Episode 167 - Blockchain Rising: Wordproof and DeFi
Today's guest is Sebastiaan ven der Lans, founder of Wordproof with a goal to fight fake news through blockchain technology. Max and Sebastiaan talk about this application of blockchain. Later, Max gives an introduction to Decentralized Finance (defi).
About Sebastiaan ven der Lans
Sebastiaan van der Lans has a big heart for open source. In 2006 he co-founded Amsterdam’s first WordPress agency ‘Van Ons’, which is a leading digital agency now, serving over 100M page views a year. In 2019, Sebastiaan founded WordProof, the winner of Europe's Blockchains for Social Good’ contest 2020. Today, he's CEO of WordProof and chairman of the Trusted Web Foundation. Sebastiaan has a strong passion for improving the playing fields of publishing, SEO, and e-commerce. Solutions by his teams are actively being used by over 100.000 organizations. Let’s build the Trusted Web, together!
Links from WordProof
Trusted Web Introduction in 2 minutes (video):
https://thetrustedweb.org/education/
Report State of Misinformation 2021:
https://thetrustedweb.org/state-of-misinformation-2021-united-states/
https://thetrustedweb.org/research/
Timestamps and SEO! Joost de Valk (founder Yoast SEO on timestamping and Search Engine Optimization):
https://wordproof.com/joost-de-valks-4-reasons-to-start-timestamping-today/
Timestamp your documents and episodes (10 free timestamps a month):http://wordproof.com/files
Links on Decentralized Finance
How to Defi by CoinGecko
Metamask - a crypto wallet for blockchain apps
Related Episodes
Episode 157 on the financial tsunami headed our way
Episode 153 about the coming decentralization of the internet
Episode 37 with Naomi Brockwell on Blockchain Tech
Episode 5 with Cristian Lundkvist on Ethereum
Transcript
Max Sklar: You're listening to The Local Maximum, Episode 167.
Time to expand your perspective. Welcome to The Local Maximum. Now here's your host, Max Sklar.
Max: Welcome everyone, you have reached another Local Maximum. I'm your host Max, as always, of course. And recording today from Salem, New Hampshire. I don't know why I said that today. I usually don't talk about where I'm recording from, but I did today anyway. Today we're going to talk a little bit about, we're going to talk a lot about blockchain. Now, don't turn this off. Don't turn this off. Don't roll your eyes. I know a lot of us saying blockchain, not Bitcoin. Those people are saying blockchain, not Bitcoin. And then somebody saying what? So we're not talking about, you know, getting rich and Bitcoin going to the moon and buying lambos? And no, we're not doing that today. But look, there is a bit of a debate over this new innovation called blockchain, which is essentially a decentralized database that can't be tampered with and very difficult to tamper with. And it's like, okay, what are the implications of this technology? What does this mean for the world? What does this mean for me? What does this mean for the future of the Internet? What does this mean for the future of finance? So we're going to cover some of that today, we're going to start with a guest, who is Sebastian, is the founder of Wordproof, which is all about timestamping. And I'll get to that in a second.
And then after that, we're, I’m going to discuss a little bit about something that's been called de-fi — decentralized finance. You might have heard of that buzzword before being thrown around on Twitter, or whatever. But what is decentralized finance really, is it? You know, it's, it's something that I should care about? What does it mean for me? Is it something that I should use? Is it something that's going to change the world? Or is it just another thing that's being hyped in the blockchain space? Well, I'm going to get to all that. So you're going to understand those issues a little better, after listening to this episode. So first of all, let's, let's start with the word proof stuff. So I don't know if you have ever felt you've been tricked by fake news. Now, I know that a lot of us tend to laugh at maybe some of our older relatives who have shared news stories, but ended up being fake. Or have commented on news stories too soon. But have you ever done it yourself? Hmm. Maybe I have. Once or twice? I'm not so sure. But look, there are a lot of things like, hey, this person said this in 2012. And there's a screenshot of something they said on Twitter, and then it turned out that they never said that. It's just made up to prove a point. And so well, it's really horrible to do that to someone, first of all, but that's kind of it's fake news. It's either it's defamation, or it's it's libel, or, I don't know all the terms, but it's one of those things. So we also get that in the prediction racket all the time. We get people who say, you know, hey, I predicted it. I said, X, Y, and Z back in 2010. And then it happened. So look at me, everyone's got to trust me. I mean, well, first of all, just because you get one thing, right. But aside from that, “What did you really say in 2010?”, is a really important question. And can you prove it? Because a lot of these things are created after the fact, you know, a lot of these kind of, you know, when you get deep into the Internet, and you get into that ancient alien stuff, and prophecy, and you know, this set of set, I'm into that stuff, don't ask me why.
