Episode 468: Zach Resnick, Founder and CEO of Unbounded Capital

In this episode, Mike Townsend, speaks with Zach Resnick, Founder and CEO of Unbounded Capital. He co-founded Unbounded Capital with Dan Rosen in 2018. He is also a founder of poker education and content company Just Hands Poker and of discounted biz/first class flight concierge service FlyFlat. During his early 20s, Zach made a living from playing cash games and investing in other poker players, providing a unique understanding of risk management that is largely shaped through leveraging volatility to outperform others in the high-risk high-reward situations of poker. In 2016 Zach made his first personal investment in Bitcoin and began a disciplined due diligence process for investing in crypto assets. He then began managing founding partner Dan Rosen’s capital and the continued success investing gave them the confidence and capital to start the firm in the SF bay area, officially launching in August of 2018.

Unbounded Capital books:

How A Scalable Blockchain Will Win: Why The Crypto Consensus Is Wrong
Green Bitcoin: How Bitcoin Could Be A Climate Change Solution

Host: Mike Townsend

Guests: Zach Resnick

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Episode Transcript

Mike: Thank you for tuning into a Around The Coin podcast. I really appreciate your support. If you do enjoy these conversations, please give a thumbs up wherever you're listening to a heart or share it with a friend. Today's guest is Zach Resnick, the founder and CEO of Unbounded Capital. Unbounded Capital is a micro-payments focused investment firm built by technical founders that understand how the entrepreneurial is.

We discussed why micropayments is so important and what cryptocurrency and blockchain enable in the micropayment space. We discussed some of the downsides of traditional crypto investing. As we've seen recently, the last six months to a year have been brutal and we discussed why it played out the way it did and what it might look like in the future with specific companies that we dove into, like Helium.

And we talked about FTX, which is in the news, and what the collateral damage may look like. All with the obvious point that this is not investment advice. Hope you enjoy this conversation as much as I did. We touched on Bitcoin SV relative to Bitcoin, the tensions between governments and fiat currencies.

I certainly learned a lot. I really appreciate a lot of the work that Zach has done, and I appreciate his contrarian perspective on things  

Today's show is sponsored by Kickfurther. Kickfurther is the world's first online inventory financing platform that enables companies to access funds that they are unable to acquire through traditional sources.

They connect brands and community together. In particular people who are trying to purchase inventory and consignment, and they give brands the flexibility to pay that back as they receive cash from their sales. To learn more about Kickfurther, go to Kickfurther.com and sign up to check it out.

Here is Zach, CEO and co-founder of Unbounded Capital.  

All right, Zach, welcome to Around The Coin. I'm excited to be chatting with you. Especially now given that the world is, in, particularly the crypto world, is in a state of disarray and I think a lot of people are trying to make sense of how the short term events will play out. And maybe we'll start with a thesis around Unbounded Capital, which is a a firm that you manage.

Just gimme the broad landscape of how you spend your time and what, and what Unbounded is trying to do in the world. Yeah.  

Zach: Thanks for having me on Mike today. It's real pleasure to be here. Unbounded Capital is a micro payments infrastructure and investment firm. So when I got my start in crypto and blockchain, both before the fund and when this fund started, We had relatively consensus views on the value of crypto and the value of blockchain.

And then over time that kind of radically changed to a point where we, you know, for the last three and a half years now, have been focusing on companies that are leveraging efficient and scalable blockchains to solve some of the world's biggest problems. And what we see is kind of the killer app for what blockchain can do today is micropayments.

So we define micropayments as payments that are smaller than a dollar. And those payments today are not really economically feasible. Using the existing credit card rails where you're charged 20 to 30 cents plus to a, you know, 2 to 3% transaction fee, such that a dollar is kind of the minimum, you'd really charge someone online given how much of your revenue is gonna be eaten up in those transaction costs.

And yeah, we're investing in some of the companies that make micropayments easier for other people and companies to do. And we see what today is the most efficient blockchain in the world, as kind of the best technology to further those micropayments. So, you know, we're a blockchain focused firm. We invest in technical founders that we think are some of the brightest minds in the blockchain world today.

And what that looks like is primarily micropayments infrastructure. So we invest early stage generally seed stage, maybe a little bit at precede, a little bit at Series A. And we like to lead rounds where, you know, we feel like we kind of understand the business and the technicals. Better than almost anyone else and try to stay in that lane.

And if that's not the case, you know, it's not gonna be an investment opportunity for us.  

Mike: And, and do you look at micropayments as a, as a competitor in a sense, from an ab abstract perspective to the tokenization, if a company is on the fence of whether to build their own token to have incentives for tokens within their ecosystem, which has been quite prevalent and then also used for speculation and has gone through a wild ride of PR price.

And there's not many projects that seem to pan out, although I'm a believer that there are some. Do you view micropayments as being maybe an alternative structure for these sorts of new companies? Or what does micropayments allow in the world that wasn't possible before in your view?  

Zach: Y yeah, I don't view micropayments as really a competition to having a token within your own company.

With very little exception. I view those as largely glorified Ponzi schemes. And even if you have all the best ethics and principles in mind, but you start your own token, there's gonna be this really strong incentive to increase the torque token value in the short to medium term rather than to build a great business and maximize the equity value.

Long term micropayments is just, you know, a certain category of commerce that can be used by companies that have tokens used with companies that don't. So I don't really see it as competition. It's maybe competition in the sense that some of the smartest minds in blockchain to me, are sadly trying to build the bestos and new token structures for a company where they could be using that talent and expertise towards building a great micropayments company.

So there's the kind of competition on the talent, but in terms of actually, okay, here's a business and then you're deciding whether to have micropayments or have a token. That's not really the case, at least from, I think, you know, sophisticated entrepreneurs.  

Mike: And, and from a technical standpoint, what's the breakthrough on micropayments?

You know, certainly it seems like proof of work, proof of stake, and then it splinters on from there. So the different ways you can effectively scale micropayments, like where, where are we today? What are the projects that seem to be the most promising?  

Zach: So micropayments, there's nothing about that that says, you know, blockchains are inherently the best option.

They just happen to be the best option today. And something we have high conviction will be for the foreseeable future. So if, for example, you were able to do micropayments at scale with something that wasn't blockchain, maybe there's a decent chance that we'd be looking at a lot of those technologies and actively investing in them.

And we are looking at some of these non blockchain technologies that could potentially have micropayments at scale, but we haven't found anything really compelling yet. So in terms of what enables, you know, blockchain to be uniquely qualified to deliver micropayments, It's about how blockchain can allow you to trust this data in the public sphere in a way that's greater than trusting any individual private database.

But it's also not necessarily about saying this, okay, we can now trust this data because it's decentralized or because there's lots of minors or people that are running nodes. I don't think you're gonna have success with micropayments by divorcing it from the existing, you know, global economic structures of the world today.

So blockchain can do is basically process transactions very, very quickly, efficiently and cheaply relative to other, other solutions out there. So at, at my firm we're the blockchain that we think has the most promise for micropayments is the original version of Bitcoin or Bitcoin SV. And today, you know, what you see is a roughly one 10000th of a penny median transaction fee for using the network.

So if you want to, you know, for me to send you something, That will cost. Again, the network fee is about one 10000th of a penny. And then you can use a company like say, hand cash to facilitate that. And then maybe in the future they'll take a little spread on those transactions. But fundamentally, you're still looking at something that's probably under a cent around ascent.

Very, very low amount of money where if you look at Visa, it's significantly more expensive. And then you look at throughput. So Visa today, MasterCard, these are some of the best examples of, you know, centralized infrastructure to allow for processing of transactions. And what you've seen is never getting above 50,000 transactions per second.

But on vsv, we've already seen 70,000 transactions per second. And one is, you know, one of the best funded, most profitable companies in the world. So it's kind of like near the limits of what centralized technology can do, at least today. And then you have Bsv, which is still, you know, woefully underfunded, new in its development cycle.

