ROLLUP: AI Threatens Crypto Security | Tom Lee Stops Buying ETH | Ethereum L2s Shut Down | Zcash ETFs

0:04 Bankless Nation, it is the second week of Downtober. It's the week we roll up. AI is breaking math. Will it break crypto as well? We're two weeks into October and blockchains are breaking, according to Justin Drake. Not yet. Not yet. Who is calling for a mass migration of funds to more secure wallets and also tells everyone, don't panic.

0:28 Crypto perhaps may be less safe than we once thought. It's all AI's fault. If you're wondering what's going on, it's AI and people are panicking. Oh, my God. That was a doozy of a tweet for sure. David is live in Singapore, by the way. We should say that. So at the end of today's episode, we're going to talk about token 2049 and what David saw there.

0:49 Did he see the end of cryptography? No, that was not a topic of discussion. Well, I was going to ask you if you saw Tom Lee. He gave a session at Token 2049. Some news from that is he's going to stop buying ETH after he collects his 5%. He's almost there. That's the hard cap. That was a question outstanding.

1:08 He answered it on the week. We'll talk about what that means. Also, two Ethereum L2s, six feet under. They are deader than dead. Abstract and blast. And maybe Starknet next. Let's talk about that too. StarCnet is not dying, but there is a question about whether they will move off of the Ethereum layer one due to the quantum concerns.

1:29 It all kind of comes back to quantum. Is that really why? I thought it was for token price. No, no, no. Okay. That was why. It's like StarkNet is already quantum resistant, and so they're like, okay, well, our base layer's not, and Justin Drake is saying, get off, like, go move to safety. Yeah. And so StarkNet's like, okay, we'll take Justin Drake's advice.

1:52 We'll become a layer one. Anyways, let's get into the markets. Uptober is not a thing yet. We are still in a downtober. Sure. For the first eight days. Bitcoin down about 3% on the week to $82,300. ETH down 6% on the week to $2,500. And then the altcoins are, the ones that were up bigly are down bigly as well.

2:16 Yeah, altcoin flush does continue. I think you noted Zcash down about 13%. Venice down 17%. Athena down 17%. So coughing up some of those gains from August and September, aren't we? I believe last week we talked about how they were already down in the double digits. And I said something along the lines of, if this was all that it was, then it's pretty easy.

2:40 We're getting off pretty easy. Thanks for saying that. It was not all that it was. Yeah. Yeah. I think what's really going on is if we could just take last week's section, Ryan, about yields are up and oil is up. We could just copy that from last week. Copy paste. Extrapolate the lines. Extrapolate the lines.

2:58 Except it's kind of worse when it's like six weeks in a row now of like high treasury yields and high oil prices. We said this exact same line last week. Highest treasury prices since 2002. The 10-year hit 5.3%. The 30-year is at 5.7%. You know, it's one thing when you're just like noticing the market like and the yields are going up.

3:24 Like, oh, wow, yields are going up. This is different. This is starting to be a little different. I think the market, both crypto and the trad market, is getting kind of jittery just because like, okay, that's too fast. That's too fast. It is pretty fast. Something's going to break. I think another place this comes in is if you're trying to get a mortgage.

3:39 So I don't know if you've been trying to get a mortgage lately, but... I have not. Anytime I've tried to get a mortgage over the past 10 to 15 years, I mean, the rates have been, you know, 3%, 4%, something like that. Yeah, favorable. Now you're trying to lock in a mortgage, a 30-year fix in the U.S., 7.5%.

3:57 That's all downstream of treasuries. I feel like the housing market is going to feel some more than jitters in the short term. I mean, in the 1980s, we got into the double digit territory for a mortgage. Can you imagine locking in a mortgage at like 11, 12% a 30 year? You have to be really into buying a house.

4:17 Why would you buy right now when you could just rent? Yeah. Well, that's kind of the maybe the bullish take on the yields. And it was a take that you like to see. I think you included in the agenda because of that reason, which is if you own treasuries. So let's say you're a whale, you're an institutional investor, you have treasuries, you're actually receiving that yield in the form of cash.

4:38 They have to pay tax on it, of course. But here's the take. Higher rates inject more money into the economy. That money gets allocated to equities and the effects of passive management drive valuations higher. So all of those yields converts to cash. Investors take that cash and they plug it right back into equities.

4:56 And maybe that's part of the reason we have S&P, NASDAQ, all-time high. At least that's one explanation of it. I'm not sure that I totally buy it. The other thing that I always kind of just think of it when yields go up is like the whole Bitcoin, the basic Bitcoin thesis of the government can't pay its debt.

5:16 When yields are at 5.5% versus what we were used to at like 1% or 2%, that becomes true five times faster. So if it's like the debt that the government has to pay, which... creates money printing, which creates liquidity, is accelerating. Now, a high yield environment historically has not favored Bitcoin, but nonetheless, this is ultimately accelerating the whole debasement trade.

5:39 I mean, historically, it hasn't favored stocks either, yet yields are going higher and stocks are at all-time highs. So we might be just in a, I mean, we talked about this last week, but we've been in kind of the low yields regime for a long time, the Zerp era, that sort of thing. We might be transitioning to a totally new regime.

5:57 Oil also broke 100 on the week. Why? Yeah. Because of no new regime. You like what I did there? Sure. Yeah. Okay, why? There is oil flowing through the Strait of Hormuz, so the data about the actual oil flow is like the Hormuz is seemingly open, but I think it's just insurance costs. of the oil is really, really high.

6:20 So even though oil is flowing, it is still expensive to insure it because Iran is still taking its attempt to strike at tankers as it goes. And so even during the actual height of the conflict, there was only so many days when oil was above $100, and we are once again above $100 for a barrel of oil. So we've got some headwinds in macro in the form of possible yields.