But a lot of these things, oftentimes, it turns out that the prophecies were written after the event that they're talking about. So of course, they were right. So how can you prove that something was set at a given time, you can get a notary to do that. But blockchain gives a very cheap and inexpensive and efficient way to timestamp something. So let's, you know, Wordproof is a company that is, you know, in that space and try and see, okay, can we use that to make you know, the internet more, more correct is not the type worm, not the right word. Oh, yeah, it is, is the right word. It's just grammatically awkward. But can we use timestamping to tackle the fake news problem, or to tackle the prediction problem, or to just hold people up to higher standards about what they say and what they said they said or what they said someone else said. So again, afterwards, we're gonna talk about decentralized finances. So stick around for that. It's a big term and you're going to learn all the main points you need to know about it, but first, we're gonna turn to my next guest. My next guest is based in Amsterdam and founded wordproof and they are building timestamp. products to bring trustworthiness to the internet. Sebastiaan van der Lans, you reached a Local Maximum. Welcome to the show.
Sebastiaan van der Lans: Thanks so much! Pleasure to be here.
Max: So tell me about what you do. What's your role? What is Wordproof?
Sebastiaan: I fight for more trust on the internet. The basic question I asked myself after working with open source software for 15 years, is, what if you can simply trust all information on the internet? And we apply blockchain technology to make transparency and accountability, the connection of those two made trust part of the base layer of the internet.
Max: Okay, so, man trust all information on the internet? That sounds kind of insane to me.
Sebastiaan: It's almost the opposite of what you expect, right? Yeah. Um, not all information on the internet. There are use cases where trust is no issue. There's entertainment, there's certain places where trust isn’t necessary. But for news outlets, for example, we think that we deserve an internet where you can see how information changed over time and who's the center of information. So for all information that matters in a few years from now, if it hasn't been timestamped, if you can't see where it comes from, and how it changed over time, it will be considered a fraud. What are you hiding? That's the shift we want to make on the internet.
Max: So let's back up a little bit here and talk about timestamping. Because it sounds like that's your strategy. What type of misinformation or fake news or whatever you want to call it can be solved by timestamping? And maybe tell people a little bit about who aren't familiar with timestamping. I mean, obviously, it's, you know, slapping a date on it. But tell people a little bit about how all that works. You know, it's a little bit more than slapping a date on it.
Sebastiaan: For sure! So, many hurdles of blockchain technology because of Bitcoin. Bitcoin is booming. And the white paper of Bitcoin was published in 2008. Blockchain wasn't invented for Bitcoin, blockchain was invented 30 years and two months ago, for timestamping documents, what is a timestamp? It's a unique fingerprint of a piece of information, you put that in a transaction, and from that moment, you can prove that these certain information existed at a specific moment in time. Blockchain was invented for that 30 years ago. What we do is bringing that use case to all information that matters, which eventually could solve misinformation on the internet. Because for the first time in history, it's possible in an open source way to verify firstly if there has been tampered with information. But secondly, an identity can be connected to the information. So a sender could truly, in an open source way, connect their identity to that information. And what you can then do is working together with search engines, working together with policymakers. All information must be able to be published on the internet. But what happens today on social media, for example, is anonymous information where no center takes accountability for it, can go viral. And what we work on with policymakers, with the social media platforms is there's always freedom of speech, anything can be published, but not necessarily freedom of reach. There must be taken a certain amount of accountability before information can go viral. Which is not the policy for all trouble on the internet, but at least for the anonymous part.
Max: But what about like people who just want to make funny memes or something like that? Like where, like, how and then of course, you have some memes that are jokes, you have some that are jokes that are then taken as misinformation and interpreted that way and then there are some that are literally meant to spread misinformation. So I mean, it feels like timestamping doesn't really help in those instances, or does it?
Sebastiaan: Um, the question is, what type of information will you spread? So I can't imagine a world where memes for the sake of entertainment or maybe even satire, yeah, should be able to go viral. That kind of happened in two ways. Firstly, the sender can take accountability, I made this thing. But secondly, you can say hey, there must be a category for, this is not for the purpose of information. This is for the purpose of entertainment. So we foresee a way to label all information on the internet as an infrastructure. So an important thing is timestamping as technology. But there's a language that search engines speak, there's a language that social media platforms speak. And that's www.schema.org, structure data files for your data, you can tell a search engine that Max is not just a word, but it's your first name. So what we are working on together with people from the search engine space is making sure that the timestamps are part of the language that search engines and social media understand. Those who find that important can filter based on that information.