And I think a tiny, tiny fraction of its potential. So there's kind of two elements here, which is, you know, the, the cost and the efficiency, but also what the future holds. If it was just 70,000 transactions per second visas 50,000 and Visas making better strides, then well, it wouldn't really make sense to invest all of this time and money in these new companies.

But from our perspective, we think there's a really strong chance that Bsv or something like it will be able to do a million transactions per second within the coming years. And that's something that no other technology can offer. So blockchain is uniquely situated today to deliver on micropayments and those can be used for absolutely anything.

Mike: Yeah. And do you feel that the ecosystem have has moved from the original Bitcoin white paper, which states the. Intention is being digital cash to now what people refer to as digital gold. And that refers to the, the difference in whether I spend my money, my digital money, my Bitcoin, my immediately to buy items all the time.

Or whether it's like my vault in my safe, in my closet that I'm just storing for, you know, if the world goes to, to shit. And it seems like the vast majority of people at this point, maybe they don't question it or they, they just don't have an answer to how we're gonna solve the everyday transaction cash layer on, on the internet.

And they just put it Bitcoin as like Bitcoin's gold as the gold competitor. What do you view that shift in the ecosystem towards gold away from cash and Bitcoin to something that was orchestrated? I mean, certainly it's within MasterCard, visa, all the existing financial industries. Incentive to have all the smartest minds in crypto be working on something that competes with gold and not with something that competes with.

cash and and their settlement layer. Do you think that was an intentional orchestrated, like funded thing or that's just the way that people sort of played out?  

Zach: I mean, I think it's hard to say. I think it's likely some combination of both where mm-hmm. , this is naturally how things played out. But also there was definitely strong desire for anyone thinking at a Visa or MasterCard or existing kind of financial infrastructure to have it such that Bitcoin would not try to meaningfully computer blockchain, would not try to, you know, upend their existing business models or if they were, they'd want to kind of own in and understand it first before that happened.

But, you know, regardless of kind of how that developed, the reality is I think most people kind of got attached to the digital thesis, not because they thought that thesis on its own was the best thesis, but because that's kind of the version of Bitcoin that made them the most money. So I think when you look at like, why are people involved in crypto?

Why are people investing in crypto with, you know, some exception but not a ton. It's, wow, if I was early to Bitcoin or Ethereum, I would've had the highest returns in investing history. So some people did that. I know these, you know, bozos that did that are now super rich. So now I wanna do the thing that allows me to have those same types of returns.

And it's that kind of FOMO and greed that I think has underlined a lot of the motivation behind getting into the industry. And I, you know, am hundred percent guilty of that myself. And I think, you know, we as hu there's a book that I really love called The Elephant in the Brain, which is basically all these extremely complex games we play with ourselves.

So we think of ourselves as these like ethical, great civilized beings to basically justify. You know, the same shit that monkeys and apes do and that we've been doing for generations. So, you know, it's, it's okay to kind of acknowledge this and only when you acknowledge kind of your, your inner beast animal nature that I think it's possible to, you know, tame it rather than just denying that exists.

And you're a totally virtuous person. So a lot of, most people that have been motivated by greed, including kind of me initially getting into crypto in 2016, we didn't think in our minds we were motivated by greed. We justified it by, oh, actually this has the potential to stop central banking and stop, you know, fiat currency, which is like clearly, or, you know, from my perspective, clearly like a terrible thing for the world and like responsible for, you know, the theft and wealth transfer from the poor to the rich.

So that's, you know, why I felt it on some level. But I now in reflecting know that a big reason why I got into crypto was like, oh wow. Like when I looked at it, there was just so much money to be made from arbitraging Bitcoin across different exchanges around the world from doing other types of, you know, trades and, you know, and just from a plan out going up.

So I think starting from there, being honest with yourself about kind of why people have gotten into it, it makes everything make a lot more sense. So there's definitely been an ideologically motivated group of, of people, largely the BTC developers kind of a few years post, you know, Satoshi starting the network that they got attracted to Bitcoin because for them it was this opportunity to more easily launder money.

And again, I say that without like a moral, you know, being able to launder money or have money outside the system if you're you know, an activist in a repressive country, I think is, is a good thing. I think, you know, it's also a really bad thing that, you know, BTC has been used to launder, you know, money from Iran and to, you know, Deal fentanyl.

And so there's, there's pros and cons with these things such that, you know, now my view has evolved where I think generally, you know, we should try to make it a lot more difficult to launder money and to have money that exists outside the state. But yeah, there's this ideologically motivated group of people that were like, wow, Bitcoin's great.

But if it keeps scaling like Satoshi outlined, well now the, the nodes will basically be too big to run on your phone raspberry pie or like laptop, which means if the government's ever figure out how to seize assets on chain, we'll now Bitcoin is screwed and we won't be able to illegally resist because every single, you know, minor or node operator will be too big to hide and kind of resist secretly.

So that's kind of why there was this huge campaign to stop scaling Bitcoin and to have that, you know, block, block size war that happened in 2017. And ultimately, you know, without getting into all the details, the kind of anarchist btc, digital gold contingent was successful such that most people today view Bitcoin not as this technology and a network, but as this kind of antis status money that is, that is really volatile, you know?

And that to me is just a tiny, tiny fraction of what Bitcoin is capable of. And it's really sad for me to see all these smart people, all this money go basically into buying more of these various digital assets rather than, you know, trying to actually make people's lives better.  

Mike: Interesting. I know about a year ago you didn't interview, I listened to where you discussed the time horizon as being maybe six months, maybe a year, maybe five years, but some relatively short time horizon in which you were very confident that people would realize that Bitcoin SV had a stronger value proposition.

And the vast majority of people would, would. Shift their attention from Bitcoin to Bitcoin SV, what do you think the, let me ask you, do you still think that's the case? And then where are we today? What's the, would you estimate relative like ratio of smart people working on?  

Zach: So I still think that's the case to some degree, but I, I think before I was way too near minded and living in the crypto world for too long where, you know, the world is much bigger than the crypto world.

Even as the crypto world has grown, it's a tiny, tiny fraction of people. And now, you know, I don't, my bet isn't really on all the VTC people, you know, switching to building on vsv. It's just getting a tiny fraction of the rest of the world excited about. Yeah. And that to me is more, how I see more i's attention in dollars in the bsv ecosystem than in the btc.

It's not kind of convincing people that have made all this money. So I, I wrote a short piece on kind of the religious nature of crypto and here's an analogy to I think, understand why it's so hard for people to change their minds in crypto where. You know, take someone who's really religious, like a, you know, Orthodox Jewish person, and now imagine solely because of their religious beliefs, they were able to 30 x 50 x a hundred x their net worth in a number of years.

I mean, what's gonna get them to change their mind except maybe losing all of their money? And that's basically the same case in crypto, which is you had these religious beliefs, those religious beliefs worked out for you to some degree, depending on how early you were to a bunch of different things. And until there's a moment like now, you know, like let's say you were earlier, early salon, you're still probably net up some money maybe unless you added on at a much higher price.

But only now are you really thinking, wow, here are actually the drawbacks to the network. You know, when everyone was criticizing it for actually being like really centralized. I didn't take those into account until now when I'm trying to untake my Solana and I'm not allowed to. And the Solana Foundation just took over, you know, so all these things that would been known the whole time, but it's only the, actually the hard.

Thing of losing money that's causing people to rethink things. So, you know, in general, and I know you read my investor update on the FTX situation long term or even medium term, I think this is a fantastic thing because it's causing people that speculated on these glorified Ponzi schemes to then be like, oh wow, like I could lose money doing this.

