, you know, I, I getwhere you're coming from in terms of like, you know, certain things havedifferent, different perspectives. But there are certain things that, you know,for iron in particular, like I wanna make sure that we don't support in anyway, you know, or, or fashion.

Elena Nadolinski: So like childpornography, you know, we're gonna do our best to make sure that we provideprivacy for the people that need it. And we make sure that bad actors that weknow are bad by, you know, by this very strong definition don't have access toit. Obviously is a pretty hard problem. Kinda like we were saying earlier, it'shard to kind, you know, actually do it in practice.

Elena Nadolinski: But you know, thereare certain things like. the line should not, should never be crossed in myopinion.  

Mike Townsend: Just my quick reactionto that. And maybe Craig feel free to chime in. It's like if somebody designs,you know, say there's a designer of a, a computer, say a, a thing, like aknife, right. They design a, the most beautiful knife and that knife circulatesthe world.

Mike Townsend: Like everyone uses itto cook or do whatever they cut down trees. And then somebody uses it to murdera bunch of people. It's like, I don't know that there's any responsibilitynecessarily on the knife maker for that action of the other person. You can,you can recognize the distance from the, the level of abstraction from that.

Mike Townsend: Like if I'm buildinga, you know a remote for a TV and someone uses that remote, like the degree.Separation varies. Like if you're manufacturing, bazookas, like, and someoneuses it to blow up a building yeah. That's closely aligned to the intent of theproduct, but in your case, it's like, you're kind of just offering this up inthe world, like a math, you know, that's the beauty of IC protocols is here'sthe open source project world use it, how you will.

Mike Townsend: And if you don't doit, somebody else will in some other part of the world. I don't know. It'sinteresting. Yeah.  

Craig Timm: The other thing I, Ijust say is that the, I don't, the us government is not, you know, a monolithtoo, right? Like there's a lot of different parts of it who have a lot of differentfeelings. Right.

Craig Timm: And, and they sort ofrange, right. There's some that, you know, probably feel like you said, right.And then want to just shut this all down. There are others who, who are, you'revery pro of this innovation and really see the potential and. You know, I, Ithink that's important to remember right. There, there are different peoplewith different views and arguments to be made.

Craig Timm: And ultimately, youknow, the, the Congress is gonna decide, right. The, the us governmentcertainly could have taken more drastic steps to this point, if they wanted tokill crypto. Right? Yeah. There's enough people in government that they thinkthis could be big and they want the us to be involved in it, if it is.

Craig Timm: And so I think like,you've gotta take that as your starting point, right? Like, I don't think manyof them are viewing it as an us versus them. This is the sort of line in thesand. And so I think it's incumbent on us to just continue to educate so thatthey can see the good, see the bad. You never convince everybody.

Craig Timm: But I think you haveover the last couple of years, seen more and more members of Congress. I thinkif you look at the treasury department, Opax sister agency, , it's actually putout some really good stuff. They've made very clear that privacy protocols, youknow, don't need to be, they are legal. So, so from their perspective, like a,you know, if you put out privacy software that is legal, that's not against thelaw.

Craig Timm: They don't think theyneed to regulate it. Right. They understand decentralization. So I think, Ithink it's, there's, there's just the, the us government is really complicated,right? It's a complicated place with a lot of agencies and a lot of people andthe views run the gamut. And so I think, you know, because you hear somebody onTV express, some views that you don't like that that's not everybody and maybeyou're not gonna get them.

Craig Timm: But I think there aredefinitely people willing to listen. And I think that's the majority of people,at least that I've found in whether it's in treasury department, department ofjustice or Congress, you know, most people are willing to listen and haven'tfully made their mind up yet.  

Mike Townsend: Yeah. Sounds aboutright to me.

Mike Townsend: I appreciate you guysgoing long on this conversation. Very, very interesting stuff, super topical.And I'm excited to see how it actually plays out. It reminds me there was one.example that Obama gave one time where he said that he was in charge ofGuantanamo bay, where they had, I think about 35 prisoners that were locked upat the time.

Mike Townsend: And they knew a few ofthem committed some pretty terrible crimes. And yet they're all locked up andsomebody asked Obama, like, what are you gonna do? And he said, well, what doyou want? Do you wanna live in a world where we lock up 32 out of the 35 peopleunjustly for the rest of the lives? Or do you wanna live in a world where theygo free?

Mike Townsend: And then there's justpeople out there that are potentially able to commit terrible crimes. And it'skind of like, that's like back to your point, right? It's like, that's the,that's the relationship of the problem? It's like, how free do we wanna be?What are the externalities of freedom? And you know, then the other side of theother side of the equation of locking everything down, banning everything, youknow, shutting it all down,  

Mike Townsend: exciting stuff.

Elena Nadolinski: I. I think most peopleare against torturing normal citizens.  