Max: So let's, I could try to come up with one but let's maybe you could give us an example where like, timestamping is dead on. Like this is an example where the problem would totally be solved by timestamping.
Sebastiaan: There are many, but one of them in e-commerce could be, for example, terms and conditions. often it happens that you buy a product, product breaks, then you go back to the merchant. And the merchant says, yes, sorry, we have a different sort of terms and conditions. Now this is, so we can't help you. With a timestamp, you're not, as a consumer, you're not reliant on the willingness of the merchant to help you because you can prove what the terms or conditions were at the moment of buying. That's use case. Another one is revisionism in news. So you can keep track of changes in news, and, therefore, see how information changed over time. A journalist can choose to make note, it's kind of version control, like you have version control on git as a developer, we bring that to news, to information that matters. So yeah.
Max: If you want to save it, you know, someone was saying something in the past that maybe they're pretending they never said. Or if somebody is saying that someone said something that they didn't say.
Sebastiaan: Exactly. So if you take that one step further, for example, fraud on advertising, saying hey, this person bought Bitcoins, he’s really rich. And there are all sorts of scams, via, advertised on social media platforms. What you can do is say, all videos or information can be shared on the internet. But before you advertise it, the person in the video must put their timestamp on it. So you, before information can get amplified. The people in the video must take accountability must say, hey, it's really me, and I approve this information to be advertised or go viral.
Max: Right? But so it doesn't necessarily help though, if the information is kind of false to begin with. I could just timestamp something, I guess like, I could timestamp something. Just because I timestamp it doesn't make it true. It's like it's just, it's still a claim.
Sebastiaan: Yeah, sure. But when you connect your identity to it, at this, your reputation is at risk. Okay, if you steal information, or if you so what we educate the search engines on, what we educate the social media platforms on, what we educate the policymakers on instead, we say, the more accountability you take, the higher information should rank or the further could travel on social media, the more transparency you bring, the higher information should rank.
Max: Yeah, okay, I see. I see. So it's interesting, you say that people can attach their identity to information that they have out there, and can build a reputation. based around that identity? I find that idea interesting, I hope people will listen to the podcast, for example, if the information they're getting on the podcast is good. Do you think that all of those identities have to be tied to a single person? Could people have kind of anonymous identities? Could there be anonymous accounts or accounts that are mixtures of people that could also get by, that could also build reputation over time?
Sebastiaan: Yeah, for sure. So there's a lot of work being done in the open source identity space, there's a whole space called self sovereign identity. And you can think of all sorts of identity providers, it could be a school sending out certificates, it could be a government, it could be Facebook, or LinkedIn or Twitter. There's a use case for all sorts of identity providers. Another interesting technology in the blockchain space is zero-knowledge proof. So you can say hey, I want to see information from someone with at least a certificate from this kind of university. But it's not necessarily necessary for them to reveal their name or their. So you can, there are all sorts of meta information from a person you can filter on. But without necessarily revealing their name and their address information. So make sense?
Max: Yeah, I think so. So what you're saying is that, instead of, you know, instead of thinking it is like downloading a database of people and filtering on what you want, the zero-knowledge proofs can kind of give you what you want without having to actually download all that specific information. So you wouldn't necessarily know who it is. But you'd know, they have a certain attribute.
Sebastiaan: For example, and my grandma, she suffers dementia, what we can, what I envision is a world where you can say, hey, for her only, websites with or only information can reach her with a certain level of accountability taken from these organizations from these persons. You can make the threshold for information that can reach her very high. So the filtering on what information can reach you can show up in your timelines. It's really something you can configure on a personal level, if you want to.
Max: Yeah, with the identity thing I was thinking about someone like Satoshi Nakamoto himself who basically put out Bitcoin on a, presumably, a fake identity. But if someone were to sign those early coins, they would have, very young people would listen to what that person has to say.
Sebastiaan: Yeah. But the thing is, there are use cases for anonymous information. There are use cases for pseudonyms. So all must be able to be published on the internet. But one of the core problems in misinformation is anonymous opinions going viral? Hmm. So and that's one of the things you can avoid by saying, hey, there must be a certain level of accountability before information can go viral. For information that matters, like news, people base their voting behavior based on news. So news, in many cases, is important information. Government information is important information, terms and conditions in e-commerce is important information. Forget kinds of information, it matters to have a sender that takes accountability for information.