And then that's a moment of reflection to then think about their future capital and time allocation. So, but to your specific question, you know, I, I, it's hard to say when this will happen, but fundamentally, my, I still think it's a really good bet to think that people will be more excited about using the most efficient, or one of the most efficient blockchain networks in the world to actually solve big problems in the world and be integrated into businesses than to have this kind of anti status money that can't scale.

Mike: Yeah. When you meet folks and you, and they're telling you about the projects looking to raise money, is there any heuristic or. Series of questions that you use to determine whether somebody is deeply motivated by, you know, the darker emotions, greed or you know, fame versus somebody who just is in it for the right reasons.

Is there a, a mental model that you have for trying to figure that out?  

Zach: A lot of it is just the filtering mechanism of what we're investing in because we're just extremely clear in that. Like we don't invest in companies that, you know, start their own unregistered security token. And, you know, we don't like companies that have a token that's separate from the equity because the conflicts of interest that basically takes away.

almost. Yeah. Not everyone, but the vast majority of people that are doing something in blockchain for the wrong reasons. So I think that's an advantage where we're really clear on our thesis and what we like, such that we don't spend a lot of time looking through tons of deals. You know, we broadcast what we do and if someone fits within that we get to actually spend a decent amount of time with every deal that comes across your desk.

But you know, within the thesis, of course, there's still people that are, you know, maybe building it for the wrong reasons or not fully in there in the game. I think skin in the game is really important. So regardless of how much. You know, assets, wealth, someone has. And you know, with entrepreneurs, most of the people, you know, they're not wealthy in any respect for the businesses that they're coming to us for funding.

Looking at what that skin of the game looks like, where it's like, are they waiting to get started with venture funding or have they been, you know, working their ass off while having a normal job to get this thing going? Or, you know, have they been doing some other type of side hustle to fund these other costs that they can't do themselves to make sure that their dream comes true?

So whether it's, or then if you do have assets like. If you have a couple million bucks, how much of your own money did you point at the business so far? Or are you waiting for someone else's money before you put in a dollar? So skin of the game I think is really important to understand, okay, is this person really, really in it?

And then yeah, also just understanding the story and if they're the right person for it. So you can be really in it, but if you're not one of the right people for this great idea, it's probably not gonna work out well. So a lot of people look at, you know, product market fit, but I also think that founder market or founder problem fit is important, which is why is this person one of the best people to be tackling this problem?

You know? And someone that is in love with solving the problem rather than in love with their very specific product that at the stage we're investing fundamentally, no matter how much validation you get, is still largely unvalidated in terms of is their product market fit. Yeah. So those are some of the things I, I, I think ultimately, Okay.

You know, that's a lot more of an art than a science in terms of feeling someone out. Yeah. And you know, that just comes from a lot of experience. I'm lucky to have a, a partner that's been angel investing and, you know, working in Silicon Valley for over 30 years now and have learned a lot from him and, you know, really value what his judgment is on people.

He's also just, I think, naturally gifted within an ability to read people in a way that, you know, few, few others have. But yeah, finding someone who has had that experience is definitely something I would recommend to you if you're, you know, not lucky enough to get them on your team or to help you advise an investment.

Just to kind of spend time with people like that, I think would be really helpful for anyone that's listening, looking to get more into angel investing or venture investing.  

Mike: Hmm. And so you're making typical venture Deals, equity and C CORs with series A, B, C.  

Zach: Yeah. And not series C seed stage, but you know, just Okay.

Yeah, yeah. With the goal of these companies, you know, depending on their situation getting the A, b and C rounds. Although I, I would just add that. We don't think every company needs to raise, you know, 5, 8, 10 rounds before having an IPO to be a great company. So there's definitely some businesses we funded where there's a chance we might be the last round that they do because they just get to profitability and get to reinvest in the business with their own money rather than other people's money.

And, you know, sometimes you wanna see a business grow faster than that, and there's a degree of ambition where you can't do something without outside capital. But to have a really successful technology based business, you don't always need at least tens of millions of dollars or more in venture funding.

But I do think at the, the early stage venture funding can often be very, very helpful. Or just really allow you to kind of go full on out, hire a few more people and properly iterate to get to product market fit.  

Mike: And, and in that case, are you getting a return on an ipo? I mean, if a company doesn't raise through you, you have no secondary and follow on arounds.

Is, is the IPO or an acquisition the only two exit points?  

Zach: I mean, you, we'll see if spas come back,  

Mike: but there's specs. Sure.  

Zach: You know and, you know, there can be secondaries even if there's not additional funding rounds. True. But yeah, I think primarily, you know, acquisitions and not necessarily IPOs, but direct listings in general.

We haven't had a company that's got to the IPO direct listing stage yet, but I don't think IPOs really make sense for most companies. Paying bankers, you know, five, six, 7% rather than just doing the listing yourself. There's, it's rarely gonna make sense, although there's some examples where it could but yeah, those are the main ways I think of us getting future liquidity.

But that's a great problem to have in terms of Yeah. What does kinda look like in the future? We haven't gone there yet. We've definitely had some lower acquisition offers that some of our companies have gotten, and we've advised them to not take those offers. Yeah, our business is trying to back, you know, generational companies and if we get, you know, one or two in the portfolio per fund, we've done our jobs well.

So yeah, really just doing everything we can to convince these folks to stay on the problem and do what they need to do to keep working on this for at least a decade.  

Mike: Yeah. And, and when you were thinking through how to make sense of the crypto market a year ago, a couple years ago, even six months ago, you were pretty openly contrarian saying that the, the way that these exchanges run maybe the, the lack of regulation in place, like what was your, what was your thesis then, if you look back on it, and how, if at all, has it changed today because you're one of the few people that looks, looks correct given the last four or five months of activity?

Zach: Yeah, I mean, I think when I, when I looked at all of these investors, Piling into these, you know, exchanges, prime brokers and minors. What I saw is, oh, everyone wants exposure to crypto, but no one wants to hold these crypto assets directly themselves, or you know, a much smaller percentage of people do. So if you're this institutional investor, this family office, and you want exposure to crypto, you say, okay, I want to do the infrastructure.

Everyone loves the infrastructure plays. So then you had all these people that basically convinced people that, wow, regardless of what happens to, you know, the price of crypto, I'm an infrastructure play and I'm a great bet. Whether that's an exchange for the trading of all these cryptos, which again, for the most part are glorified Ponzi schemes from our perspective, you have minors, you know, these public companies that are recklessly mining, btc, so levered, where if the price goes down just a little bit, they.

Blowing up as we're seeing over the last few weeks. And then, you know, various prime brokers like Genesis, which may or may not, you know, continue. You know, today it's Monday, November 21st and it's pretty , pretty heated news day in terms of Genesis and Digital currency group. So, you know, a lot of these companies that again, we're raising at very premium valuations, just, you know, even after a bit of a general market downturn you know, 4, 5, 6 months ago are not looking very good right now.

But they look like some of the most attractive things because everyone had this systematic reason where I want exposure to this crypto idea, but I don't want the crypto itself. So then there's just this, you know, companies that basically come to meet the demand of this investors wanting to invest in a bubble rather than, you know, the actual like, I think legitimate capital needs of companies like this.

And as a result, the valuations were really, really high. So a lot of the things that people are most excited about was not let's invest early stage to the next great exchange, but you know, How can someone get me an allocation of Coinbase to crack it to fdx? And that's why you, you've seen just insane equity valuations for all these companies.

So based on the combination of the valuations and the fact that these companies are really just extremely levered bets in the price of crypto, because they can say, oh, we make money either way. Well, BTC crashes to zero, they'll make a lot of money on the way down, and then your business will be done.

Cause there's not gonna be more assets and more suckers after that. So it's not really a directionally neutral business. It's fundamentally a, you know, crypto long business such that with basically no exception, it would've just made a lot more sense, been a lot easier. You'd be able to get out if you wanted to, to just buy btc, buy Ethereum rather than, you know, try to express that view by buying, you know, supposedly an infrastructure company.

