Preston Pysh (00:02:55):

Unreal. You guys did this fast. In my opinion, for them to pass the law, for them to roll out the wallet and then to roll this out just months later, I just can’t imagine how much work was being done behind the scenes. Let’s talk about the win for El Salvador. Let’s go through each of the entities that would be involved in this issuance, and describe why they have an incentive to participate in it. The first entity I want to talk about is El Salvador itself, what’s their capture in this?

Samson Mow (00:03:30):

Well, they get to raise capital without any external agencies like the IMF or World Bank being involved. They can actually take advantage of that technology that everyone’s been talking about for the past 10 plus years, Blockchain technology, and they can actually do a tokenized bond offering and cut out a lot of those middle men and intermediaries. Typically, or historically, when someone does a bond issuance or raise, there are a number of people taking cuts. Let’s say you did $1 billion bond press, you’re not going to end up with $1 billion, you’re going to be paying a lot of banks and intermediaries their cut, and you’ll end up with something at the end, depending on how well you can negotiate it. The terms are largely going to be dictated by these, I don’t know, global organizations that may not give you favorable terms, and they might interfere with your local politics and basically infringe upon your sovereign.

Samson Mow (00:04:30):

But this way it can all be done without that. And for El Salvador, in this case, they can lower their cost of capital. Historically their bonds, they’re averaging about 9, 9.5%. This would be reducing that cost of capital. They’re paying a far lower coupon with 6.5%. They’re also going to get every single dollar or every single set that people choose to invest. So there’s no middle man taking cut, Bitfinex is not taking any cut. So if you invest $100, El Salvador gets $100. And I think this is quite revolutionary, especially in bonds because usually it’s people feeding all the way down the food chain.

Preston Pysh (00:05:11):

I think something else to highlight here, and correct me if I’m wrong, so they get all those advantages for the raise. But then at the end of the 10 year period, here they are all this infrastructure, all this mining hardware, that’s hooked up to geothermal energy that they’re getting for free, and they get to continue to benefit through that hardware and that infrastructure in the perpetuity or until the hardware fails and they have to go do another round or whatever it might be. So, that’s crazy to me that they’re able to pull something like that off and build something out, if I’m correct, it’s $500 million is how much hardware they’re purchasing?

Samson Mow (00:05:52):

Right. The first bond, the Volcano Bond is $500 million for infrastructure and $500 million for buying Bitcoin. And I think a lot of people focused on the $500 million that will buy Bitcoin, thinking Bitcoin’s got to go up a number of times before they can repay or pay the coupon even, but they’re forgetting that El Salvador is going to have half a billion dollars of infrastructure after this. And that is directly going to build up their country. They can tap into those geothermal wells and build up more volcano mines. If they have excess power, they can sell that power to neighboring countries. They’re going to be mining Bitcoin constantly throughout that 10 year period. And this is just one bond. If they do a few more bonds, they could have a large stockpile of Bitcoin, not from buying Bitcoin for the bonds, but also mining Bitcoin. I think there’s a lot more at play here than people realize.

Adam Back (00:06:47):

Yeah. For context, the amount of conventional bonds they have outstanding at the moment is around $8.2 billion plus another $1 billion loans. So, depending on the Bitcoin price trajectory, we’ve looked at the median over the last seven years in the modeling, which is about 35%, that would see, passes no predictor of the future, but people involved with Bitcoin find that to be a reasonably conservative number. 10 years is a very long time in Bitcoin, and that would put a 10 year exit price at $1.2 million per coin. So you could see that between Bitcoin mining, Bitcoin price appreciation, potentially above that level, even see how it plays out, they could potentially basically wipe their sovereign debt over a course of a period like that, maybe across a few bonds, and build all kinds of infrastructure for the country and improve the infrastructure per capita, all of the economic wealth metrics basically for the country.

Preston Pysh (00:08:00):

And that’s based on the 35% median growth rate of Bitcoin that you guys used in your forecasting?

Adam Back (00:08:10):

We used like a range. We used 5%, 10% all up to 35% just to look at different potential paths.

Samson Mow (00:08:19):

And geometric.

Adam Back (00:08:22):

Yeah.

Preston Pysh (00:08:23):

So, me personally, I think 35% sounds extremely conservative. I’m obviously a Bitcoin bull here. I know when I’m looking at projections for my own personal position, I’m not necessarily using the median to do the calculation. I’m using a compound annual growth rate, and I’d like to choose any four year period because of the four year having cycle that’s built into the protocol. When I do those numbers, I get numbers and I’m not trying to oversell something. I know you guys are trying to come up with conservative estimates and here I am kind of blowing them out, but these numbers are triple digit returns when you do a compound annual growth rate of Bitcoin over any four year period you select. I don’t care what it is, pick the date and then go four years to the right of whatever that is and do a compound annual growth rate and your triple digits every single time, no matter what.

Samson Mow (00:09:13):

Well, I think at the five year mark, which is when the bond lockup ends, I think Bitcoin will be $1 million or so at that time. So in a few quarters, they should be able to recoup the initial $500 million that was used by the Bitcoin, and then start sharing that upside with the bond holders.

Preston Pysh (00:09:32):

Talk to us about that structure. We talked a little bit about how El Salvador really benefits from this. You’re starting to get into, if somebody’s going to buy the note and we can get into the reasons why they might buy that versus Bitcoin. But talk to this point that you’re talking about right now, that’s part of the terms of owning it, which is once they get their $500 million back, they then start providing a special coupon. Is that how you would term it?