Max: Right, so what about like, so right now you have the good folks at Twitter and Facebook deciding which news goes viral in many cases. You know, I read the side left sidebar on Twitter, it's clearly, you know, it's clearly a group in there. And I kind of like know, the types of people who are in there who are deciding what, what goes, what goes on over there? Um, I don't know, like, what's the alternative?
Sebastiaan: What the, yeah. So the problem is, we did research through the state of misinformation. And what we learned is that people are overconfident in their ability to spot fake news. And they, some were confident that they could spot it. And so much accidentally shared–
Max: But what, so I'll let you continue. But that's the main issue with these social media platforms and these fact checkers is they're like, well, we'll speak, spot fake news for you. And we're just, we’re going to be good at it because we're pretty smart.
Sebastiaan: Yeah, so it's a hard thing. 86% of all Europeans have fallen for fake news at least once, and that's just the people who know that they have fallen for it. And one of the other things that we learned in our research is that two thirds of the respondents state, would support regulation that made it a crime for people in organizations to knowingly create or share fake information. This topic is super hard, because there must be a judgment somewhere on what is fake or what is not. So it has all sorts of new problems that come up around it. But in general, the public wants fake news or intentional disinformation campaigns to be seen as a crime. What the alternative is to just seeing the trending information is making transparency and accountability. So how did information change over time and who's the center of information, kind of a precondition for information and not for all information. So there are plenty of people who wants to have the trending topics as their main guides to social media. But there must be an option to say, oh, I only want to see information that's come from real people. Like, if that's how information works in the real world, I can see, oh, this really, this is Max, I can talk to him or I don't like him. So I don't talk to him. But we make the internet true timestamping in an open source way about human to human communication if you want to.
Max: Cool. So what so tell me what Wordproof is doing to bring this about. What are you guys working on now?
Sebastiaan: Yeah, so we make tools, integrating with social media with all publishing platforms to automatically timestamp information at the moment of publishing. So in the Netherlands, that's where we started the company, we work with two out of the three biggest publishers in the Netherlands. They timestamp all their articles right at the moment of publishing. Furthermore, we work with search engines, there's a first small search engine, which committed and said, hey, from the end of Q2, we label information in search results that has been timestamped. And optionally, later on, after the first experiments we do together, they can offer the opportunity to filter, hey, we want timestamped information to be ranked higher than non timestamped information. So we do all sorts of collaborations with search engines. Today, over 3 million articles are timestamped, from quality news outlets, and yep, making timestamping tools available to all tooling to to publish with and to all social media platforms, to all search engines. That's the main focus of Wordproof.
Max: So you could, someone can timestamp documents on any blockchain like I could, I could add on a Bitcoin transaction a, you know, a hash of a document that I've timestamp, I could do it on the Ethereum blockchain. Is there a certain blockchain or tech that you prefer for this? Or are you kind of agnostic? Do you scour all the blockchains for any timestamping scheme? Like how does that work?
Sebastiaan: Yeah, so we're a blockchain agnostic company where blockchain agnostic movement otherwise it's super hard to get it to get it standardized and make it part of the language of search and just the social media. We started working on the Eos blockchain, we support Ethereum blockchain. Soon we will support Bitcoin blockchain as well. And the most important thing is that you have, for example, in the EOS transactions are super cheap and super fast. In news, it matters who was the first one to publish information? If you're one minute earlier, or 10 seconds earlier than another news outlet, you get 30 to 50% of all the traffic on that topic. So it matters to be able to prove who was first. So the EOS blockchain really made sense there as they have block times every half a second.
Max: That fast huh? I didn’t even know that.
Sebastiaan: Yeah, so and that's, that's super useful for date for this use case. And what it does is for small blood for platforms in news, all small platforms are kind of angry and unhappy with the fact that Google crawls bigger platforms more often than small platforms. So true timestamping there's a way to prove who was first to protect your scoops. All scoops in news often are broken news often is broken locally, but the big platforms, they get the rewards as they got crawled more often. So through timestamping, being small matters again.
Max: So do you think that, right, do you think it gives small outlets at least a temporary advantage if they can timestamp their information?
Sebastiaan: For sure and not only temporary it's it's the most as Bitcoin makes money sound there's no harder money, then Bitcoin. And that's what we do to content: it makes it fair viable by human and machines. Who was the first one to publish In fact,
Max: Can I timestamp episodes of a podcast?