So this kind of led me to just see these types of companies as, yeah, some of the worst risk rewards, not just in crypto, but in venture investing in general. Such that you're betting on these tokens without having as much of the upside, without having a liquidity and paying this like huge, huge effective premium because everyone else is wanting to invest in the thing.

So I'd say my view is still fundamentally similar, although there are a lot there. They're a lot less of a bad bet today, but they're still bad bets. But the price has gone down a lot. So you know, something goes down 90%, it's 90%, you know, less bad at an investment because you're getting in at that lower price.

But there's still things I would, you know, completely stay away from. That being said, if you're a takeover person, you know, restructuring. Genius then. Yeah. Can you like find a way to buy DCG gray scale Genesis on the cheap and make some money from it? Sure. But in terms of, you know, the business I'm in, which is invest in a company that has a potential to be a, you know, generationally important technology company, I'd still say that is something I'd really stay away from because fundamentally I do not think it is likely that, you know, Ethereum and BTC will be around or at least around, at anywhere near current prices or other tokens like that, such that investing in the businesses that make money off people thinking that I don't think is a good bet as a result.

And I think probably many investors in a lot of these exchanges and minors in prime brokers might have said if asked, yeah, I also don't agree that this is gonna be around, but they didn't kind of put two and two together and realize the fundamentally long crypto bet that they were making.  

Mike: When you say you don't think that they were gonna, that they thought this would be around, when you say this, is that FTX specifically centralized exchanges?

Zach: I think people trading btc, Ethereum trading crypto, so they're making a bet on crypto being around, being traded, and therefore, you know, the price not just being completely negative, otherwise there's not gonna be enough bids to mm-hmm. generate a lot of, you know, transaction fees.  

Mike: Would it be fair to summarize it as, like, if I'm summarizing what just happened in the last six months to a year, is that people became so convicted, so confident that the, the, the fundamental use and disruption of the technology itself was gonna become so massive, bigger than the internet, quote unquote.

Then of course the price would follow. And therefore, if we're so confident in that, clearly, like, look at these white papers, look at these smart people, look at all the project, and then you're validated by the price growth and the various tokens, then you just leverage as much as you can and you say, well, let's just.

Leverage what we can to buy the upside, cuz clearly it's going up. And then what happened was that there was just not a, not a disproof in the usefulness of the technology, but of the pricing in the short term. So just, just wasn't worth what people thought it was gonna be worth in the short term. Is that fair to say?

Or how,  

Zach: I mean, how do you determine worth? So, I mean it's, yes. It's, it's not, it's not valued at the thing before, but I, I don't think the conclusion is that it was, people thought it was worth what it was a year ago and now people think it's worth what it is now. I think it's just less exuberance because fundamentally these things have no fundamental value.

The only way you're gonna get fundamental value for a, you know, crypto asset token is if there's significant demand for actually using the. That's like table sticks for it. And today there's no blockchain network that has a ton of organic interest for demand of that network. There's none. I'm optimistic that Bitcoin has figured something like it that will be true in the future, but if we're being honest with ourselves, there's no meaningful demand for any of these networks.

So, you know, buying into the token is one way of speculating on that demand increasing in the future. You know, I, I used to do that. I, you know, raised kind of the first smaller fund off that thesis, but now, you know, from what I've learned, I think a much better way of expressing the view. There's gonna be great demand for the network is investing in one of the best businesses that leverages the network to do something great such that their customers don't need to have a token.

They don't need to know about a token, they don't need to be on board to web three. They just get to buy a product or service. And then blockchain is working in the background to make that possible.

Mike: Now are you, are you saying that there isn't a use or maybe that the use is much less than previously anticipated of tokens in a, in an ecosystem to incentivize people to do certain actions? Or  

Zach: what's the best example that you can think of for how a token has made an ecosystem better?

Mike: One that gets thrown around a lot, and I've interviewed folks from there is Helium. The yep. Yeah. Which just for people who aren't familiar, they, they provide a, like peer to peer internet mesh layer and they incentivize people to offer these hardware devices, andit an internet wifi signal, and they create that incentive through their, their.

Hit token, h n t, their helium token. And it seems like that's a good way to incentivize people to put these things in their windowsill. You knowit a local wifi by comparison. If at and t or Verizon were try to launch the same level of network on the same granularity, like it would just be, it would just be much, much different.

Much, much harder.  

Zach: So Mike, if you had to guess, what percentage of Helium's revenue today would you guess comes from, you know, making money off people buying tokens versus making money off, you know, customers like actually using their, their mesh network?  

Mike: Yeah, it's probably pretty sad. I would guess a hundred to maybe a thousand to one.

Probably even higher.  

Zach: Yeah. I mean, I think when I last looked at it a few months ago from what was publicly available, it was about, you know, 90, a little over 99% from effectively making money, people off buying tokens. So again, the jury is still out, you know, this is, you know, the. I think this is a technology that's transformational, like the internet, but it's blockchain at scale.

Mm-hmm. , it's not unscalable crypto tokens to subsidize and, you know, jumpstart a network. Mm-hmm. , we've had many years of that and there's still not really one good, great example of it. I think the closest thing to it is, you know, Richard craves Numerai. That to me is the best example would, you know, you could link to that in the show notes and recommend looking into, but yeah, basically like, you know, the, the best example people often talk about with helium, I think is, is objectively really poor example of, you know, what people are excited about with a token incentivizing a network.

Again, you're talking to someone who for years was like, you know, my pitch for raising the first fund was like, I'm gonna understand Doos, or I understand Doos better than almost anyone. We're actively working with various companies that we've invested with, some that we haven't invested with to help them better their Doos and improve a network.

And, you know, it, it took some time, but we realize actually. This is kind of BS and we're just justifying it to, you know, internally so we can invest in these speculative tokens.  

Mike: What's, I don't, I don't really, yeah, like what, what's, when you say it's bs are you saying the, the, the actual practicality or usefulness of the various ways you can, the token, it's not there.

Zach: So, so mo like in all these examples, when some company or ecosystem creates their own token, it almost always adds more friction to using the actual product or service than providing some type of value. And then the tokens that actually do add some type of value incentivization. It is just an illegal security.

So yes, like giving people and lots of people upside in your business is a really good strategy. There's compliant and non-compliant ways of doing that. And crypto has basically taken kind of, you know, the extreme not trying to be in compliance approach or, you know, very poorly trying to be like exchange tokens are a great example, whether it's, you know, BNB or you know, the FTT of, hey, like you buy this token and you get some governance rights, but you also get reduced fees on for trading volumes.

And it's like, cool, that, that, that could make sense. But we have laws against that in basically every developed country in the world. So without speaking to the morality or of those laws, and if we think they should be the case, They, they exist and these governments have monopolies and violence and police and regulators.

So even if you don't want them to exist, they do exist. So kind of just sticking up your middle finger and saying, well, it's decentralized in its crypto, so that doesn't apply to us and we're just gonna do it anyways. We've seen how that's played out with still what, to me seems like very minimal enforcement relative to what's gonna happen in the future given how cut and dry basically all these crypto networks are in terms of fundamentally being, you know, illegal securities.

So I do think that there's value in incentivizing people through loyalty programs. I, you know, built a whole business kind of arbitraging, you know, credit card miles and points and understanding loyalty programs. So I definitely think there's a lot of value to loyalty programs. It's the only way most airlines in the world are able to turn a profit today.

But is is it crypto like essential to that? And I think the answer is, is, is no.  

Mike: And, and it loyalty points are interesting because they're, they're always closed market. You know, you can't, right? You can't. They're, they're specific to Zach or Mike. They're not something that you can trade, but they do have value.