6:45 It's a tough environment. It's a tough environment. It's a tough environment. At the same time, Bitcoin is not yet capitulated. I mean, you said we're only down 3% even with these headwinds. We are having a normal mid bull market flush right now. That's right. ETFs down on the week. I mean, I had a pretty red day, the most red day in Bitcoin ETFs since October.

7:06 But on the other hand, Robinhood added $25 million worth of Bitcoin to their balance sheet, their first purchase ever for a crypto treasury. The reason, they said, was to align our company and vision with the crypto community. So there's not a lot of money against a $100 billion market cap, but it is symbolic, right?

7:28 It's like if you're with us, you own some of our bags. Yeah. I hosted a panel with Johan, the man featured on the page right here, and also with Joseph Lubin on stage. And I asked Johan when he would be allocating $25 million of ETH to his balance sheet. He kind of filibustered me. So you didn't get a yes from that, huh?

7:49 I didn't know. He did not. I did not get confirmation that they would be doing that. Well, some key levels to watch, according to my quant, Michael Nato, he actually is pretty bullish Bitcoin structurally. He doesn't think we go under $78K Bitcoin price. And he's not worried until we drop into the 60s.

8:09 Of course, if we drop below $66K, it's donezo. Yeah, it's already a little late. Like, oh. Okay, if it drops below $66,000, I'll sell it $82,000. No, it doesn't work like that. And he does think a key on the upside trigger point is if we get past 90 into the 90s for Bitcoin price, it's looking pretty clear to get all the way to $100K.

8:32 So that could kick off a wave of speculation. So maybe there's still hope for Uptober. What's he say about Zcash? Did he say anything about Zcash? He's bullish Zcash. He's got price targets for you too. I am bullish Zcash. I will give a little bit of a teaser of my takeaways from token 2049. I am bullish Zcash.

8:51 Even in the face of AI that's going to break cryptography, David, Zcash might be going to zero along with everything else. Exactly. Well, not beyond mostly privacy, but also exactly because of that. Dude, if... AI breaks our cryptography math. Privacy is donezo, man. It's gone. We won't have privacy anymore.

9:13 No, Zcash has already got, like, it's already working ahead of. Quantum secure, but not secure against AI superintelligence breaking math. At least that's what I understand. We'll get to that later, okay? Let's be bullish right now. Let's be bullish in the meanwhile. I'm trying to be bullish. You're making me, you're trying to make me not bullish.

9:31 I'm bullish. I'm bullish. Let's talk about a question that's been outstanding. I know as early as or as recently as last August, you had Tom Lee on Bankless. I think you asked him this question, right? You asked him, hey, Tom, you almost have 5% of all ETH supply. That's what you said you would do. Are you going to buy more?

9:48 What did he say back in August? What will you do when you hit 5%? And he basically didn't give me a clear answer. He's like, we will consider it in 2027. We're going to slow down on our way there. But he did not close the door on 5%. He kind of left the option open for him. Well, I think he's a bit ahead of schedule because it seems like he's decided.

10:11 This is what he said at token 2049 on stage and answer that question of will Bitmine acquire over 5% of all ETH supply? Let's play the clip. Currently at 6 million. That took us a little over a year. We thought this would take five years. It took us a little over a year. More importantly, we did this all in the middle of a bear market.

10:33 Okay. So we bought ETH. Well, no one wanted to buy it. We were glad to buy it cheaply. We bought a lot at $1,500, but it's in the middle of a bear market. And now we're going to stop. We only need to get another $100,000 ETH to get to 5%. That's it. He said, now we're going to stop. We only need to get another $100,000 ETH to get to 5%.

10:59 They are 98% of the way there. So they're going to finish that way ahead of schedule. He said he thought it would take him five years. It took him one. He purchased all this ETH in the bear market. He's pretty comfy with his position. He's not going to buy more. He's just going to let it ride. He also said this.

11:20 He gave last year at Token, he gave some pretty crazy price predictions. He kind of doubled down softly on those price predictions in this talk to say, now that we're done stacking in front of a 25X move, okay, so 25X times 2,500 ETH, I think we're at like 65K ETH price. So he's not relaxing on his incredibly bullish price predictions for ETH or the asset, but he is saying, I am done purchasing ETH in the BitMine vehicle for now.

11:55 What's your take on this? Yeah, it doesn't quite square if you're telling me that ETH is going to, what did he say, like a $50,000 market cap? 65K. 65K, but he's going to stop buying it? Like if you do believe that it's going to a $65,000 market. And you also happen to have $643 million of cash on hand.

12:21 Okay, okay, whatever. Also, he has $643 million of cash on hand, and it's a $13.6 billion asset. Where does he get all of the cash? I don't know where he gets the cash, okay? I think he's connected right to the money printer. The cash just appears. He's got the cash. I remember a couple weeks ago, I was saying, like, I really like the idea of BitMine equity because...

12:46 Clearly he has money just appears in his hands. He buys ETH with it. He's done buying ETH. He's going to use it to either invest in stuff or buy back BMNR, which he is a huge shareholder of. Well, he actually answered that because there was a lot of discussion about this in the aftermath, as you can imagine, a lot of speculation.

13:04 You know, some people said what you said, which was this was a take from a trader. I think you deleted the tweet for Krugman. You know, the tweeter. Yeah. Tom Lee thinks ETH is going to 250K or higher long term, decides not to buy any more after 5%. What is he doing? Right. Kind of mocking that, like, if you were really...

13:20 bullish on these numbers. You'd actually continue to buy. Lex node had a kind of more of a galaxy brain read on this, which is this is bullish. Actually, he said 5% is the materiality threshold for public companies under 13D. So what he's talking about here is a law in stocks that if you if you own over 5% of an asset, that's kind of the legal line where the buyer stops being just like a general investor and becomes more of a regulated asset manager, a disclosed watch entity.