Sebastiaan: For sure. And I think you should.
Max: Well, I don't know how to do that.
Sebastiaan: There's, there's, there are certain ways. So I do have a WordPress website, for example, where you publish the episodes as well.
Max: Yeah, I have a Squarespace website.
Sebastiaan: Okay. We don't have a Squarespace integration yet. But that's a matter of time. If you have WordPress, really in five minutes, you can set it up. There's a free plan with 10 times a month.
Max: Yeah, the website also, I mean, you know, I also have an RSS feed for the podcast. I don't know if that, that doesn't, I mean, they all have RSS feeds.
Sebastiaan: But there's Yeah, if you're an engineer, right. So there's, there's an API. So you can easily build something on our API, which makes timestamping automatically. And it's a matter of time before there are all sorts of communities, open source communities or proprietary communities, we will, that are working on wordproof integrations on timestamp integrations, for example, there will be an integration with Drupal content management system done by the community there. The Shopify integration will launch in Q2. So there Yeah, it's an open ecosystem.
Max: All right, cool. I'll check it out. When I can't, because, you know, anything to sort of, you know, be happy at the forefront here and Local Maximum is it is a good thing to do. Anything you'd like to add to wrap up, and also please let the audience know where we can find out more.
Sebastiaan: Yeah, so especially, what we see is big publishers are big publishers and small publishers are, are starting to timestamp because what they see is, once search engines recognize the power of a timestamp and embed it in their algorithms, it makes sense that you were first doing it because the timestamp plays today is the same as your place in a year from now. So it really makes sense to start early. It's like buying your beautiful domain name 20 years ago. So it makes sense to start timestamping today, whether you're a small player or a big player, and yeah, two places to check out. Firstly, there's The Initiative, the nonprofit we do on education on timestamping. That's www.thetrustedweb.org. And a wordproof.com is the place for the company. So yeah, check it out. Follow me on Twitter, @delans. And yeah, we'd love to stay in touch.
Max: All right, all this will be on the show notes page. Sebastiaan, thanks for coming on the show.
Sebastiaan: Max. Thanks for inviting me. Pleasure.
Max: All right. So my question to you is, do you think that we will see that level of timestamping and be adherence to it in our social networks and our news feeds, in our lifetime? Or in the near future? What do you think? Head on to our Locals to register your opinion that's local, or that's www.maximum.locals.com, I want to hear from you on that. I also want to hear from you on our next issue, which is decentralized finance. Because, you know, there are some people who say that decentralized finance is the future, this is how everything's gonna be done. There's some people who say, hey, you don't really need a blockchain for this stuff. And this isn't as big as some people are saying. I want to hear what you think on that, because, hey, I don't know what the future is going to hold. I don't know how these things are going to play out. That's kind of the fun of it. I'm gonna give you a rundown of what I've learned about it. And where I think DeFi adds value.
So first of all, what is decentralized finance? Decentralized finance is financial instruments on the blockchain. And I'll give an example in a minute, but the prime example is getting a loan, for example. So why would you want to get a loan on the blockchain? Now, I looked into this, I'm not I'm not an expert in this stuff. I don't work in finance, or I guess I'm reading a lot about this stuff now. All of a sudden, it's a lot more interesting to me than it was, you know, 20 years ago, when I graduated from college and people like you want to go into finance. I'm like, yeah, boring. Now, all of a sudden, it's fascinating. But the question is, why would you want to have a loan that goes on a blockchain? So some of you might have heard of, so first of all, it's not the type of loan that I am familiar with, that cannot be done on the blockchain. And I'll tell you why in a second.
So the type of loan I'm familiar with, and probably the type of loan that we're all familiar with is something like a student loan or credit card. You take out loans for going to college, and then you pay it back over time. They know who you are, they know how to get you, if you're not paying your loans, I've taken out an unsecured personal loan once. And you have to pay it back to the bank over time. So, the reason why you can't get that on these types on blockchains is because these loans are anonymous. So you can't, you know, you can't just give someone money anonymously anywhere in the world and expect them to pay it back. So you actually have to put collateral up to get that loan, it's a very specific type of loan, but it's actually, it could be something similar to say, a mortgage or a home loan or something like that, where your home is collateral, so the bank can repossess your home if you don't pay the loan back. And so that assumes that you'll pay the loan back.