They have a set value and that you can usually exchange for, you know, airline miles or buy some products or Amazon gift cards or something. So there's a set, there's a value for it. But the fact that tokens were open market, do you view that as like the fundamental flaw in the construction? Could there be a promising future if we make some modifications to tokenomics?

Zach: I mean, that's just like, that's just asking the wrong question. It's like why, like, again, it's, I think it's more coming from a place of like, we have skin in the game of these tokens working. How do we make them work? Rather than let's actually follow a real problem that people have. So like, yes, can you, can you turn failed, you know, crypto Ponzi scheme things into loyalty programs that are combined and actually work for a company.

Sure. You know, for a small minority of these things. But then, . Most people building these crypto, again, they're, they're not in it for that company actually working long term, they were in it for that token. Right. Kind of pumping and then getting liquidity. Right. So I just think it's the wrong question where it's, you know, yeah, blockchain can do a lot of really amazing things.

Micropayments is what I'm most excited about today. But fundamentally, there's a lot of things that more involve data than payments that I think blockchain's gonna be known for over the next decade. But I think we have enough evidence to look back and say, okay, this whole, you know, having a crypto token to incentivize some new Web three network is just not working.

You know, and this is coming from someone who has been full-time and then some in the crypto and blockchain space. Six since like 2016. So I, I really wanted it to work, man. You know, it would've been, well,  

Mike: I wanna, I really want to come to a, almost like a, a like philosophical ground, or at least a product based ground as to why they're not working.

And the, what I don't wanna do is say, well, the price crashed because one guy at a company mismanaging,  

Zach: well, let's look at actual, just like examples where it's like, let's take, you know, Ethereum for example, you know, the, all the various cases for Ethereum. Most people, I think, if they're honest, the reason why Ethereum will be more in the future to these people is the fact that it's a better money than BTC and a better money than anything else.

So that thesis to me is quite flawed. And, you know, you can maybe link in the show notes. My partner Dave wrote a piece called ah, what's the exact title? But basically how governments can. Sees BTC on chain, Dave or Dan? Dave. Okay. The same, the same, the same way that they seize bank accounts of various criminals.

So right now, if you know that X bank account is actually controlled by you know, Chinese, fentanyl dealing cartel, you can go to the bank, present, you know, the, the warrant, the evidence, the court order, and then seize those funds. That same process can happen today with just very minimal software. On any of the versions of Bitcoin on Ethereum, on any of these different blockchains, it just hasn't happened yet.

So we wrote a piece that basically outlines how that will happen for BTC and then if that can happen, I think the value proposition of this being Uncensorable money, uncensorable Gold kind of goes away and will likely cause death spiral in these various assets. So the main, I think, honest bull case for an Ethereum for BTC is this kind of antis status money thing.

But you know, putting that aside and like what are the best examples of, of tokens that are actually adding value to the network? I think they really are in, you know, the categories I already spoke to, which is they're effectively kind of securities and because they're operating outside of the law, they have all these features that those that are compliant don't have.

But there's very little that's actually unique to say a cryptographic network or a blockchain and more just unique to the fact they're able to do whatever they think they're able to do whatever they want. Because they're using a crypto as they're using a blockchain, but you can code in all of these different things into some type of loyalty program if you wanted to.

So there's just, yeah, there's not, again, if you have other examples besides helium, and I can kind of like go one by one and say, here's why I don't think a token adds value to that ecosystem. Most of these network tokens are, you know, governance tokens, which give you the right to govern some type of network.

And again, why that would be valuable or valuable anywhere near the prices it's at, even at these depressed prices relative to a year ago is beyond me.  

Mike: Right. I, I totally agree with you there. I think there seems to be like three primary drivers why someone would, would purchase a token. One is they're compelled to do well, let's start with the simplest.

View it as something that will go up. So it's an investment. Two is they actually want to make governance decisions for, they have a large, you know, they're category one, they bought a hundred grand worth of this token. Well, I want to participate in the voting mechanism. Typically, the way I see it is that a privately held LLC or C corp is the development shop for the protocol.

And when you speak to the founders, they're always like, I want to dissolve the LLC and I want the protocol to run itself. That's, that's always the, that's always the same story. And then there's a governance token that, the token that people purchase and they'll have votes, you know, and then whatever the vote says is what the dev shop has to build.

And like, you could see a lot of flaws in that because like, well who enforces the governance of this? Like we all agree we're gonna do it as long as all developers in the, in the LLC agree. Like push, come to shove. It never really seemed like it had solid ground. Like you had a voting mechanism that was.

That was pretty,  

Zach: what's the best example of on chain governance you've ever seen? What's like the best, best case? You know,  

Mike: Best example of on chain governance. I mean, they all look about the same. I mean, they just, the ratio of whoever owns the tokens and they have the voting mechanism and then people vote.

Zach: Yeah, I just, I mean specifically is there a project that you can say had anything but just absolutely horrible, you know, governance through some type of governance token.

Mike: It always seems like it's, it's the same flaw. It's like, okay, here's the results of the poll. Right? It's like, okay, 55% of people think we should do this.

And then the dev shop's like, all right guys, well, let's go do it. But if they didn't wanna do it, it wouldn't happen. It's like we, it's like law. You know what they say about laws? Like laws? You don't need laws for people who follow them. And people who aren't gonna listen to 'em don't listen to 'em anyways.

So it's like, well, what's the, what's the point of 'em? Anyways, I, I kind of feel the same thing with this governance token is that they, , they are a useful, they're like a poll, right? Of the people who bought the tokens. How many want to go this direction versus this direction, and then we're gonna go that direction.

But like no one has put a poll out there that's like, let's shut down. Like hypothetically, right? We're gonna shut down this project and give everyone's money back. If MO 51% of people voted for that, would the founders in the dev shop that has rude access over the pro, would they actually do that? And who would enforce it if they didn't?

I don't know. These things aren't software. They're,  

Zach: yeah. And basically every example of where pushes comes to shove, you know, the founders that have control are able to exercise control, right? I think there's a reason why basically all the great businesses in history have not been started. These distributed protocols with crazy voting.

It's by like a small group of people or one person in a leadership position that makes decisive decisions and takes action. That's how great companies and great things get built in the world. It's not by, you know, these crazy hypothecated on chain governance type things. So again, you know, a, anyone I'd be happy to speak to, you know, anyone that says an example, oh, here's how it's actually working, you know, well, but again, it's been many years of this, we haven't seen anything good yet.

And I think, you know, it'd be one thing if there's like, okay, we haven't seen a lot of examples of this. X hasn't been tried, so we don't really know yet. But I think that's hard to honestly say where we are today in 2022. But a lot of people keep saying it kind of until this whole thing I think blows up.  

Mike: So, and would you take the same attitude directionally towards layer one technology as a whole versus just theos of it? Like all the things that Ethereum are are doing and Solana, like maybe just take Ethereum for example. They're the biggest, say smart contract crypto layer one. People can build applications on top of that.

Many of them have. Yeah. Like do you view that as an ecosystem that could really flourish in terms of the new technology that's capable because of the tools there?  

Zach: So fundamentally for something and you got to flourish, you need technology that scales. So Ethereum has basically never scaled in the history of it existing.

And there's lots of reasons as to why. I think the two biggest reasons are proof of stake and account based transactions. My firm and I have written many pieces on that. Specifically our first book entitled How a Scalable Blockchain Will Win has an entire chapter on kind of the flaws of a proof of stake system and how that compares to proof of work.

But you know, in short, . When you have any type of account based virtual machine system, it will never be able to compare to kind of a cash-like system, like a Bitcoin, and will have all the same issues that our existing global financial infrastructure has in terms of being able to scale. So that's why so many people trying to start businesses on Ethereum and then have shifted over to Bitcoin, SV to Solana, you know, to other things when they're like, oh, well this seemed great.