Samson Mow (00:10:00):

Yeah. I think after the five year period, after the five year lockup is done, Bitcoin should be at a much higher level than it was when they first bought the Bitcoin. We modeled it out at $60,000. So, if it’s $1 million at the five year mark, that’s great, but it should be higher than $60,000 after five years, unless something’s wrong with Bitcoin. But at that point, they will start selling off. So the goal is that they would first sell off enough to recoup their $500 million. And once they’ve got that first 500 million down, they will start to share the Bitcoin upside with the bond holders in what’s called the Bitcoin dividend. So basically they’ll sell off every quarter a certain amount of coins. And then you, as a bond holder would get half of those coins.

Adam Back (00:10:47):

So in more detail, basically they are doing the reverse of dollar cost average buying, which they’re doing dollar cost average selling. So at the five year mark, there are 20 quarters left until the 10 year mark. And so every quarter they’re going to sell one-20th of the Bitcoin. Now they may keep their half of it because they don’t have to pay that out, that’s the country’s Bitcoin. And once they’ve recouped the $500 million, someone saying, however many quarters that takes, then they start paying half of that to the bond holder, but the Bitcoin bonus dividend is paid out annually in the following January. So there was as many as five Bitcoin bonus dividends calculated coolly, paid annually.

Samson Mow (00:11:41):

So you’ll get the 6.5% coupon throughout the whole 10 year period. But for the final five years, you’ll get added Bitcoin dividend. And if you follow the 35 year-over-year model, then I think you get 90%. So it’d be 90 plus 6.5 in that 10th year. And then if you go with the higher one, 40%, then I think it’s like 140% plus 6.5 in that 10th year. So the 10th year will be very nice for all the holders of the bond that actually held for 10 years.

Adam Back (00:12:14):

And of course, it will average out rate because, looking at Bitcoin’s price history, some years are good, some years are bad. So maybe your dividend will be higher in year eight, lower in year nine, higher in year 10, so forth. We would’ve to see how it works.

Preston Pysh (00:12:33):

Now, Samson, I heard an interview where you were on Bloomberg and the very first question, which I think is a really good question was, well, why not just own, why does a person not just go out and buy Bitcoin? Why would they want to buy this when they’re getting half as much Bitcoin in it? I know the answer, but I want you to explain this answer to our audience why somebody would own this.

Samson Mow (00:12:54):

Right. The bond is going to be different things to different people. To a Bitcoin huddler, maybe they don’t want to buy it. Maybe they just want to huddle Bitcoin forever, and that’s okay, but maybe you are a Bitcoin huddler and you want to get permanent residents in El Salvador and work your way towards citizenship. Well, you can look at the bond as a 25 plus percent discount off of that permanent residence, otherwise you would need to sell your Bitcoin for dollars effectively to get the PR, but with the bond it’s simpler, more straightforward. You kind of roll up the PR with an investment vehicle. If you are an institution, then maybe you cannot buy Bitcoin. That’s a bottleneck for a lot of big players in this space. They simply cannot due to their charters or mandates buy Bitcoin. And that’s why everyone’s clamoring for a Bitcoin ETF, specifically a spot ETF, because they can buy that, but those people could buy the bond.

Samson Mow (00:13:50):

And then you have the traditional investors in the bond markets that will just look at this purely from a bond standpoint and say, okay, the yield on this thing is great. And they would just buy that because they’re just comparing this bond to another bond, maybe a US Treasury note for 1.5%, and this looks incredibly attractive. But there’s a number of reasons why people would buy it. And it largely depends on how they view instrument, but it can be viewed from a number of different angles. You can even look at this as a Central Bank digital currency in a way. It’ll be a crypto-token that is going to be issued by a Central Bank and it has Bitcoin backing. It’s sort of like a CBDC written by a radioactive spider. You can look at it also in that light.

Adam Back (00:14:37):

Yeah. I was going to say that another type of buyer, you do see people, individuals who are interested in read about Bitcoin, philosophically interested to get some exposure, but they’re conservative. And they see big macro volatility year-to-year, and they feel they can’t handle that. That’s an alternative where other people do it the way around, they buy and then they sell, they panic sell in a big drop and they’ll lose money. And maybe they come back later.

Adam Back (00:15:07):

So effectively, this bond acts a bit like a capital protected structured product. So if people are not familiar with those things, they are typically a kind of three-year term product. This is obviously much longer. And you put doors or fear currency into it. You get some kind of defined economic outcome. If this lock index exceeds this level, by this date, you get this insurance premium, maybe some fairly high interest rate. And if it doesn’t, you just get your money back. So the punchline is you get this potential upside, or if that doesn’t work out, you get your money back. So it’s a kind of money back. I won’t say guarantee because there are typically, and the way these things are typically constructed is they’ll set aside maybe 85%, 90% of the capital, buy zero coupon bonds with it to rebuild to the 100%, and then they’ll do something highly leveraged with the 10 or 15% lift to get you your defined outcome.

Adam Back (00:16:13):

This is not constructed in that way, but it has a similar property, which is, other than the default risk, which arguably the Bitcoin component improves, you put money into it, you should get the money out at maturity, plus a 6.5% coupon and some Bitcoin upside.

Adam Back (00:16:33):

I’ve seen in the tour comments and there are lots of interesting questions. People saying, well, why wouldn’t you just buy Bitcoin? Well, the answer is you get a kind of money back assurance, modular default risk, plus a coupon plus some Bitcoin upside. And so, if you are a potential Bitcoin buyer, or if you have friends who would be potential Bitcoin buyers but don’t like the volatility, this is a way to get some upside and a pretty attractive interest rate. And arguably the Bitcoin part reduces default risk on the bond. And the default risk on some lower credit rating sovereignty implied to be pretty high. You can imply that by the implied interest rate from the current bond price.