13:53 So that could be part of the 5% rule. But in Tom Lee's own words, someone just said, okay, what are they going to do with the 5%? First of all, If you want to keep 5% ETH and you're staking almost all of it, which they are, you actually have to sell ETH. It's interesting. The BitMine vehicle becomes a net seller in order to keep within the 5% range.

14:17 Not a huge amount, but anything they stake that gets above 5%, they would have to sell. And he said, this is what Tom is going to do with that $600, $700K million, I should say, in capital. Buybacks? scaling out their staking infrastructure, it's called Maven, and then outside ETH investments. So things like Mr.

14:37 Beast, you know, they invested in Beast Industries, data center stuff, they did something with WLD, so all of these other investors. And Tom Lee basically said, yeah, that's exactly it, is exactly correct. We're going to maximize shareholder value and do those three activities. Okay. I, as an investor, I'm just interested in like, okay, if I buy BMNR, do I just have a share of this money printer that he clearly has?

15:06 That's kind of where my analysis just stops. Do you like BitMine as an investment then? I mean, it's pretty impressive what he's pulled off. But still, the BitMine investment is still very much the ETH. investment. I know you've had a question. Maybe talk about BitMind, talk about ETH. You've had a question.

15:23 Who is the next buyer of Ether after Tom Lee? And Tom Lee just answered the question. It's not going to be me. It's not me. I'm done. I'm done buying ETH. I'm done buying for now. So somebody else has to take it from here. It's kind of like Tom Lee swooped into Ethereum. He's like, all right, guys, I got this for a little while.

15:41 And now he's kind of not like he's leaving, but he's just like, OK, you got to take it from here. I'm So somebody else comes and buys it after me now. Yes. So who's that going to be? Are you more bullish on Bitmine than you are ETH? What's your take on this? I'm more bullish on Bitmine than I am ETH.

15:57 I do think Bitmine, BMNR will outperform ETH. Simply on the fact that he has a goddamn money printer. And so, like... I don't have any better explanation for it. And he has, I think, like I said, I think he respects his equity in contrast to Michael Saylor, who dumps his equity to buy back, stretch, and Bitcoin at the earliest sign of an MNAV.

16:21 And so I think BMNR, I think, does appreciate in an MNAV because the MNAV game is over for Bitmine. That's what he's saying if he's not buying anymore. Well, he's talking about specifically buybacks. What are they going to do with the cash? Buybacks. That's good for shareholders, Bitmine shareholders.

16:38 So the BMNR MNAV to its ease holdings is going up here on forward probably. All right, coming up next, we got to talk about, Justin Drake calls it bunker mode. Crypto might need to go bunker mode because AI is doing math. It might break some of the crypto underlying our blockchain systems. That was the story of the week.

16:57 We got to talk about that and all of the implications. But before we do, we want to thank the sponsors that made this episode possible. I've been trading crypto for almost a decade, and I've used so many different wallets, exchanges, aggregators, or front ends. And I'm basically always looking for the same thing, just one interface with a deep liquidity across a bunch of chains and assets, where I can access markets like perps, earn yield, trade confidentially, and still control all of my funds.

17:21 And I've never really found it. And I'm just always switching wallets, juggling gas fees, or getting eaten by slippage. But near.com feels fundamentally different to me. I can do anything I want from any chain and keep all of my activity confidential. Crypto, tokenized assets, perps, payments. I can even earn yield confidentially.

17:38 One account, over 30 chains, confidential by default. It's the way that crypto ought to work. And it's powered by near, which has moved over $30 billion cross-chain, uses post-quantum signatures, And that's run over five years on mainnet with zero downtime. Near.com is the best way to be on-chain and be in control.

17:55 Get 20% of your trading fees back on near.com using the Bankless link in the show notes, not investment advice. Bankless Nation, we've built something for you. Introducing the Bankless MCP. ChatGPT and Claude are great at a lot of things, but ask them anything beyond the basics of crypto about protocol mechanics, tokenomics, or just what happened last week in crypto, and the gaps will start to show.

18:16 The problem is context. Bankless, on the other hand, has spent almost a decade building one of the deepest archives of crypto data anywhere. More than 2,000 podcast transcripts, 10,000 articles, and countless conversations with the people actually building this industry. And now we've structured all of that data into the Bankless MCP.

18:32 So you can go and connect it to your cloud or chat GPT and suddenly your AI can answer your crypto queries with the entire Bankless archive behind it. And every new Bankless article or episode gets added automatically. So the context keeps staying up to date. The Bankless MCP is exclusively available to Bankless premium subscribers.

18:50 So you can go to Bankless.com, upgrade to premium and connect the MCP in just a few minutes. And all of a sudden your crypto queries to your AI LLM, whatever you use, will get a thousand times better. So go check it out. There is a link in the show notes. And once you become a Bankless Premium member, you can hop into the Bankless Discord and let me know how you like it.

19:05 Cheers. Justin Drake this week tweeted out a tweet that just shook the entire crypto industry. It's a long tweet, and I will read out some select excerpts Today, I call on the blockchain industry to calmly begin planning for bunker mode, in quotes. My personal recommendation is to set in motion a controlled mass migration of assets to fresh addresses, i.e.

19:30 addresses whose public keys remain hidden behind a hash. Holders starting with large and sophisticated ones should consider moving the bulk of their funds to addresses that have never signed a transaction. Don't rush. While I believe that there is cause for action, a rushed migration would do more harm than good.

19:48 Don't panic either. Moving assets to protected addresses is a simple preventative step, which does not require new cryptography or new wallets. In my opinion, it is now reasonable to brace for the possibility that ECDSA breaks before Q-Day, before Quantum. What? In the worst case, months, not years. And by break, I mean fast private key cryptography, as in you can break a private key inside of one week on available hardware, i.e.