There's a great developer community. There's this Ethereum Foundation, but if anyone ends up using my app, well then the network might crash and the transaction fees are only getting higher and higher and higher. For businesses where it doesn't matter if you have a 1 cent or $10 transaction fee, like degenerate, you know, DeFi protocols that's gonna work on Ethereum.

And that's why, that's what most of, like the innovation happening in Ethereum looks like is kind of in there where it's, you know, largely people with resources that are kind of trading around and playing this, you know, what looks like to me, largely a negative sum game. But yeah, I think I'm very bullish on quote, like a layer one working.

It just has to be the right layer one that actually works. So again, a lot of resources here. Probably last one that I'll plug, but we, we have some scalability research on our website that looks at, I think it's like 15 or 16 now. We're trying to always add more kind of the, what are viewed as like the top blockchains for smart contracts and looking at the scale between these different chains and just looking, okay, what is the relationship between using this blockchain and the costs?

And what we've seen is that for every public blockchain in the world today, besides Bitcoin SV, as the network usage has increased, the transaction costs have skyrocketed up. So it'd be one thing if there would be a lot of blockchains where the costs are staying similar and maybe another one's getting a lot cheaper.

But no, they're pretty much all just going up like hundreds of times, thousands of times in Ethereum's case, like literally like millions of times compared to when the network launched.  

Mike: Why is that? Like why is SV able to keep it so low?  

Zach: Because of proof of work and using the UT x O or cash type model?

So you know, with a cash system, if I give you saying a hundred dollars bill, there's just one thing that needs to happen. For that a hundred dollars to be exchanged, I'm handing you a hundred dollars bill. In an account based system, I get debited that transaction that has to be accounted for from Zach to Mike, and then Mike has to get credited.

If those things happen in the wrong order, then the system breaks, then needs to be manual reconciliation. . So with, you know, the Ethereum network for example, the, there's no like, oh, we can go back and do manual reconciliation. So everything's just really, really slow. And the throughput that you can effectively get through the network is very low.

So there's, you know, new next generation proof of state blockchains that are you know, using machine learning to kind of improve upon these things. And I think you'll be able to get, you know, extreme degrees of scale relative to an Ethereum, but relative to a system where I can hand you a hundred dollars bill, someone else across the world can send, can give an a hundred dollars bill somewhere else, and the order of which that goes on chain basically makes no difference.

So you can par like process in parallel versus kind of stacking each transaction exact order. Mm. Nothing's ever gonna compete with a system that can do that. Mm. So there, there are a couple of examples of kind of like UT X O. You know, proof of stake blockchains you know, card being one, which has, you know, obviously been a huge dumpster fire in terms of actual adoption and, you know, transaction fees getting lower.

But it's definitely far from set stone that Bitcoin SV will be the one that kind of wins out on that game. It's just what seems to me today, it has the best promise for that. Hmm. And then the proof of work is the other part of that, which is you have minors incentivized to bring the cost down for the network.

So with a proof of work system, with no limit on scale, every transaction you put on chain, you get paid more money for. with BTC or Bitcoin cash, you're capped. So you know, one megabyte, 32 megabyte limit per block. So as a minor, you're never gonna invest more money in resources, resources into the r and d of improving the network.

If you get capped out from those improvements, it's only with a network that has no limit on scale like Bitcoin SV, where you're gonna see that r and d into improving the network. And that's why since I've started investing primarily in the Bitcoin SV ecosystem, we see those transaction costs, you know, go down significantly.

Not like stay the same as the network grew volume, but go down many, many, many times. And our bet is that that strong capitalist, you know, incentive structure is going to continue to drive the cost down. And that capitalist proof of. doesn't really, it has not been replicated on any type of proof of stake system such that you have all these individual node operators or minors that are actually investing lots of time and money into improving that network.

So those are the main reasons. And then I would say, you know, we've, we've written a lot on as to why, but in short, just look at it empirically. There's only one today, and those are the attributes of the thing that's actually working and scaling. And then all the things that people are excited about is just objectively not working, not scaling for.

and the majority of those not only are just getting more expensive, they're also dysfunctional and they're down a lot of the time and have issues. Solana Aptose, you know, they all have their supposedly unique design. Yeah. But, but they're still, they have that proof of stake and that account based thing in common, which from our perspective is just won't be able to be overcome.

We could be wrong, but so far empirically we have not been wrong on this, such that the majority of venture funding into blockchain ecosystems and, you know, retail funding into crypto networks are going into things that, from our perspective as basically no chance of working out long term.  

Mike: So like microtransactions are the biggest use case of blockchain technology and Bitcoin SVs in the best, best situation to take advantage of that.

And people have been focusing on other projects, probably for greed and wanting to make money on the tokens. And meanwhile, Bitcoin SV is sitting there like, Hey, we're just crushing it on the economics of the protocol and people. It's only a matter of time before people recognize that. And, and, and, and maybe, maybe what you said earlier, I think ties into this too, is maybe because of the price of Bitcoin and others have dropped so much that people lose that religious zest for the future as a million dollar Bitcoin.

Maybe that becomes like a fiction. And then because the religion is sucked out the room now we're like, like cognitively looking at, okay, what's the best rational decision? And that's when Bitcoin SV becomes more, more gains, more attention. Is that  

Zach: Yeah, I mean, I, I think that's largely true, except that like, I don't think the attention's gonna come from btc people that lose attention and interest in btc.

I think it's gonna come from new  

Mike: market  

Zach: people outside of the crypto world. And that's what I'm seeing right now. And that's why what, to me, some of the smartest technical minds in blockchain, they're, they're building on Bitcoin SV. That, that's what I look for, which is like, where are the smart developers?

Where are the technical minds going today? And you know, Ethereum and, you know, probably Solana has larger developer communities and people on those networks, but from our count, BSV is the third largest blockchain developer ecosystem in the world. So  

Mike: how do you measure that? Is that by headcount or,  

Zach: there's a lot of different ways.

We, we have a resource on our site that looks at all the different products, services companies within the Bsv ecosystem. So we're looking at it based on the number of like actual companies in the world today. Yeah, we also do have some numbers and data on who's attended various dev cons and things.

But the metric that we care about most is not, you know, how many people are building little Ds or building a new Web three Ponzi scheme, but how many people are building actual real company with a legal s. That to me is a lot more interesting. And I know to a lot of people, that's just a, a big philosophical difference, which is they think the value of crypto is in this kind of decentralized anti-statist world.

And that's something that, you know, I, I used to think and fundamentally do not anymore.

Mike: Do you see us now as heading towards, we don't know how the short term will play out with FTX or what the collateral damage will look like, but either way it's gonna be big and, and massively significant. Do you think this accelerates the tension between the US federal government's monetary policy and just crypto as a whole?

Like do you see a a, a high likelihood that the US government clamps down makes really draconian, overreaching regulations that effectively stifle any. Possible flourishing? Like, or do you, I mean, like, cuz in many ways there is like this anti-statist ethos and possibility technically compared to fiat currency.

Is the government going to become, use this as a, as a chance to clap down and say no more, like banning it and therefore stopping the board before it even starts? Is that, is that, is that how you could see this playing out?  

Zach: I mean, we'll, we'll see, I, I don't think there's that much new regulation required to enforce, you know, the existing laws and regulations that make the vast majority of what we see in crypto and web three.

Today. I mean, it's, it's already from our perspective, illegal. So there, there doesn't need to be all these new laws, it's just about enforcement, you know? And the E has been very clear that they see the vast majority of crypto as unregistered. Mm-hmm. , you know, illegal security offerings. So just starting to prosecute it.

Increase amount of those, I think will, will be big. Whether they'll come up with some new overreaching things to seize people's btc, I'm not really sure. Yeah. But like, will they use existing laws and regulations and technology to seize known, you know, terrorists and drug dealer money? I think the answer is unequivocally yes.