Samson Mow (00:17:19):

Another buyer is actually, maybe the same profile that we have for the BMN. So we discussed the BMN on your show before Preston, but that’s the Blockstream mining note. So you’re effectively buying hash rate. It’s a securitized hash rate. But we also have large whales that are overweight in Bitcoin, and they want to de-risk a little bit of their portfolio, but still have that Bitcoin exposure. So one way they do that is to buy the BMN and then they can get back their Bitcoin effectively at the end of the three year BMN term. But this could also work in a similar way, if you’re a Bitcoin whale and you have thousands of coins, you can de-risk a little bit by buying the bond and you can still have that Bitcoin appreciation or special dividend after the five year mark.

Preston Pysh (00:18:07):

When I think about the Pareto Principle on the people that are going to be buying this, I think the majority of your buyers are the same people that are buying micro-strategy convertible debt. Knowing full and well that Michael Saylor was going to go buy Bitcoin with the funding that he raised and he just evidently went out and bought another 7,000 Bitcoin with another round that he just raised, I don’t think he’s still doing the convertible debt deals that convert into common stock like he was before for obvious reasons. But I see this as being a very similar audience where you’ve got somebody who’s chartered with a fixed income charter, and they’re saying that was literally the best bond issue last year, the best performing bond issue on the entire global market based on performance because of the convertibility piece to it.

Preston Pysh (00:19:11):

I suspect, and I’m very biased as to what I think Bitcoin’s going to do, but I suspect that you guys might have something very similar on your hands here that, as time marches on in your five years down the road, people are going to look back at this issuance and you guys are issuing it at a yield, the coupon on it 6.5%. I think you such a massive premium to own these things for the next five years, that the price is going to give you an effective yield of 1% on these bonds. Time’s going to obviously tell, but the people, going back to my original point, which was the audience, who is going to be buying these things, it’s going to be people that are chartered, who have a fixed income charter, and that’s all they can buy, but they want access to Bitcoin just like Michael Saylor’s buyers wanted access to Bitcoin in some indirect kind of way. Do you guys agree with this?

Adam Back (00:20:06):

Yeah. I think there’s a couple of things here. One is, this is a new type of vehicle for accessing Bitcoin aside from owning physical Bitcoin, the options of being public companies with Bitcoin on a balance sheet, micro strategy being the most famous and concentrated version of that, I guess. Another type being public mining stocks that are prop mining or hosting variance of that. And now this bond, which also packages in this different format, as you said, as a bond. And I think the other interesting thing is it’s a different audience. So funds that buy stocks are potentially a different audience to funds that buy bonds. And the bond market itself is very large. It’s over $100 trillion. So, if even 1% of that audience decides they would like some higher interest or to have some Bitcoin upside, that’s essentially market impactful move.

Samson Mow (00:21:15):

There’s also the segment, which is ideological, Bitcoiners that want to support El Salvador. Well, a lot of people want to do it, but there’s no easy way to it. How do you do that? This is a very simple vehicle, just buy the bond and you’re directly supporting the development and infrastructure build out of El Salvador from the ground up. And I think that’s a really attractive proposition. It’s just making it so simple to do.

Samson Mow (00:21:45):

I think we are at about 100 plus million in commitments just from the Bitcoin and cryptocurrency crowd here. And we haven’t even released the formal spec or formal prospectus of the bond yet, but there’s a lot of money that will come in just for ideological reasons. But going back to your earlier point, there is a lot of money, people that are buying mining stocks as a proxy for Bitcoin exposure, buying micro-strategy, companies that have Bitcoin on the balance sheet, both private and publicly disclosed, that’s like $85 billion ish right there. And I think there’s just a massive influx of capital waiting to come in that has no good vehicle to enter into this market.

Samson Mow (00:22:29):

One thing that you talk about Preston a lot is, Bitcoiners should be looking at the bond market. It’s $100 trillion, maybe $200 trillion market.

Preston Pysh (00:22:38):

Amen.

Samson Mow (00:22:41):

There’s a lot of Bitcoiners that are focused on huddling, but it’s important to step back and look at the bigger picture. One of the things that we try to do at Blockstream you is imagine building the future of finance on top of Bitcoin. And doing that is like hitting securities, like tokenized securities, like the BMN, like EXO and the bond market. That’s just right for disruption. And I think this is that first step to tackle.

Adam Back (00:23:06):

Right. I think part of what makes it an interesting moment in history to approach the bond market is the yield situation. Basically most of the bonds in existence are paying implied yields below inflation. And in many cases actually literally negative interest. So people will have a pressure to seek yield any way they can, and we’ll start to look at slightly more adventurous things. And say, this is a potential avenue for that appetite and it’s likely repeatable for El Salvador itself, and of course there are many countries that issue these kinds of bonds as well.

Adam Back (00:23:51):

This one, the issuer is El Salvador, the government, Blockstream is just technology provider and advisor and Bitfinex is the book maker. But there’s no reason that other more conventional book makers or underwriters couldn’t participate in similar things and expand it. I think as Samson said, the Bitcoin user-base has in the past raised over $1 billion to buy effectively a Bitfinex bond in a space of 10 days. I think this is easily achievable, but potentially the more interesting aspect is to slightly orange pill the YieldStar bond market, which is 100 times Bitcoin’s market cap, right?

Samson Mow (00:24:46):

Based on the price.