In this case, the collateral is some other crypto asset. So it could be, for example, it could be just Bitcoin. You put up Bitcoin and in return you receive, you receive a stable coin in dollars. So that's, I'll get to that in a second. But let's say you get dollars, the dollars are worth less than the Bitcoin you put in, but once you pay the dollars back, you can get your Bitcoin back. And, you know, there are things that have to go on if, for example, Bitcoin dives in price, and now all of a sudden, the Bitcoin is worth less than the dollars that you have out, then they can just, they have a margin call, they could just repossess your Bitcoin all at once before it drops too low. Sometimes for the lender, you know, there's the risk, there's a gap risk, if Bitcoin just drops precipitously immediately, and all of a sudden, it's worth far less than what everybody everybody's collaterals were far less than how much they borrowed, then you're kind of out of luck as lender because the person can't, you can't repossess their Bitcoin and get your dollars back. It just won't work.
So those gap risks seem like they don't come up very often. But I wonder how they handle that on the blockchain? It's, it's possible here? Well, usually, it's something like, hey, once Bitcoin gets within 15%, of what the lender has out, then it will get repossessed, or the lender can put more Bitcoin in. But now, there's also the question as the lender, why would you want to do this, because, hey, you have that Bitcoin, Bitcoin, it's not like having a house where you want to take out a home loan, or mortgage, you know, you have the Bitcoins to sell it for dollars and get the dollars you want. And so it's really the type of thing where maybe you don't want to sell your Bitcoin right away, because you think it's going to go up, or because there are tax consequences you don't want to have to face so you can borrow dollars from that.
Now, that already reduces the types of loans that make sense by quite a bit. So you can't get you know, you can't do student loans on this thing. So another thing that reduces it quite a bit is that, you know, there are a lot of Bitcoin companies that give you Bitcoin loans, but it's not on a blockchain. It's just, you know, it's just a standard, a company does it. One company does this is BlockFi. BlockFi, you give them Bitcoin, they hold it as collateral, and they'll lend you dollars. I believe Coinbase, which just went public, they do the same thing as well. And a number of companies do this. So why would you want this on a blockchain? And so in that, now, you think, where there's like, more overhead, you know, it's that there are more costs to it, you can't call up someone if something goes wrong. So why would you want to do it?
So there are reasons. First of all, if you're using these companies, then these companies are, you know, they have to follow the laws in their country, and they have to know who you are. And they have to vet who you are. Whereas if you have these loans in an open blockchain, where it's just run automatically, these margin calls are happening automatically. And, you know, it automatically calculates the correct amount of collateral you need to get the loan, then anyone in the world can lend, and anyone in the world can get a loan. So from the lending side, you know, it sort of means, okay, you can, that's one way you can get kind of a rate of return on your crypto assets, if you're, if you want to loan it out. And receive something else and collateral in the meantime, you could do that. On the other hand, you could also, if you want to take out a loan, if you're a lender, let's say you don't have access to BlockFi, let's say you don't have access to Coinbase. Let's say you don't have access to a company that does this. Maybe you're in a country where these companies don't operate. Maybe, and maybe I'm not saying this is a good thing. Maybe you're not legally allowed to do this. Maybe you've been, you know, blocked out of the, maybe you're an outlaw, maybe I'm blocked out of the financial system. Now. It could be that you're up to no good and I'm going to get to that in a second.
But are there people who would want to have this kind of anonymous loan on the blockchain? And I, yes, I think there are cases. Some you might think are good, some of you might be thinking not so good. I definitely think there are cases that are good, where people who are, you know, don't have access to traditional financial system, and then they start like, you know, increasing their Bitcoin stash, and they want stable coin in their own country, and they can they can get that loan out, maybe, maybe that is something that's valuable to them. So I do think that that is that is the type of loan that there is definitely a use case for this, in my opinion. But it's not every type of loan, that's the one thing that I had to understand and get into the mindset of. Maybe this is obvious to some people, but like, I think of as a loan, like, I don't have any money, and I need money right now. And I'll get money later. And then I'll give you the money later. No, no, this is a case where you have the money right now you just want a different type of money, you don't want to sell one for the other directly.