Mm-hmm. And we, we've written an article about how that could happen and, you know, think it is a good thing the sooner that happens so that more money and time and attention goes to using blockchain for other things.  

Mike: You think it is better that that happens sooner as opposed to people, because there is going to be a natural.

Immunity to these sorts of Ponzi schemes and projects popping up again, like people don't get fooled twice by this kind of thing. I'm sure there's gonna, people don't  

Zach: hold, people get fooled 20 times in their whole life. I mean, we, we've seen crypto in these various Ponzi schemes for many years now.

You know, I, I've, I've been in the space for like six, six solid years and yeah, people are getting fooled by the same shit, you know, whether it's crypto or, you  

know, penny stocks. You know, people like to bet on things where they can make a lot of money quickly. And I don't think it's fair to say that people will, you know, learn from those lessons.

A lot of people will not learn from those lessons, but it's the people that do that are kind of most exciting, you know, to me to, to our father.

Mike: I mean it more like okay, so how does technology progress in a civilizational level? It can progress by, it has to almost like, Any organism, it has to go into the unknown, see what's there.

Maybe it gets bit, maybe it gets hurt, maybe it keeps growing. But you have to figure out, there has to be some feedback system. And the feedback system ideally is small enough so that you don't destroy the whole organism. Right? And the whole industry doesn't collapse. But the feedback mechanism with Mount Go was like, Hey, we need a different way to do this.

There was a learning, there was a bright side, a positive side that came out of that, that collapse. And I view the, a positive, one of the things I see now circulating on Twitter is people want open proof of reserves on exchanges. And that if, if there was that pressure from enough people, you don't need a hundred percent of people to learn, right?

You just need enough pressure so that the exchanges have proof of reserves. If they had proof of reserves.  

Zach: Well, that to me is asking the wrong, the wrong question. Like we don't need more exchanges that are, you know, Chucking this, you know, glorified Ponzi teams and more people to say, Hey, we actually have all of the ftt and all the finance Coin and all the Ethereum.

Like, that's, that, that to me is, that's not a big meaningful improvement. Like, yes, you'll, you'll, it'll be much harder for a fraud to perpetrate fraud. But fundamentally, like if you're going to do an ethical fraud, like what bankman free did, you'll find your way around a proof of reserve. You know, you'll find your way around an audit.

I, I don't, I don't see that as kind of like there being that much upside in that kind of changing things. To me, the upside is let's have less people buying into these crypto networks in general and spending less time there. That to me doesn't really seem like any meaningful improvement in terms of where time and money is being allocated.

Mike: Well, I said like compared to the banking industry, you have a tremendous amount of regulatory pressure on the banks. Like to start a bank is expensive to run. A bank is expensive. From a, purely from regulatory perspective, you could make a clear case and I, I like banks don't have the capability to.

technologically flourish because of the high regulation. And that's a, that's a tradeoff. It's like a safety versus growth. You ha you can either, you know, contain the industry, put a ton of regulation on it, everyone's super safe, but you're gonna stagnate potential growth opportunities in the future. That seems like the tradeoff, that's, that's always implicitly made, right?

Zach: I, I think you're still presupposing that there's lots of value in this crypto world and people trading crypto exchanges, and that's just not an assumption that I share. So if I were to share that, then yes, I think this would be, this would be big if I was betting on the future of lots of people trading different crypto assets for these web three networks.

I just, that's not a future I'm betting on that I think is likely. That I think is good. Got it. Okay. So I don't, I don't, yeah, I, I, I think there's definitely a lot of meaningful conversations you can have around, okay, what's the value of regulation and should the banks be less regulated and how are these regulations enforced?

And that to me is like a very interesting type of conversation. But you know, whether there should be. You know, more Coinbase bases, less Coinbase bases, more FTX is, that's just not very interesting to me. It's just very clearly, like I hope that these things crash as soon as possible and that less people are spending time and money investing into these glorified Ponzi schemes.

And that, you know, it's, and this, like this interview is an example of that where it's like I'm, I'm investing into from what my perspective is, what some of the best shots of being these incredible technology micropayment companies, but I'm, I'm talking about kind of my bears views for crypto most of the time, rather than these awesome companies.

And that's, I think, evidenced by just like where there's interest today, which is like in, in crypto. And that to me is like the, the root of the problem rather than in let's try to solve a problem and then whatever technology is the best tool and our toolkit gets used. It's no the, the answer is this crypto that we already hold, or this crypto that I wanna hold early before everyone else.

And then how do we solve for making that thing valuable? And that's just the wrong question that I'm trying to. You know, work to dispel.

Mike: I, I, my quick reaction to that is I think there's, I think there's a lot of disparaging depressing realities in the world today, whether it's in politics or economics or political tensions across the world or local domestic issues and politics.

And I think crypto offers the potential unknown for technology to to uplift us to provide something that is that gives people hope, that gives people excitement and gives people a way to either exit the existing infrastructure systems bureaucracies, start something new. And that, that, that freedom to do that is incredibly exciting to people.

And so they may see opportunity where there is no opportunity, but I do think it's a human desire to want to go explore the unknown. And people recognize, or people look for, Clues as to where the opportunity is to, to build that new future. And I view it as like, I don't have a firm stance on specific projects or even whether or not teleos, NFTs, all these things are the answer.

But I do, I, I am sympathetic to the, the idea that human beings will continue to flourish in new areas. And I think that the unexplored areas where it's on fringe, we don't know is it good? Is it bad tokens, good, bad, NFTs, good, bad. We don't know. We're like making sense of it. It only takes one project to change an ecosystem for the worse or for the better.

And I just think it's the area that is, is just, it's like intrinsically the most. Not to say any of the other companies aren't doing awesome stuff that are non crypto related. I think there's a ton of really exciting innovation happening there. But they're, they tend to be siloed. They're not like an industry wide thing.

Like there's cool banking apps like Mercury and Novo, and I love those companies, but they're utilizing existing frameworks and things, and you can understand that. But there is a, there's like a, a frontier that's there in, in crypto that I think is, is is interesting. I'm just gonna leave that word interesting there.

But does that, I mean, do you  

Zach: Yeah, I mean, that, that resonated with me a while ago. I'd say right now, like, you know, it's, it all kinda looks like the, largely the same stuff to me. And again, it's not, it's not. Interesting. Like there's, it's lots of different mouse traps for playing this negative sum kind of Ponzi game.

Yeah. You know, and that's doesn't seem very interesting to me at this point. You know, it seemed really interesting when I think I was more naive about why people are actually doing it, why I was doing it. And now that, you know, it just, it just doesn't, so of the,

Mike: it seems like micropayments is an area where you find the most exciting.

Zach: Yeah, for sure. By far. In terms of what blockchain can actually do today and what I think is gonna catch on as kind of the killer blockchain app. Hundred percent micropayments.

Mike: Okay. So, of micropayments, what, what, what part of micropayments? Like a sector, an area, a company project.  

Zach: So we like infrastructure companies out Unbounded.

So our idea is like, you know, we'll let other people bet on what's gonna be the next Twitter, what's gonna be the next best movie in the world. We want to bet on the companies that make. Those new types of innovations more easily possible to be built. So for example, there's a portfolio company of ours called Hand Cash, and they today is from our very biased perspective, is the premier kind of micro payments enabling, you know, sdk.

So if you're a company and want to integrate some type of small payment into your game or application or company, you can easily use hand cash to get that started. And they actually just announced today they'll be able to facilitate all of their micropayments in U S D C starting in just about a month time, a month's time.

So hand cash, you know, can enable. People to sell their content online with just kind of the swipe of a button rather than having to sign up for a subscription service, you know, where it wouldn't necessarily make sense to sell an art. It doesn't make sense to sell an article for 20 cents because you'll lose that and more in using a credit card.