Preston Pysh (00:24:46):

Yeah. YieldStar might be the understatement of the year, Adam. I’ve been running around saying there’s not a single bond on the planet that has a positive yield in real terms. Well, this one has a positive yield by 25 basis points. You guys are the only ones that I know of. It’s coming out right now that’s does have a slight real yield, but when you’re accounting for the special coupon that’s associated with this boy, oh boy, you’re going to get some people’s attention.

Preston Pysh (00:25:16):

Samson, you had briefly mentioned about the citizenship piece to this, which I find really interesting. Talk to us about how that would work or how you think that it would work once it finally is issued.

Samson Mow (00:25:31):

Right. I saw a lot of people asking on Twitter too. I think there was a slide up on screen that was old slide when I was on stage with El Presidente, but it actually is not citizenship, it’s permanent residence, and then you can work towards the citizenship. But one of the key things with our bond proposal is we wanted to tie the two together. You can buy, I don’t know, a condo in Bitcoin city and you could work towards PR that way. But I think the bond offering is a simpler vehicle for a lot of people. You don’t have to deal with any paperwork of buying a physical property, you could just invest.

Samson Mow (00:26:08):

And I think at the time when they announced the PR citizenship path through investment, they put it at 3BTC, but I think the numbers have been fluctuating based on Bitcoin price. But so far to my knowledge, it is still denominated in Bitcoin. And I think we could do with some clarity on that front. I don’t really know exactly what the final arrangement is, but I do know that the goal is to tie the two things, so bond investment and then PR working towards that citizenship. And I think it’s a very attractive thing for people in the current world climate, people are looking for better places to go where they’ll be treated better.

Preston Pysh (00:26:50):

So not only from the citizens’ standpoint, the individual standpoint, let’s talk about the company standpoint. So Blockstream not based in El Salvador. I don’t know of any Bitcoin company that’s based in El Salvador, but I would imagine there’s a massive incentive brewing for companies to consider relocation or to stand up and then make it operational subsidiary of the business. Maybe you sweep funds lower or whatever. What are you guys hearing on that front? How are you guys thinking about that? You guys are $1 billion company, how do you guys think about this?

Samson Mow (00:27:36):

Adam, do you want to take it?

Adam Back (00:27:38):

Yeah. We are a preexisting company and we have looked at what it would take to relocate a company. I think the challenge is that can create a tax event for existing shareholders depending on their jurisdiction, but certainly for client funds operating companies like exchanges, particularly hedge funds, and we have a number of offshore subsidiaries for various purposes, like the Blockstream finance division has some incorporations. Those types of funds are often offshore anyway. So they are looking for a jurisdiction with respected financial regulations, some clarity that they can operate that kind of business. Of course, it’s all global. So you have to fit in with where the clients are as well. But a lot of crypto exchanges are incorporated in BPI, Caymans, Hong Kong, Singapore, it’s very global.

Adam Back (00:28:46):

I think there is an interest at the moment to bring the blockchain world into the securities and equities world hence the security token initiative. So we’ve been pretty early in that with the Blockchain Mining Note, Blockstream AMP. So there are a number of exchanges at the moment working on security token framework so that they can sell securities. There’s the Bitfinex announcement a while ago about them preparing to list the luxury mining note. So that requires regulatory work. So you can imagine that a number of exchanges might be interested in a forward thinking friendly jurisdiction as a shoe in for BVI or some of the other jurisdictions on table at the moment.

Samson Mow (00:29:37):

Yeah. In El Salvador right now, I know that Bitrefill has set up an office there and an entity. I think Paxful has also set up down there, and then Galloway, the organizer of the Adopting Bitcoin Conference. So Bitcoin companies are already moving to El Salvador, but that just brings me to another topic that we should touch on, which is the part of the announcement, which I think a lot of people missed was the securities law that we mentioned that Bitfinex is working on with the government of El Salvador and us advising. But that is actually a very big game changer. So to do the bond offering, they’re going to pass this new securities law, and this would allow them to issue the license to do that bond issuance to Bitfinex, Bitfinex will be the first one. But that actually is a very big step, creating modern digital securities laws that will be attractive to people, not overbearing and not outdated, that could potentially bring a lot more business to El Salvador.

Samson Mow (00:30:40):

I talked to another at crypto exchange yesterday, and they’re interested in being regulated out of El Salvador. And I think this opens a door to nation state competition, not just for Bitcoin, but to Bitcoin companies where they can provide this attractive regulatory framework and provide the right business conditions. If you look at Bitcoin city, it’s 0% to tax, 0% property tax, 0% payroll tax, blah, blah, blah, cap gains tax zero, these are very favorable conditions for doing business. And I think we kind of lost that element in the world, but this could kick off a war for business. And that is good for business because you’re going to get countries that are going to try to open the doors and be conductive, but potentially this could trigger, if El Salvador is the first one, that will give them a big advantage and it could trigger them becoming the new financial center of the world, much like Singapore managed to do that in the past.

Preston Pysh (00:31:39):

Let me dig into this more. I think this is a really big deal, what you’re talking about here with this securities law, because right now the plan is for you guys to go to Stocker, is that correct? In order to conduct this issuance of these bond tokens that are going to then go on the liquid network? And if El Salvador had a securities law in place, you could just go on the Bitfinex, create the token there, and you’re pretty much in compliance with the creation of the bond tokens. Is that correct?

Samson Mow (00:32:11):

Yeah. Stoker is the kind of the party we’re using to handle a lot of the legalities out of Luxemburg, because it is a Luxemburg securitization vehicle. The cool thing about Luxemburg is the chain, the liquid chain is actually the record of transfer, which is not the same everywhere else. That’s a unique thing of Luxemburg, but in El Salvador, the issuer is El Salvador. And if Bitfinex is licensed to be a securities exchange there, then it’s a very straightforward process. There’s no need for any intermediary.