20:18 a large GPU cluster, which, by the way, we have been investing in those heavily all across America for two years now. Wait, what? Yes, okay, so that is what he is saying. That is the action that he is calling for, is that if you are having your funds in insecure wallets, E-D-C-S-A wallets, you should move your funds to wallets that don't use that cryptography.

20:39 Hold on, can we just define what that is? That is at least 25% of all Bitcoin, okay? Yeah. Which has a public key on chain somewhere. Okay. And that is also all Ethereum addresses that have a transaction outbound from them, where there is a signed transaction of funds moved from the address. So not a fresh address where it's just deposits in, but any address that has an EOA address that has deposits out, that would be susceptible if ECDSA broke.

21:19 And then also all Solana addresses too. Yeah. So I'm sure there's many, many, many more blockchains beyond that as well. OK. And now we knew this was a possibility with quantum. In fact, we had Justin Drake on Bankless two years ago and then with recent updates about kind of the quantum threat. And that's why the whole lean Ethereum roadmap exists.

21:43 And so quantum at some point, maybe 2030, as early as that, could start to break our cryptography. Yeah. He's not talking about quantum right now. He's talking about something else that could break this cryptography. Normal-ass math. Just normal math. How? What is the vector that he's talking about? What did Justin Drake see?

22:08 Let me go back right into his tweet. So once again, from Justin Drake, recent days have been humbling for human mathematical intuition. Long held unquestioned hypotheses have fallen. Wow, really big words. Yesterday, OpenAI dropped a bunch of solved math problems. And so we'll get into that in a second as soon as I'm done reading this section.

22:30 So back to Justin. Yesterday's OpenAI drop made it clear that mathematical super intelligence is upon us They say there are weeks when decades happen. We are about to live through weeks where centuries of mathematical progress happen. Could our magic 64 by ECDSA signatures be too good to be true? Was it just security through obscurity this entire time?

22:53 Elliptic curves feel especially vulnerable to superintelligence. Okay, so let's get into the open AI news. So on Tuesday, OpenAI released to mathematicians hundreds of new findings that span a wide swath of topics, including algebra, number theory, theoretical computer science, and mathematical logical topology.

23:13 This is kind of a continuation down from the Millennium Prize problem, the Navier-Stokes Millennium Prize problem. Well, it sounds like OpenAI was like, hey, we just solved that really big problem. Let's go take care of... 377 also medium to medium large problems. And the rate at which they just solved all these problems downstream of the Navier 6, it was just, it all happened so incredibly quickly.

23:38 Yeah, I mean, it turns out AI is really good at math. It's a verifiable domain like coding, and it can spend tens of thousands, even millions across agents of hours on individual problems and just solve things very quickly that human mathematicians haven't had the time, the skill level to actually solve.

23:58 And so I think when Justin is seeing information like this, where 377 unsolved math problems are now solved, he is kind of just extrapolating into the future and saying, I think that's right. But I also think that he has more in like, more behind the scenes sources and insights than just the open AI disclosures.

24:24 Probably, probably. Yes, he is an insider in the world of quantum, certainly because he was connected to the Google Quantum team. To me, I also think he could just be kind of vanilla extrapolating the normal progress of AI, which is very, very fast. And it's not just a quantum issue, but it's the parallel path of there are normal classical computing tricks that you can do to accelerate breaking cryptography in a brute force way.

24:55 And using AI, there potentially are more tricks right around the corner. And when we have an industry, a $3 trillion industry, he's saying, okay, the largest ships that need to turn, the coin bases of the world, the fire blocks of the world, the custodians, the bit gets, the bit goes, all of these people need to start thinking about this problem now because it might take them six months, a year to turn their ship.

25:24 Well, it will take them that long. I mean, Ethereum's roadmap, right, which solves a piece of this, is what, earliest 2029, something like that, like 2030. And so what this means is super intelligence, like AI getting really good at math and what is cryptography, it's just math, could actually break some of the signature schemes before that.

25:51 and before quantum. It was like almost like two years ago, 18 months ago for some folks, there was sort of a wake up call that quantum is on the horizon and could fundamentally break blockchain crypto cryptography. This is like a second wake up call from a different vector of attack that could result in the same or a similar outcome, which is breaking underlying cryptography.

26:16 That's what Justin is saying here. And I don't know. I think he has reason to say that. I think it's more than just an extrapolation of just kind of seeing, oh, like AI is really good at math. He is deep in cryptography circles. You know what I mean? Like in the same way he was deep with quantum. I think there's a reason he is tweeting this out now.

26:38 And it also seems backed up and coordinated, like Vitalik put out a tweet about this. Did you see Matthew Green Matthew Green is the most credible evidence to me that what you are saying of just like this isn't just like Justin Drake waking up on a Thursday and deciding to like pull the alarm bell. Read the tweet.

26:56 What's he say? Matthew Green is a cryptographer that we've had on the podcast once before. Very prestigious cryptographer. And he just tweets out very casually. I think we might lose public key cryptography. Which is wild, which is wild. Yes. And he says when people ask, okay, what do you mean? Well, encryption specifically, maybe not all of it, but encryption, we lose encryption.

27:23 That means all HTTPS stuff, okay, banking, email, health records, passwords, signal, WhatsApp, iMessage, all that stuff could be decrypted. Card payments, ATMs, all that could be forged. I mean, this is, Broader, obviously, than just blockchains. If we lose encryption, we lose all of that stuff across cryptography.

27:47 And Matthew Green, he's not even in the, he's in the crypto industry, but cryptography industry, let's say, he's not cryptocurrency. And he is validating this claim as a possibility as well. Yeah. Yeah. Nick Carter put out an interesting tweet where he says AGI and Q-Day could probably take place in the same year.