But if you can just click a button and hand cash is paying these tiny little network fees and you just get to buy this thing, then wow, there's a whole new world of commerce and ways of consuming content that was not possible before these micropayments were possible at scale. So, you know, whether it's consuming different types of content, playing a game and having various in-game items or purchases that are really small, the the same way that the credit card allowed for all these new types of business models and forms of commerce that weren't possible.

Because while it might seem like you know a lot of money now, before the credit card became ubiquitous, there was. Way besides like sending a check to someone you kind of trust or a wire or ACH and doing all this verification to buy something that you weren't kind of there in person, where the credit card made it possible to really easily engage in commerce on the internet.

So all these businesses that didn't make sense before the credit cards. Oh wow. Now I can judge $10, don't have to deal with wire fees and just all, you know, those things. There's now all these new businesses, so the same way that it took the minimum viable transaction from probably hundreds of dollars to maybe a dollar that.

All sorts of new businesses as we make the minimum transaction from a dollar to maybe 100th of a penny, and then maybe in 10 more years it'll be 100000th of a penny. And it's not necessarily like, oh, we're just paying for things that are now extremely, extremely cheap. But it's, you know, having machines that are effectively buying and selling things on our behalf for extremely low amounts of money.

It's being able to have someone that sells your data for you to various people to make a profit off it. There's all sorts of things that are possible. And, you know, my, my investment thesis is invest in the companies that make it more easily possible for others rather than bet on, you know, what is gonna be that exact best application.

There's some come to the portfolio that maybe are arguably closer to the, the latter than the former, but we try to keep it some type of infrastructure place such that even if you know this company, Is really just using micropayments for themselves, then they're creating some infrastructure for a new type of market, whether it's like in gaming or trading.

So that's what I'm most excited about today. But as our thesis has changed significantly as you have heard already, could definitely change again. But I think, I think it's unlikely to change meaningfully, you know, over the, the next decade or so.  

Mike: And how much is Unbounded raised and deployed into how many companies?

Zach: So today we're currently raising our second fund, which is gonna be a 50 to 70 million early stage venture fund. The first fund we deployed around $4 million into you know, variety of different companies. Some that were before kind of switching this micropayments thesis, some after was nine, after that thesis.

And I believe it was five or six beforehand.  

Mike: Interesting. That's awesome. If someone were convicted, convinced that that everything you're saying is true and they're a retail investor, is, is the best way to lean into that via purchasing Bitcoin SV. Are any of these companies doing crowdfunding? Are any other creative ways that you, you think of?

Zach: Yeah, so some of these companies that I've invested in have done crowdfunding in the past. I don't believe any of them are currently doing any type of crowdfunding. Again, Bitcoin SV is one avenue to have exposure to it, but it's very different than owning various company exposure. Unfortunately, there's not one easy, great product that I could recommend.

And again, with all the standard financial disclaimers, you know, I'm not a financial advisor. Don't pretend to play one. None of this is advice. But yeah there, there's, from my perspective, there's not a good product out there for retail investors to have exposure to it really. You know, we're basically the only name in town in terms of exposure to early stage startups, and that's just kind of the nature of.

The startup role today, which is if you want exposure to a lot of the best companies, you have to kind of pay this like relatively high fee illiquid venture fund. I hope that some of the companies we invest in change that and are part of bringing more liquidity to private markets and earlier stage companies.

But for now, that's, that's not the world that we live in. And I would say for retail folks that wanna really get involved, you know, learning more about some of these companies, we have every company a portfolio on our site, and also a list of kind of all projects that are happening in Bitcoin SV such that, you know, maybe rather than getting involved with money right now, getting involved with time and educating yourself or even, you know, building a business using hand cash or, you know, getting involved that way.

So I know that's, that's a much larger step than just say going and buying something. But, you know, we're, we're still quite early in the, the days of Micropayment, so that's what I would recommend.  

Mike: And do you see Unbounded Capital I maybe in the next year or two, launching your own token? Like something that Yeah,

Kidding you? Yeah. I hope not. Would you ever do like a Angelist or have a more something that people could  

Zach: definitely, I would, yeah. It is just a matter of, you know, the amount of time and effort it would take to do that relative to capital provides us where, you know, the types of people and institutions we're speaking with.

You know, one check is likely gonna be a lot more than what would come from that. It just hasn't made sense for us right now, even though we really want to do it, but after we raise the second fund in our, you know, better capitalized and, you know, go on for another few more years, I do hope that we can do that for our third fund in the future because I am passionate about making it easier for more people to have exposure to incredible, incredible technology investments.

And despite me not thinking it's a good strategy to avoid regulations, I also do think a lot of regulations, especially in the US. Like we have around kind of accredited investor offerings are terrible. Agreed. And, you know, hoping that there's some evolution there or that, you know, there's ways to work within those laws to just make it easier for ordinary folks to have exposure to incredible technology.

Mike: Ironically enough, I think those laws originated from the same motivation, which is to protect your average investor from investing all their money away into some Ponzi stock.  

Zach: Well, yeah, I, I think those are bad ideas. I don't, you know, well, I, I don't, I don't feel like there should be laws against people making these really dumb decisions, but I do, I do understand the desire to protect those people, but whether protecting them via.

Laws around doing so we'll see. And but I, I do think if you wanted to have a good argument for why these laws are necessary, you know, crypto assets, FTX, you can't really think of a better example than that.  

Mike: Yeah, for sure. Zach, are you writing publicly? You mentioned the blog, you wrote a book. Do you wanna just throw out some of those details?

Zach: Yeah, so I mean, I think just link, if you just link to all the things that I mentioned in the, so far that's, that's already enough homework for people. usually unboundedcapital.com you could find all of her different resources. We have scalability research that I mentioned. We have two books, one that's kind of longer, that compares our views to the consensus views on crypto.

So each chapter is kind of, here's what the crypto consensus thinks, here's what Unbounded thinks. We have a, on kind of the environmental nature of Bitcoin and blockchain called Green Bitcoin, all sorts of other research posts, blog posts. We do investor webinars regularly. So, you know, you could contact me at zach@unboundedcapital.com.

Don't put that in the show notes so I don't get all the thoughts. But if you want to, you know, if you're an investor and wanna join one of our investor webinars, please shoot me a note and  

Mike: let ask you this. I'd say one more question too. Yeah. Who do you either a book, a blog, a person that you avidly follow and have a.

A lot of respect for, or have learned a lot from.  

Zach: So many people, but I'd say Ed Thorp is who I wanna mention right now. Yeah. So there's a book of his kind of an autobiography called A Man of All, or A Man for All Markets. So Ed Thorpe is the person who invented statistical arbitrage or bond arbitrage.

He invented blackout card counting. He, you know, made significant money off beating roulette by finding tables that had deficiencies in them, you know, exploring 'em. And, you know, until unfortunately his partner that he had no knowledge of doing this, I legitimately believe got involved in kind of some insider trading stuff.

He ran a hedge fund with the highest sharp ratio, which is kind of like, not just your returns, but you know, our, the risk you're taking for those returns for about 20 years before winding that down and just running his own family office. But one of the most remarkable kind of mathematical minds, investors, people by risk and.

Genius is about risk that I've ever, you know, come across and has really inspired me. And kinda the big takeaway from everything he does is be, if you can't clearly define why you have an edge in doing something, probably best not to do it, whether it's with money or with time. And when you can find something where you can really define why you have an edge in doing that more than almost anyone else, that's something to double and triple, triple down on.

So Ed Thorpe highly recommend learning more about him and his wonderful life.  

Mike: Yeah, I like that. I like that piece of advice a lot. It's so simple, but so easy to forget. Ah, Zach, thanks so much man. I really enjoy this and keep crushing it.  

Zach: Okay, thanks for having me on, Mike.