Preston Pysh (00:32:46):

Now, if I’m on the Bitfinex exchange and I’m anywhere in the world that supports that Bitfinex is conducting business, I can now buy those tokens which were issued out of El Salvador, but with no friction because it’s being listed on the exchange, just like any other crypto token for the most part, but it’s an actual security that’s gone through security law out of El Salvador?

Samson Mow (00:33:14):

Correct. And it could be accessible, like right now, Bitfinex does not serve the US market, but a US broker dealer could potentially offer it. If they can get the tokens from Bitfinex, then they could sell to their user base in the US.

Preston Pysh (00:33:31):

Yes. This is what’s different about you guys. You guys actually follow the laws.

Samson Mow (00:33:37):

Yeah, we try.

Preston Pysh (00:33:39):

Compared to a lot of other different “projects” that are out there. Another person who’s listening to this is going to make the argument, well, there’s not clarity, there’s nothing saying we can’t do these things right now until maybe the SEC comes out and starts regulating things and puts out much clearer guidance. And you know what, I can buy that and agree with that. I just don’t think that some folks that are maybe, do I call it investing, in some of these other projects have an appreciation for how quickly or how swiftly something like that might come down the pipe. That leads me to my next question. What do you guys think is coming down the pipe from a regulatory standpoint here specifically in the United States from what you’re hearing?

Samson Mow (00:34:28):

Adam?

Adam Back (00:34:32):

I think the current regulations are not that clear. For example, the lack of a spot Bitcoin ETF seems pretty anachronistic. They’re all kinds of arguments presented, but basically the future ETFs, which they have allowed are relying on the very same price feeds. They’re arguing it for the surveillance and quality of the venues and so forth as to not have a spot price. There’s a US Senator that wrote letter to the SEC, basically saying this doesn’t make a lot of sense, would you catch or elaborate? So, there’s some and acronyms still a lot of inclarity about what exactly is considered to be a security. I think that people have been pretty clear that Bitcoin is not security because it was decentralized from the start. There was no kind of how we test like aspect to it whatsoever, but I’m not sure. It seems like the rest of it is a bit of an open question. I think it’s created a lot of employment for legal advisors to various past and current sort of ICO related or pre-mind coins and things like that with management teams and CEOs and selling internationally.

Adam Back (00:36:07):

So I don’t know, we’ll see how that plays out, but that’s one area, see a bit of discussion about stablecoin size, basically I think is the main concern. I’m talking about the fear back stablecoin, not the [inaudible 00:36:29] stablecoins, which I think are probably more risky. So the fear back ones are typically placing the raised funds in money markets or commercial paper and bank deposits and things like that, but in aggregate it’s over $100 billion. The regulators in the US are starting to realize, oh, that’s quite a significant proportion of those markets, if there was a sudden withdrawal of too many billion dollars on one day that could actually impact liquidity in those markets and flow through to other uses of those markets. That concern is just a kind of stability argument. And so, I see they have been talking about, whether stablecoin should be subject to some more bank-like, I guess, requirements on sort of stability assurances and all of the things that go into a bank, being able to meet its demands and also benefit from the central bank, implicit underwriting, if they fail which a stablecoin doesn’t have.

Adam Back (00:37:39):

Of course the bank has a completely different set of risks, which is they are explicitly fractional to a massive degree where, I think the stablecoins are, all the funds are there in money markets and things like that, so there’s no direct functionality basically, but they have a liquidity, a potential for sort of a duration mismatch, because they’ll have very short term things, longer term things, and banks struggle that kind of thing all the time as well. And they’ll have short term lending to bridge it. And I’m sure the stable coin guys they’re professional managing a pretty sophisticated operation there. You don’t manage $60, $70 billion worth of assets without knowing what you’re doing physically.

Preston Pysh (00:38:26):

Samson, I’m curious if you can talk a little bit more to the securities law piece. And from the context of, let’s fast forward three years into the future, what would be the impact if a Bitfinex or any others start setting up shop inside of El Salvador? You talked a little bit about the competition that would take place, but describe to us the world, as you would see it in two to four years from now, if the securities law does get passed through in El Salvador, and now you have this easily copy-pasted template in place for all the other nation states that have energy, geothermal energy, whatever it might be, natural sources in their country. It’s a similar setup as El Salvador, I guess is what I’m getting at.

Samson Mow (00:39:17):

Yeah. The great thing about having this new modern securities law is that it should, in theory, kick off competition for clients, crypto exchanges or Bitcoin businesses and the like. So it kind of reduces the impact or it might influence in a positive light, the regulations in the US, because now you’ve got to compete for business. So I could see if done right, this drawing all the major exchanges to El Salvador. You look at historically, where are all the big bank headquarters? They are usually in capitals of big financial centers. You have the HSBC buildings and the JP Morgan buildings and whatnot. You could have all these different exchange towers and headquarters in El Salvador, in San Salvador. You’d have the Bitfinex Tower, the BitMEX Tower, the Okcoin Tower, et cetera, et cetera, or Binex Tower. But this could be the big thing. This could be the last domino that puts that into place. Just having this competition for better regulations.

Samson Mow (00:40:29):

Even within the US, it’s even fragmented because with the bid license, Kraken and a number of businesses just vacated New York because they can’t do business there. But I think if you have a country willing to do business, business will come.