28:06 So these different paths of threatening to the security of our cryptography, they're separate, right? So like AI is accelerating both of these, but nonetheless, like the underlying... push is AI is accelerating classical computing tricks and also quantum tricks. And if you can do one, you can definitely do the other.

28:25 And so it's kind of like, God damn it. Like there's no, there's no like we're, the AI is just coming at us no matter what. And, and things are, are going to break. I feel like that's probably potentially why the market is dumping today. You could argue like the reason why Bitcoin is down like 3% today and the industry is down even more is like, yeah, like Justin Drake scared everyone because he like woke people up to just the inevitability that things break because of AI.

28:53 Well, Arthur Brightman, he's the founder and creator of Tezos. Tezos, yeah. He made the point that it's notable that open AI is not saying anything about cryptography. And the reason they're not saying anything publicly could be tinfoil hat because they've already made some breakthroughs or are on the cusp of making breakthroughs and have to privately start to inform the rest of the world that these things are going.

29:22 Yeah. The words that he used, the lack of cryptographic results in open AI's breakthroughs could itself be a tell. So the 377 math problems, apparently none of them were cryptography related. But like that, that's a matter of national security. And we've already seen the government step in on the Google paper when Google released a paper saying, hey, we actually have found a way to get to Q-Day even faster than we thought.

29:47 And like the government made them like censor that, the information that they had. Right. So we've already seen this happen before. And so people are, there's a lack of information there. And it's giving people's imaginations room to like fear, to have fear and fear monger. And then also when you have Justin Drake saying, hey, don't panic, people are panicking.

30:10 Well, he's saying don't panic. He's saying don't panic. Right. And you could do that. You could step into the bunker calmly and slowly over time. But we're going into the bunker. Right. Like, yeah. Yeah. What he's actually saying... The bunker is scary. What he's actually saying is potentially all Ether on any EOA address that has sent ETH from it could be susceptible for this type of attack.

30:32 And so what is the bunker? Well, you actually have to move your funds into a key, into an address that's never been used before. That is massively inconvenient. And then also not... And then also not use it. Not use it. You can't use it while it's in the bunker. Otherwise, you explode the bunker. All right.

30:49 Nobody do anything on chain until we figure this out for like the next like. It's another. Honestly, it's another blow against self-custody, I would say, and on-chain usability. Because like now you're telling people like. Oh, yeah. The address that you thought was safe, that's actually not safe. You have to go like move funds, go tinker with it.

31:10 So, I mean, he might be right in raising this alarm. It's just like, it just kind of sucks. There's no way to like not have some level of being scared about this. Yeah. Now, there are some people pushing back against this take entirely, saying it's a bad take, saying it's actually FUD. This is the head of cryptography at Coinbase saying, I wasn't going to comment, but Justin's take is a really bad take, so now I feel like I need to.

31:40 He said the fact that AI can prove theorems that have... Ben Hard does not indicate in any way that problems assumed to be hard or not. Our assumption on hard problems are not based merely on human fallibility, but on a belief that inherent hardness exists. So he's saying like, look, in some of the cryptography, there's some things that are just like, really hard and doesn't matter how intelligent you are.

32:02 They might be like, I guess, physically impossible to break. I know there's a whole thread here and cryptographers can kind of get into the merits of this case. But he's saying like, don't go overboard. We like we don't know. You know, there might be some thresholds here that are just like more physical than, you know, than we, you know, the superintelligence can cook up a better algorithm to actually go solve these things.

32:27 Donkrad also pushed back and he basically said, forget bunker mode. Okay. If this happens, we're all going down. If the bomb goes off, it doesn't matter. There's nuclear fallout everywhere. It doesn't matter if you're in a bunker. Or, I mean, more practically, let's say ECDSA is broken. You've moved your crypto from one address to another, but the value of, like, because it's broken, the value of your asset goes down 90%.

32:51 Like, okay. Yeah. Yeah, yeah. Mert had a take that he just rejects Justin's advice. He says, you are way more likely to lose your money by superficially moving it around than for a fundamental cryptography to break overnight. And then to Donkrat's point, if that happened, the whole world would break, not just the coins, and calls it an unnecessarily performative post.

33:14 And further down, he also does make the point, and I've seen this kind of echoed in a few of my chats, that... Justin is a very competent mathematician and cryptographer. He is not, that has not had the best track record with timelines. That is not, that has not been his best skillset in the past. Uh, And so I'm trying to square these two things.

33:34 Like, if there's one person I know to trust about math, it's Justin Drake. It's true. And if there was one domain about timelines that he was going to get right, it would also be about math and photography. However, I will admit that Justin Drake's timeline projections in the past have not been the best.

33:51 Although he's been more right about quantum than just about anybody I can name in cryptography and that threat. And I think part of the genesis for Justin's tweet was to sort of accelerate the lean Ethereum timeline, really. It's just like, hey, this is the reason we need to get this right. Because there's a question, we know lean Ethereum fixes quantum.

34:12 Does the Ethereum roadmap actually fix this vector? And the answer to that question is mostly yes. Vitalik actually confirmed that this week. Lean has gone hash only, no lattices. Okay, so hash is less susceptible to this type of AI super intelligence kind of like breaking. Lattices are more susceptible.

34:33 And so Lean Ethereum is leaning into hash only cryptography rather than lattices. So that's a good thing. The thing is, we're still years away from that. Okay, so there's a gap here. We're years away. If Matthew Green is right, encryption could be broken. So this means, my understanding, not a cryptographer, is that privacy features just might not be possible on Ethereum.

34:59 So you could get the hash and the signatures and the blockchain would still operate. But say goodbye to private mempools. Say goodbye to any kind of secret private coin data. FHE. You could be saying goodbye to the privacy part of crypto, if this is true. Yeah. Which, again, I've not explored what this means for Zcash.