Speaking of selling one for the other directly, that's another thing that you could do on these blockchains, which is a decentralized exchange of crypto assets. So let's say I want to exchange Bitcoin for Etherium or I want to exchange aetherium back to Bitcoin, well, I could just use any number of, you know, exchanges that are online, or now, people are developing DEXs, decentralized exchanges, where you can exchange one for the other. And it's sort of all gets taken care of automatically on the blockchain. The only, there are downsides to this too. You know, maybe it's, it could be more expensive. It could be that, hey, if something goes wrong, at least if there's an exchange that's reputable, I can hold the exchange accountable. But if it's just an algorithm on the blockchain, it will do what it does, and then you're out of luck. But if you want access to the financial services, and you are locked out of the centralized financial services, that's something that you might want to get. It's something that Shapeshift has used recently. So Shapeshift was a, or is a website or a cryptocurrency company that allowed you to exchange one type of cryptocurrency for another. And, you know, they recently, and then the cool thing about it was you didn't have to log in, you just said, Hey, I want I want coin B and this address, and they'll send. I want to pay for it, and coin A and they'll be like, Okay, give us coin a in that address, and then we'll send you coin B and this address, and then it works.
And over time, they realized, well, that doesn't work with the regulatory structure in the United States. And so we're gonna have to, you know, ask for your identification, we're going to have to ask for you to log in, we're gonna have to ask for your social security numbers and crypto users don't like that. Now, I'll get into a minute, they may. there's a reason why there's some of those regulations that but with the decentralized exchanges, you don't need any of that. And so are there people who want to do it that way? and say, “Hey, I don't want to identify myself.” Just the question of are there people who want to do that? The answer is, yes, of course, there are people who want to do that. So these decentralized exchanges will survive, how big they will be in relationship to other exchanges is something that, you know, remains to be seen. So what else can you do besides loans and DEXs, so one that I mentioned before is stable coins. So, and also, you know, derivatives.
And so these, these are things where they're oftentimes produced by like a company or consortium or group or something, and they'll say, hey, we have a whole bunch of dollars here. And we're going to use these dollars to back our cryptocurrency, which is, which each value of this crypto dollar represents one US dollar that we actually have and we can, you can trust us that we have it, we’ll show you that we have it, whatever. And so the benefit of that now is that sometimes people always people in crypto always like to look at this like okay, where, I want to trust as few people as possible. I think ultimately you always have to trust someone but in this case, you do have to trust the the group that underlies that asset but on the other hand, when you own that asset, you can trade it back and forth on a blockchain and you know, you could you don't have to have permission for that you don't have to have permission from the company to to to exchange these these jot dollars one is G USD the Gemini dollar one is tether for example. And then there are some you know, you have some based on gold so let's say I want to sell my Bitcoin for digital gold, which is some people say Bitcoins digital gold, but I'm talking about, you know, let's say 100 cryptocurrency that literally represents someone's gold, you could have a group that does that. There must be or and, you know, you can then exchange Bitcoin for gold or silver or whatever.
And then you can have a blockchain-based commodities exchange, which is a very interesting idea. I mean, we're, you know, this could almost disrupt all of the exchanges that are, you know, all the centralized site, centralized exchanges in the world right now. But I kind of want to know, will it? What do you think? I mean, again, go on the Locals page, let me know, because is this going to be something that exists alongside the centralized exchanges? Let's say commodities exchange? Or is this something that will ultimately replace it? Or is this something will just fizzle out? We don't need it. So if that's something that, like, no, what else can you do? Another one is that so I read a book, it's called How to DeFi. It's by coin Gecko. And which is not a person, it's a group of people. But I will put this book up on the website. Another thing that they're doing in decentralized finance is fund trading. So you can buy an asset that represents a fund that's trading a bunch of cryptocurrencies where people there are trying to make more money for you. Maybe it'll work, maybe it will not, maybe it won't work, they build the kind of thing where you were just better off holding Bitcoin to begin with, who knows?
Another one is insurance, where you have one party, that sort of, or maybe a few parties that vote, that say, this is what happened. And then you bet on whether that would happen or not, let's say for the purposes of insurance, and then you know, you get a payout. So, again, I think you cannot replace all of insurance like that, because a lot of insurance has to have, hey, I've got to understand, you know, what happens in this situation? What is the insurance policy, like car insurance, like, hey, you know, what, there was damage to my car, because of something out of my control, should I get the payout? And then you have to look at, okay, what actually happened in this person's case. You need actual humans on the ground to do that in individual cases.