Mike Townsend: Well, remove thetorturing aspect. Say just locking someone up, say locking up 32, out 35people.  

Elena Nadolinski: I mean, in a way thatis a different type of torture I would argue. Yeah. But  

Mike Townsend: So you're on the sideof letting everyone go if they don't know who it is.

Elena Nadolinski: No, I know. I, so Ithink those are the two extremes. Yeah. So I think extremes are almost alwaysbad. And I think the right solution is most typically somewhere in the middleand privacy is not any different. We've seen Tornado Cash take the reallyextreme approach of anyone can use a protocol, no controls, no guards in place.

Elena Nadolinski: Like you just go inand out with no with no protection. And we kind of saw the ramifications ofthat bad activity happened and it got shut down. That is like an extremeapproach. Right? The other extreme approach is full transparency, which I thinkwas bad in other ways. And so the solution is somewhere in the middle, which islike, how do we have privacy with some controls so that normal people can useit.

Elena Nadolinski: They can protect theirwallets. You know, most fishing attacks actually happen because they know thecontents of your wallet. They know exactly how to attack you, how to approachyou, how to do social engineering, because they know exactly the contents ofyour wallet. So in a lot of ways, privacy does protect.

Elena Nadolinski: And so the solution issomewhere in the middle. So, you know, for that Guana bay thing, like thesolution's probably somewhere in the middle, like the two extremes are not asolution, in my opinion. . Yeah. So I don't know. I remember the last topic ofthis was, but yeah. Yeah. Moderation's always a path.  

Mike Townsend: Yeah. Yeah. I, I, Ifind really fascinating talking about the government because the, thegovernment regulations, the decisions that they make are so indicative of thetrajectory of the world, particularly in the us. Right. They've set so many ofthe trends, like Bann on psychedelics in the eighties and the world hasn't doneany research on psychedelics for 40 years.

Mike Townsend: And then it's like,start, start off the internet on a good swing, like legal regulate afterproduction. And that worked out well. And it seems like that's the trajectoryso far in crypto, but it's the story's being written. Guys, where are youonline, Elena Craig Elena first to you, are you writing on Twitter, blogging,anywhere person?

Elena Nadolinski: Yeah, so I don't writeas much as I should, but my Twitter is lean the, be love it. And then Iron Fishcrypto is our Iron Fish, crypto Twitter account.  

Mike Townsend: Cool. And Craig, howabout you?

Craig Timm: Yep. I'm on, onTwitter, Craig M Tim T I M M and then also on LinkedIn, which I think is anunderutilized resource for us in crypto, because that's where the decision picksit, right?

Craig Timm: Like we get in ourbubbles sometimes on crypto Twitter, and it's great. And I'm learning a lot asI'm new to the space, but, but the ability to influence is over there too. So Idefinitely encourage people to, to get in that space to start some of thesesame discussions on that side, because you've got law enforcement, you've gotgovernment, you've got people in the treasury department, you've got people inthe financial institutions.

Craig Timm: A lot of people whomay not be on, on crypto Twitter. And I think we really need to take in yes.And approach to where we're having these discussions and who we're talking to.Yeah. Good one.  

Elena Nadolinski: I kinda wanna end thenote by a note of positivity. You know, I think a lot of people on all sides,government, crypto, et cetera, have a really optimistic view on this.

Elena Nadolinski: And so we're trying tofigure out how to move forward in a positive way. And you know, I'm honestlyvery grateful how far the crypto industry was allowed to go up until thispoint. Like, you know, Christian Carlo who was former safety C chairman, youknow, he kind of makes this point that whatever money wins is money, that'smore technologically advanced.

Elena Nadolinski: Like if you lookthrough like historically what money or what currency was the world reservecurrency. And I think to some too, in a lot of ways, you know, crypto is a moretechnologically advanced type of a payment system. And the most populardenomination of a stablecoin is the dollar. And so I think like that's a prettygreat sign for how, you know, we shouldn't be at odds of like, you know, usversus them like us versus the government to Craig's point throws entirepodcasts is that.

Elena Nadolinski: You know, there's somany great people on both sides that are actually collaboratively trying tomake this work. And so I dunno, I just wanna end on a note of positivity thatthere's a lot of good happening  

Mike Townsend: yeah. In space too.Yeah. Yeah. I mean, I think everybody or at least you can, you can abstract itout to every group has intentions that they believe are, again, I'm not usingthe word good and bad, but our, the intentions are such that they would propelsociety towards a future that is preferable to an alternative.

Mike Townsend: And, and I thinkpeople just disagree with both the pathway there and then the specificimplementation of the future that is preferable and like conversations arewhere you figure that out. So to Craig, to your point, man, it's like, thankyou guys for having this conversation. I hope you guys have more too.

Elena Nadolinski: Awesome. Thankyou.  

Craig Timm: Thank you.  

Mike Townsend: See you guys.