Adam Back (00:40:47):

I think there’s an interesting analogy to make for the adoption of oil, petrol, diesel and fossil fuels sort of discovery that you could make, combustion engines and that could be kicked off the industrial revolution, basically. So countries that were previously resource poor, suddenly realized they were literally sitting on oil wealth. And that was black gold were. This is potentially a new shift, which is if you have very efficient power sources, like a lot of solar power, geothermal from volcanoes, you can do sovereign Bitcoin mining, which is what El Salvador is already doing and plans to do more of.

Adam Back (00:41:44):

And then if you look at another oil related example, the Emirate in the UAE of Dubai ran out of oil, they fully tamped out their oil in that area of the country, I think in their 60s or 70s. And trying to decide what to do about that, because that was their source of prosperity. They embarked on a massive civil engineering initiative to build the modern city of Dubai, which is a pretty impressive collection of civil engineering, artificial islands, skyscrapers, all kinds of very glitzy model and stuff.

Adam Back (00:42:20):

And so, that was funded in a particular way. But I think the Bitcoin city has the potential to do something like that, which is a kind of if you build things in a modern forward looking way, you can attract massive amounts of outside inbound investment, which is what happened with Dubai. Dubai is also a very low tax jurisdiction, but they had a formula for ensuring the government got some stake in the upside because it was partly government owned. Dubai Investment Corporation was doing the construction. So, if you build the infrastructure for a new city, the government owns what was previously almost worthless land into a multi-billion dollar real estate holding company that’s sovereign owned. And then you can sell that or co-develop it with industry and bring inbound investment and create a nice, improve the living standard in the country, bring outside investment, bring more business locally.

Adam Back (00:43:22):

I think the other thing that’s kind of coincidentally helping at the moment is more and more people are going remote, people are working remotely anyway, that enables more people to work from an Airbnb in another country. Location becomes blurred. The prospect of upping sticks from San Francisco, Chicago, wherever people are at the moment, and off of the company moving to Bitcoin city, El Salvador, maybe that’s much as a big deal anymore if the tax incentives are right and so forth.

Samson Mow (00:43:54):

Your choice is really stay in the US and get tax on your unrealized gains or go to El Salvador, find the beach and-

Preston Pysh (00:44:04):

Not yet. Not yet.

Samson Mow (00:44:05):

Not yet, but it’s coming.

Preston Pysh (00:44:08):

Oh boy, that’s scary. Hey, so in the announcement, there was this idea, this Bitcoin city that was brought up. You hit on it a little bit earlier, did this kind of, because I think people saw the announcement and they thought that it was going to be funded through this mining note or the mining bond that you guys are working on. These are two separate things, correct? And kind of talk to us about what the Bitcoin city was all about with the announcement.

Samson Mow (00:44:41):

Bitcoin city is a new city built on the east side of El Salvador, and it’ll have its own airport, commercial, residential. It’ll be built next to the Conchagua volcano and powered by geothermal. It is basically a brand new city from the ground up. And it’s going to be, like we talked about earlier, zero tax on basically everything, just a VAT tax. And I think like Adam is saying, this could become something like Dubai, like a new mega city metropolis, but it’s going to be an interesting draw, I think like for Bitcoiners and companies just to go and set up there, it’s just a very attractive proposition. And with the Bitcoin’s legal tender and everything, that I think is just opening the doors for commerce. The success of the Asian Tigers is really they were open to commerce, they’re open to business, they’re open to capital influx, whereas in Hong Kong these days, you see it starting to close off. It’s harder and harder to even get a bank account in Hong Kong if you’re a new company just setting up just because of all the regulation and increased compliance and monitoring of transactions.

Samson Mow (00:45:54):

I think the key here is that El Salvador is embracing Bitcoin. They’re embracing sound money, and they appreciate that you need money and you need talent to have prosperity. It’s difficult to squeeze blood out of a stone. In the US, you’re trying to tax unrealized capital gains. You’re trying to squeeze that blood from the stone. I don’t think it’s sustainable or practical, but they want smart people to go and move to Bitcoin city, get PR there and work towards citizenship, invest, build, make money and be prosperous. And I think for some reason that whole mentality is lost to a lot of the world. And I hope that it does successfully take off.

Preston Pysh (00:46:35):

What timeframe are they thinking for this?

Samson Mow (00:46:38):

I think it’s a long term plan. It is meant to be a big city. It’s not like a little beach resort or town. So I would say it’s like a five to 10 year project, but things do happen very quickly in El Salvador as we saw with the Bitcoin Law, with their recent development projects, they’re able to move things and get them going very fast.

Samson Mow (00:46:57):

I think the first, actually, let’s go back to your first question. The first bond that we announced EBB1, El Salvador Bitcoin Bond 1, was earmarked for infrastructure energy. So potentially it could be building that geothermal plant on the Conchagua volcano, but the next bonds, and there will be more bonds. We kind of hinted at that in the announcement, would be to fund Bitcoin city. So EBB2 to 10 potentially could be to fund that development of that city.

Adam Back (00:47:30):

So they have, I saw in the announcement estimated the civil engineering to cost $17 billion. So how many bonds they actually have to issue to achieve that depends on Bitcoin price trajectory. And as it’s a long term project, the capital requirements that’s space out of time. So that seems a plausible approach.

Preston Pysh (00:47:56):

I would suspect that a US based fixed income chartered fund would have a difficult time purchasing this issuance.