35:22 But anyway, it's a whole category of like, holy shit, like AI could really change this fundamentally. And we're just uncertain as to where the future is pointing to. Yeah, I feel like if this happens, like if something blows up and breaks in crypto land. Also, the shit's breaking everywhere else, too.

35:42 Yes. Like, the banks, HTTPS. Yeah. Like, cars are going to be hacked. I don't know, man. Like, I feel like the world's about to blow up now. Yeah, we're on the precipice of AI takeover or something. One reason, this goes back to something I heard Scott Aronson say. One reason to maybe that I'm not as worried as I would be otherwise is I think right before this starts to happen, you know, you'd see he told me like quantum's not necessarily as near as people say, because if it was, you start to see quantum researchers like disappearing.

36:17 Okay. And nothing like they would be slurped up by open AI by governments like, holy shit, like help us solve this. Yeah. Put into a literal bunker called the Manhattan Project 2.0, not sworn to secrecy, jailed if they jailed if they talk. Yeah. And then they would be compelled to solve the problem first of the government and then of society.

36:40 So I think that's a key. When you see notable cryptographers, maybe in crypto, maybe outside, start to kind of like disappear, like I'm working on something else. All right. Maybe that's when it's about to happen. We haven't seen that yet. What world are we living in, dude? I don't know. I don't know.

37:00 A world where some L2s are shutting down, though. A world with two less L2s. Potentially three. We'll get to that third in a second. Blast and Abstract both have announced the shutdown this week. A quote from Blast. The ongoing cost of maintaining Blast exceeded the revenue generated by the L2. We do not see a credible path to making the chain economically sustainable.

37:20 At its peak, Blast had $2.3 billion of TVL. Blast introduced the whole yield and points phenomenon, rewarding points for coming onto the chain. And now it's basically at zero. And it is at zero. So if you have any funds left on Blast, October 26th is your date. So about 20 days, less than 20 days, The layer one bridge contract will still work after that, but the UI, the UI withdrawal will be closed.

37:51 Abstract, quote from Abstract. After almost three years, we are saddened to share that Abstract is widening down. Operating chain focus exclusively on consumer crypto has ultimately proven to be unsustainable as a standalone model. This is Pudgy Penguin's L2, right? Their ZK Sync L2? Yes, that's right.

38:07 That's right. And they tried to do this and they just couldn't get product market fit. So they're shutting down as well. And then I saw this Starknet, Starknet tweeting out from official Starknet account. We are actively considering becoming an L1. This would enable Starknet to become the first quantum resistant network with 2027 as our target.

38:26 So Starknet, of course, one of the original L2s now tweeting out that they may become an L1 for quantum reasons. Yes. Yeah, like it makes sense in a technical way. Like Starkness tech has always been super far ahead of the curve and everything. That was a good pun. Ahead of the EDSA curve. Yes, that's great.

38:50 That was great. Pat me on the back. You're on fire, dude. Thank you. At the same time, like, okay, guys. You guys have been posturing about leaving Ethereum as long as I can remember. We're going to do it. We're about to do it. We're going to do it now. Just give us one good reason. One good reason. So granted, quantum is a very good reason.

39:11 So it's a good reason. But like, I don't know. I think token price might be a good reason too. I mean, they're seeing... Well, like, I think that... Of all the tokens that are like blood on the streets this week, the quantum tokens are up, including StarkNet. So there you go. And the L2 premium, that L2 trade, all of that is over.

39:30 I don't know. It's just the smoldering of kind of the remains of the L2 roadmap. I mean, well, remember, like this is I put this out this tweet. Somebody was asked this on Twitter and I was like, OK, but like Ethereum will literally pay for your security on your behalf and you don't have to do that. That still exists no matter what.

39:51 So the layer two business model is undefeated. And so if StarkNet wants to become a layer one, they're going to have to start to issue Stark and inflate Stark to pay for their own security. And why do you want to do that? Well, maybe because the token premium, maybe this is an empty threat. And maybe we'll see this again in 12 months time.

40:10 We might do it this time. They might do it this time. They may do it for real. Coming up next, this was a win for bankless values. FinCEN withdrew its unhosted wallet rules. This is a big deal. Something scary on the horizon. Also, David, I want to ask you, you've been down at token 2049. I want to ask you what the vibes were like.

40:30 what your takeaways were. We haven't gotten a chance to talk about that. So we'll do that after the break. Before we do, we want to thank the sponsors that made this possible. Some exciting news. We are launching a new podcast to help people figure out the crypto cycle, how to navigate it. The best crypto cycle investor I know, his name is Michael Nato.

40:46 He runs the DeFi Report. This is the guy that sent me a sell alert before the 1010 price drop happened. His cycle analysis has been absolutely on point. I've been following him for years. And this year we started recording weekly podcast episodes. Each one, we get into his portfolio, what he's holding, the market structure, entry targets, fair market value of Bitcoin and Ether, and where we are in the cycle.

41:08 There's new episodes that are released every Wednesday. They're 30 minutes. They're short. They're punchy. I think this crypto cycle is harder to navigate than most. So let's do it together. Go subscribe to this podcast. Search The DeFi Report wherever you get your podcasts. YouTube, Apple, Spotify, or find the link in the show notes.

41:24 There's a new episode waiting for you now. The Grayscale Zcash ETF passes $1 billion in AUM, which is kind of crazy because the market cap of Zcash is $21 billion, so almost 1 20th of the total supply of Zcash. Pretty crazy. That's Tom Lee's 5% in an ETF. That's Tom Lee's 5% in an ETF. In addition to the Grayscale Zcash passing $1 billion of AUM, the Winklevii also filed for their Zcash ETF, ticker WINK, Ticker her wink.