But if you let's say, want to buy insurance against, I don't know, you know, let's say you want, well, an easy one would be, what's the insurance? Not an easy one. But an easy one to implement would be, hey, I want to bet that the hash rate of Bitcoin or Ethereum, doesn't go too high, or something like that. That's something that's in the system. So you can actually program that in. But, and I talked about this in Episode Five with Christian Lundkvist. So that's kind of a good one to check out, because a lot of the Etherium stuff really was turned into, a lot of what he was talking about there was decentralized finance. We just didn't call it that then. So anyway, you could do global events, like, will there be a major hurricane in the Caribbean this year? Or something like that? And then, you know, people would vote or will there be a recession this year, I can buy something against that, I don't know. But another thing, another type of cheap, which you could use as insurance, but another type of betting is an options market, a decentralized options market. So I've heard of a couple of options, Bitcoin options, trading platforms, one is LedgerX, this is used in the United States and there is TerraBit that you could use in the UK. Okay, these are centralized exchanges, you know, you could buy call and put options you could sell, call and put options if you're willing to back it with your Bitcoin. But, hey, what if we want to buy options to trade one cryptocurrency against another remember, option is the right to make a trade a specific trade, I'm going to exchange this much of coin A, for that much a coin B on this date, and I just want the option to do it. I don't want to necessarily do it. But I want to know that, that I have the option to do it. And then somebody else on the other side will say okay, well, I have coin B if you want to make this trade, so you're gonna pay me a little bit now. I'm gonna lock up this coin B in the blockchain. And then on that day, you're allowed to call the option. And you are allowed to make that exchange and give me the specified amount of coin a for it. Otherwise, I'll just take my coin B back and keep the premium.
So that's a way that somebody can make a profit on their currency, a little bit of rate of return. Another way they can make a rate of return. I mean, the first way is the loans. There's a bunch of different ways you can make rates of return. There are some that like bundling these things together, and then giving you coins that make interest and that sort of stuff. So people are experimenting, you know. They have all these cryptocurrencies. And people are just experimenting with ways of doing different trades and getting different rates of return. And the question is, what can we do in a decentralized fashion? And that is the big question of the age. And that's the question that I want to put to you. So let me know, maximum.locals.com, up to have a good discussion on that.
Again, one of the things that's really fascinating about what's going on with this is that everybody in the world will have access to these tools doesn't matter who you are, where you are, even what you are, you know, you can have computers, trading these things, machines trading these things. So one of the concepts, and it can't be stopped. So one of the consequences of this is that like, no your customer goes out the window. And I think there's some people who will say, this is a negative development, because, you know, there's a reason why some people are shut out of the financial system, you know, if you're, if you're some kind of a terrorist or an illegal smuggler or whatever, or some kind of criminal, you know, you're trying to kill people for profit, you're in the mafia, or something like that all of them will have access to this financial system. So, you know, is that good or not? Well, I mean, I also think there's some people who are shut out of the financial system who shouldn't be shut out of it, whether they're from a country where they don't belong, maybe they're also being targeted in that country as like, you know, the country calls them a terrorist, but really, they're just kind of a political dissenter. And so, you know, hey, this could legalize political dissenter in regimes where they're, they're not allowing that and they're trying to cut those people out of the financial system, this gives people a way out.
So it is a great equalizer. And I don't know, maybe the world will be better, without the, you know, where all these things can be done anonymously and globally. And without the ability to, censor capital, going back and forth around the world of different types. So, but I, so that's kind of what I hope. I think it's not without some downsides, like, there will be some downsides to that. But I think it will be more upside than downside. So either way it's coming. And I think it's pretty exciting. And it's something that I would like to follow as we as we continue to follow these stories in The Local Maximum. So you can also check out this book, I'll put it on localmaxradio.com/167. It's called How to DeFi by Coin Gecko. Also, a good wallet for this is MetaMask wallet, you could download that on an iPhone or Android. You can try a lot of these things out. And if you're interested, I suggest you get the book and try it out in small amounts and see how it goes. But, obviously, be careful people because it's a lot easy, it's very easy to screw these things up. But if you do experiment with small amounts, even if you screw it up, then you'll learn a lot. And you know that knowledge will, I know, be extremely valuable to you in the future.
All right. So that's it for today. Next week, well, I have a couple things in the pipeline. I have an interview on augmented reality, which I'm really excited about, you know, urban context, but maybe I'll fit in a news update with Aaron in the meantime, we'll see. All right, have a great week, everyone.
That's the show. To support The Local Maximum, sign up for exclusive content and our online community at maximum.locals.com. The Local Maximum is available wherever podcasts are found. If you want to keep up. Remember to subscribe on your podcast app. Also, check out the website with show notes and additional materials at localmaxradio.com. If you want to contact me, the host, send an email to localmaxradio@gmail.com and have a great week.