Adam Back (00:48:08):

I think that because the issuer is a sovereign, it’s a little different. Usually the issuer is a company like in a case of the BMN1 that was Blockstream. Then there are securities rules around that, but a sovereign is, it can approximately write the rules. So it’s just down to the ability of qualifying investors and institutions globally to buy them. So other than the tokenization provider around it, it’s ultimately a bond. This kind of bond is typically issued international in a similar way. There will be underwriting bank. They will buy and resell it for their margin or guarantee some aspects about the sale and take a cut for doing that. And it’s international. So I think so long as that form factor is adhere to, that it would be viable, but that is really a specialist question, so people would have to talk to their [inaudible 00:49:16].

Preston Pysh (00:49:15):

To your thinking, it’s more the fund, the size of the fund, the access that they have to other markets and just how well they are?

Adam Back (00:49:23):

Yeah. The $100 trillion plus of this kind of instrument in the market, I have to think is mostly held by big funds, and internationally, I think it’s a global market. The issuers are different sovereigns, large companies and so forth. And the buyers are also international sovereign wealth firms, pension firms, et cetera. I think it’s already pretty global, and I’m sure that US firms buy bonds from all over the place.

Samson Mow (00:49:58):

It’s really for them to figure out if they can buy it. You saw when I was on Bloomberg, the host was adamant that you can’t buy these bonds, there’s Bitcoin in it. But these are just normal bonds. There’s a little bit of a Trojan Horse element, but they are normal bonds. And it’s really up to the investors to determine if they can buy it or not. If they can’t, then it’s their loss. But if they really want to buy an interesting product with a very high yield, they will figure out a way.

Preston Pysh (00:50:28):

The thing that I find fascinating about this is just the liquidity of it. These are being issued on the liquid protocol, and for all intensive purposes, if an owner wants to sell their token with another counterparty, then they want to do it at 2:00 AM on a Saturday night, they can do it. This is different than pretty much every fixed income instrument on the planet, correct?

Samson Mow (00:50:56):

That’s the plan. That’s the plan from day one to bring liquidity to bond markets. Traditionally, bonds are not that liquid. They’re trading on traditional exchanges. I think El Salvador has one that’s traded on Luxemburg Stock Exchange, but much like any other traditional exchange, you’re limited to no trading on bank holidays, no weekends, it’s a fixed amount of hours a day. But if you look at Bitcoin, in the US, I think we’ve accumulated 50 years of trading history. If you look at Taiwan, Bitcoin’s accumulated 80 years of trading history, just because it’s 24/7/365.

Samson Mow (00:51:30):

So these things are a major game changer in another way that I don’t think people have understood yet. First of all, it’s on the liquid network. If you are whitelisted and you’ve gone through the process to be whitelisted and can trade it, much like the BMN, you could trade it OTC. We have people trading the BMN in a telegram channel, and it’s just that people buying and selling all day long. It’s the same thing. Nobody will be able to stop the trading of these, even if it’s listed on Bitfinex and they have downtime, or if it’s listed on another crypto exchange and there’s downtime, people can still trade this outside of that system. It’s just unstoppable.

Preston Pysh (00:52:06):

How does the registration for something like that work? They have to know who holds the token, correct? So if I’m going to sell it to somebody, you have to register on complete the transaction, how does that work?

Adam Back (00:52:19):

The way Blockstream AMP works is it’s a multi-signature under the hood. And so, as a user experience, basically you set up a what looks like a Bitcoin wallet, and it has a liquid wallet option in it. And then you sign up for Stocker, which is like signing up for a bank account or an exchange account, or what have you, they’re going to ask you for various KYC, if that checks out and you’re in a jurisdiction they support, then you basically sort of connect it with your wallet. And now the wallet knows that you are whitelisted, but the wallet and Blockstream’s infrastructure behind the wallet doesn’t know your identity that’s retained by Stocker. Stocker is managing the shared registration agent and the KYC. And then after that, you can transfer peer to peer. You could deposit from your wallet into an exchange, withdraw from an exchange into your wallet, transfer gift, sell land, whatever you want peer to peer, and the wallet will only allow you to transfer if the recipient is set up, basically. That’s the experience.

Samson Mow (00:53:29):

There will be a massive pool of liquidity for this, because don’t forget, it is a bond, but it’s also a crypto token on the liquid network, so you’re going to be trading on exchanges 24/7. You’re going to be able to trade OTC, but there’s additional demand too, people right now, when they’re trading Bitcoin, they often sit in stablecoins. Well, instead of sitting in a stable, you could sit in a bond, or you could just buy the bond and use that as trading collateral to do margin trading. But there’s a whole world that is opened up to people that hold bonds now, just because it has these new unique properties as a crypto token.

Preston Pysh (00:54:09):

It immediately clears, and it’s 24/7 all days of the year. And I think that’s the really big breakthrough for securities that is coming, and for you guys is already there. And I think this is where you get into maybe a cultural fight on Twitter. And we see it all the time, where part of the community thinks that nothing should be registered and that it’s nobody’s business, whether I want to own part of this company and buzz off, and I should be able to trade it to whoever I want whenever I want in whatever jurisdiction. I’m not going to say that that’s wrong, that’s a best case scenario as far as I’m concerned, if we could ever get to that, I’m just suspect as to whether we can get to that, at least in the short term, in the next five to 10 years.

Preston Pysh (00:55:07):

I think the regulators are coming, and I think they’re coming in, and it doesn’t mean that we just roll over, I think we need to really go to battle with what the end state would be, which is this world where people can just exchange all these things. But when I look at the direction Blockstream is going, I think you guys are going in the direction where you’re expecting the regulator, you’re doing things according to securities law, you’re viewing these as securities, which they are, and you’re just moving out in that direction, and it’s different than the approach of a lot of others that are treating it just like the Wild Wild West and are like, Hey, screw you, we’re going to do whatever we want and we don’t care what the laws say.