41:55 That's cute. That's cute. I think that's cute. I was going to buy it because, like, the Winklevii, they were early to Zcash. They believed in Zcash when, like, no one really paid attention to it. And then I was like, I'm not going to buy a wink. Because of the name? I'll just buy it. I'll just buy spot Zcash and put it in the shielding pool.

42:12 I'm not going to buy a wink. I can't do that. No wink for David. No wink for me. I mean, good, robust demands. Zcash has had an incredible year to 18 months or so. And just a pullback right now, David. But I know you remain bullish. Terrible week. Terrible week for Zcash. I am T-wopping into Zcash as we speak right now.

42:34 Not Wink, but Zcash. We got to thank a hero, a crypto hero who has signed off for her final time. This is Commissioner Hester Purse. Has she resigned or was this just the end of her tenure? What's happening? This was it. This was the end of her tenure. That's right. And she signed like a formal letter to the White House.

42:55 Is that to Donald Trump, I think? Just like thanking him. Yep, that's right. Just thanking him for her term there. And then she sent out another tweet saying, hey, thanks for everyone, including my haters. Did you see that? No, I didn't. That's amazing. Thanks for the many kind words over the past week and for the engagement over my time at the SEC.

43:15 Thanks to my many critics, too. Vigorous critics of government officials are part of what makes this country great. No more tweets from this account. Be careful out there. Investor.gov, which is the Investor Protection's website. Thank you, Hester. Absolute class act. Yep. The greatest public servant of all time.

43:37 I think Armstrong, Brian Armstrong summed it up well. He said, what a run. You were always principled, humble, clear, and kind. We were all better off because of your work. I think that is true. She outlasted Gary Gensler. Some wins. I mean, she sort of had the last laugh with respect to her proposal.

43:57 Do you remember she proposed the token safe harbor proposal back in 2020, ahead of her time. But that is basically the innovation exemption that happened in 2026 under Paul Atkins. So her policy and her plan, I mean, she had the patience and fortitude to wait it out and actually see it through to implementation.

44:22 Other than that, I mean, just what a first principles regulator, like we need more of those types of people in government, so... And she also like never cut us slack if we didn't deserve it. Like she wasn't like the crypto industry is not like bending over to Hester because she gave us everything she wanted.

44:40 Oh, we wanted like she gave us like responsible principled regulation. It was fair. It was fair. It was super fair. And in contrast to everything that came before her, that was like all we could ask for. Yep. I think she'll always be crypto mom. I think that's what it comes down to, too. She'll always be crypto mom.

44:56 That's right. That's right. Another win in the regulatory front was actually this. This is from FinCEN.gov, which usually has bad news for crypto. This press release was good news. It says this, FinCEN announces withdrawals of proposed digital asset-related rules. And people forget, we've talked about it a number of times, but these rules were left...

45:21 I guess, unimplemented, but still on the official books at FinCEN. One was a reporting rule and the other was a, let's see, a mixer rule. OK. And so these rules were first proposed in 2020. And. And this is what they would have required. So anytime you withdraw anything above $3,000 from a crypto exchange to your non-custodial wallet, the exchange has to verify the identity of the wallet before sending.

45:56 So full AML KYC, if it's a $10,000 move, then the exchange has to file a report to the government with your name, your wallet, your address, the amount. So the whole net effect is all on-chain wallets become AML KYC linked to a government database. They basically know where all of the addresses are mapped to.

46:20 And again, this is like Zcash shielded. Like, how do you even deal with that? I guess the government knows what addresses are shielded. And there was also a mixer rule that was in place that if any asset, crypto asset, touched a mixer of any sort for anonymization, like a tornado cash, it would be radioactive.

46:43 So no exchange could touch it. No bank could touch it. It would just be blacklisted assets. So that was on the books, just waiting to be implemented by some future administration. Okay. And then FinCEN just this week withdrew both of those rules. So said we're no longer pursuing those rules, which is a big win because we'd always talked about FinCEN and Treasury being kind of the final boss, the surveillance state being the final boss for crypto.

47:11 This is the final boss kind of like retreating a little bit into the background. So big win. one worry that I have is that with AI, you can just find out whose wallet that is anyways. Yeah. So what if they like just gave up on this because like, oh, with Chainalysis and... We already have that now. They already have all that information.

47:42 and they just got it for free because like what did Justin Drake say above he says about the cracking the cryptography he was like what if we just had privacy through obfuscation and this is like a big topic of conversation at token 2049 and AI and like the whole privacy narrative that's been happening in crypto is like okay There's actually plenty of doxing data out there, but it didn't really matter before AI because there was so much data that the human couldn't do anything with it.

48:15 Now we have AI. Now we have all the data that we need. Yeah, there's a big problem. I think AI shakes everything up. I mean, well, we were just talking about how AI could shake up encryption in general. And then is privacy even possible in that world if it starts kind of, you know, taking down our cryptography math?

48:36 But I remember Zuko came on the podcast and sort of made this point and he made it more... I guess ardently, he said that you can't have privacy unless you actually do this. You actually convert any value you want to store into Zcash without the intention to unconvert it ever. My question was like, oh, can you use Zcash as a mixer, you know, move some funds in there?

49:02 Go in and out, yeah. And then take it out in a month and you'll be fine. He's like, no, AI is going to get so good that it can detect any of these patterns, any of these signals. If you even think it in your brain, it will know you want to do it before you actually do it. And so the only way is having no intent to ever bring it out.

49:19 Now, someone could say, well, that's just Zuko pumping his Zcash bags. But I think there's also an element of truth there, which is like, if you have a fully intelligent AI, it's so good at pattern recognition, like what becomes of privacy. Totally. Actually, I met Zuko this week in real life. Oh, cool.

49:39 Yeah. Yeah. He's a good guy. He's taller in real life, as I recall. He's a tall guy. He's got to be like 6'1", 6'2". Friendly guy, though. Just as friendly as... Super friendly. Super quirky. Yeah. Super quirky. And that's saying a lot for a crypto conference, right? Yeah. Yeah. It was cool. Yeah. It was at a near dinner.

49:59 The other person I met was Naval as well. He listens to the podcast. You met Naval? Naval? Yeah, Naval. Yeah, there was a near... Naval Ravikant. Yeah, that's right. Actual living legend, Naval. Wow, that's a big deal to me. He was at Token 2049. Yeah, he was at this dinner with Zuko. And yeah, Mert was there.

50:20 Yeah, I think those were the big names. Okay, well... Yeah, it was pretty cool. Tell me more about... token 2049 as we close. So this is, was this the first time you've actually gone? What were the vibes like? This was my first token 2049. And the reason for that is just because token 2049 is just clear across the other end of the world.

50:38 Ryan, it is 12 in the afternoon for Ryan. It is 12 in the morning for me. Yeah, thanks, man. Yeah. clear across the world, which is why I've never really gone. But also, like, there's kind of no big crypto conference left. Like, this is kind of like the big one. It's coming to New York next year. It's coming to New York.

50:56 It's coming to New York in June. So I will gladly take the L to token 2049 in New York. Well, they can come to New York now because crypto is legal now in the U.S., Also, Dubai has recently gotten bombed. And so they are trying to diversify from just Singapore and Dubai. So they're also throwing in New York there as well.

51:20 So I'm pretty excited. So that being said, this is my first token. So I don't really have any frame of reference other than other crypto events. But I will say, crypto, very much alive. This event is huge, Ryan. Five floors, and there are people everywhere. And there are people evenly distributed all across the conference.

51:41 It was massive. There had to have been... maybe I want to say almost 20,000 people here. Wow. Maybe at least 8,000 to 12,000 at the actual conference itself. Just a massive conference. And I've been to so many crypto conferences. This one felt like a true amalgamation of all of them. Just like a perfect, it makes sense as to how token got so big.

52:07 It's like literally taking a bit of the good stuff from all good conferences and it's just like a bit of everything. The privacy tailwind, I think, is a huge topic of conversation. Privacy is a very big deal. I kind of think that that is going to be a reoccurring theme in throughout next year, as we've already talked about it on the podcast today.

52:27 So privacy is a huge topic of conversation. Hasib gave a very, very good talk. Remember when we had Hasib on the podcast, and he was like, humans aren't going to use crypto. AI is going to use crypto. Yeah. Because AI can't use credit cards. He gave a talk. He was like, I was totally wrong about that.

52:43 X402 is not being used. And turns out agents can totally use credit cards. That was pretty. But then it came into a conversation where AI is totally going to dox you. And you're actually going to use AI to prevent yourself from getting doxed. And so I think there's just a lot of tension and it's AI versus AI coming in the future.

53:04 It was a very big topic of conversation at this conference. And my other kind of big takeaway is like, I think Ilya from Nier is kind of a main character right now. Nier cracks the top 20, so maybe it's just like token price. But like he's building the AI blockchain and AI is a huge topic of conversation.

53:20 Well, that's notable. I mean, he's been pretty correct on both privacy and intense, building a product and cracking the top 20. Yeah. I mean, yours hasn't been in the top 20 since like 2021 or something like that. So it's a comeback story too. Yeah. Yeah. And then the other big takeaway was that like the conference was so big that somebody else's experience at the conference could have been totally different from mine.

53:45 It's in Singapore, which is like the world's greatest international waters port. Like that's what Singapore is. It's like it's a country, but it's like international waters as a country. So many different languages. This is the second time I've been in Asia. And so like it's crypto as an industry is matured enough to the point where like if you're into a specific corner of crypto, you could like never really butt up with somebody who's like in my corner of crypto.

54:11 And so there's like an emphasis on just like this kind of the size and dispersion. Dispersion is the word that crypto has really found recently. That's great. But also like the energy is good. Energy is good. Like people are bullish. So are you coming back bullish? I mean, some of the criticism of tokens past has been it's very sort of meme coin trader energy, kind of speculative.

54:33 Did you feel that flavor or did it feel like grounded and I don't know? More so than the Ethereum conferences, because that makes sense. More so than permissionless, because that's not really how when we were doing permissionless, that's not really how we let it. But yeah. Less than what you would expect to see from just like the crypto Twitter side of the world.

54:58 Like crypto Twitter is very, very meme coin focused. Meme coin had like one or two main stage slots out of like 30. So I wouldn't say it was overly focused on that. This looks very institutional. I mean, although you did have Don Trump Jr. I bet he was talking to some meme coins. Yeah. Well, it was just like there was standing room only for Don.

55:18 Do you see my tweet about it? I did. Yeah, yeah. I was kind of like throwing some shade. No, I would say it was very, very done up. And it was just kind of like a who's who. Like, Raoul Paul was there. Zoran Posner, that macro commentator. Oh, wow. He was there. Zoran was there? He was there. Yeah, is that his name?

55:36 Yeah, he was being interviewed by Raoul Paul. That was pretty cool. Wow. Yeah, and again, like, Naval was there. Balaji was there. Balaji's having the Zcash summit from the Network State summit. That's tomorrow, so I'm going to that. Yeah. Yeah, it was a huge, huge event with like basically everyone there other than you.

55:55 That's fine. I'm totally fine with that. Thanks for going for both of us. I guess let's end it there. Crypto is very much alive and well, but we'll see if we get an October for the rest of the month. Yeah, we got two more weeks for October. Bankless Nation, it's been another week. We'll see you in a week.

56:12 You know the deal, crypto is risky. You can lose what you put in, but this is the frontier. It's not for everyone, but we're glad you're with us on the Bankless Journey. Thanks a lot.