Adam Back (00:55:49):

Yeah. Historically, there’s been a bit of the attempts of projects that have tried to say that they’re not securities or that they reject and don’t care about securities law. The side effect is typically being highly defective investment contract, plus or minus is you’re making a donation. And even if the project succeeds, you’re not due for any share of the upside, you have no equity interest, et cetera. So while the philosophical point is something that’s attractive that the world should be a freer place, the result of trying to avoid the securities regulations means that the user gets an extremely bad deal and there’s very little investment oversight. So most such projects have been extremely poor investments or not produced the products basically and the success rate’s been terrible.

Adam Back (00:56:49):

So in principle, it could work, somebody could do the right thing despite there being no useful contract, but empirically that hasn’t really worked out. I don’t know, that’s kind of an unfortunate statistic. One would hope for better, but that is what it is. In any case, I think that Bitcoin is the interesting bar asset, and that really isn’t security, it’s a digital commodity. And just pragmatically, you can get a lot of very interesting innovation while adhering to current regulations, which are ultimately about consumer protection, even though they’re imperfect. And so, as an example, the fact that you can peer to peer transfer various kinds of security and bond any time of day in various increments is interesting and then you can use smart contracts on top of it. For example, there’s a wallet on liquids. It’s another company it’s called Siteswap. With that, you can do a trustless swap. It’s kind of atomic swap, so you could swap a Bitcoin or some tether for a BMN or 100th part of a BMN and potentially these EEB bonds in the short term future.

Adam Back (00:58:18):

And they can basically provide you with an order book even. There’s no technically an order book, because there’s no custody involved. It’s just a kind of bolting board meeting point, but all with trustless technology and actually with confidentiality. So looking at the chain, you can’t see what the price was, how much was sold and there’s no technical topic. There’s none of this kind of minor extracted value issue because the miner has no clue what happened basically. It’s some kind of confidential trade happened.

Samson Mow (00:58:52):

I think there’s an ideal that people would like, but you have to take some steps to get to that ideal. It doesn’t happen overnight and instantly.

Preston Pysh (00:59:00):

I completely agree with you on that. We had some Twitter, I don’t know what I would call this, a spat or a discussion, a contentious discussion with some of the folks over at stacks. And so just as we look at the comparison of what you guys are doing at Liquid, it’s a federated model. You guys are not suggesting that it’s decentralized like Bitcoin in any kind of way. There’s a form of centralization to that, just like any other protocol that’s layer 1, that’s trying to do this. And so their solution involves an Altcoin that is part of the protocol that had a pre-mine, obviously, but it’s not a federated model. When you are comparing these two, what would you say to somebody who’s listening to this, who’s looking at the stacks model and saying, well, it’s being built, and I think they’re big for raises it’s being built on top of Bitcoin and using the hash rate of Bitcoin.

Preston Pysh (01:00:06):

And I know Adam’s push back on that pretty heavily and I’m curious to hear your opinions why, but when you’re comparing those two, they’re pretty much implying that they’re more open, but it requires a token. And you guys are saying we’re not as open, but we don’t require an altcoin to be an intermediary between you guys doing these smart contracts with the issuance of like a mining bond or note on top of it with your own token.

Adam Back (01:00:33):

Right. I think altcoins have gone through an evolution at the time, and there is a market to speculate on them. I wouldn’t buy them personally because I’m a value investor, but other people will speculate on things basically. And so, I think everything that came out of that is just basically iterations on that theme, which is evolutionary forces making them present even more complicated stories. Originally it was just an icon and a copy of Bitcoin with some printers and it evolved into more and more elaborate stories, and there have been a few which have tried to claim various connections to Bitcoin, that they’re better than Bitcoin or they like Bitcoin or they’re conneceted to Bitcoin. I think it’s just more of the same basically, and ultimately everything about it is an altcoin. There are plenty of altcoins that check some, they have blocks in Bitcoin, I lost track, probably a thousand or something. I don’t think it’s any different really

Preston Pysh (01:01:45):

Is there anything that they can do from a smart contract piece on, and I’m just using Stacks as an example, but you could use any one of these layer 1 smart application protocols that are out there compared to what you’re able to do on Liquid with no innate token that’s part of the protocol.

Adam Back (01:02:06):

Not really. I think most of it is a sales pitch for the token, so it’s full of the incentives. And I think the challenges as we were just discussing with the non-security world, the ICO pre-mine altcoin world, it seems empirically like the hyper incentivization derails projects from achieving the outcome or puts too much of their energy into marketing or lesson to innovation or something like that. I think it’s not really necessary. Yes, the sort of Bitcoin layer 2s are incremental. There are trade offs. Lightning, for example, makes some different security trade offs, liquid makes a different security trade off, but ultimately the peer to peer transferability guarantees are much better than people assume with liquid because most of the assets are native to the chain.

Adam Back (01:03:24):

And what you’re looking for the block signers to do is just to provide a tie breaker for which block is final. The actual counterintuitive thing is people got hung up about this on Bitcoin already, that they assumed that miners were controlling things. Actually miners had very little control and they just order blocks, get rewarded for the work, and the people running the full notes are actually in control it turns out, and the market basically fix, I think the outcome of the block size discussion was that the free market won and got what it wanted.

Adam Back (01:04:09):

And so, I think this counterintuitive as it is, a similar thing applies to a federated model, which is other than the fees, which are in decline, the actual assets on it are native to it. So they can’t be taken out of the network. And if the block signers, it’s kind of analogy to the miners getting into this UASF situation, if the block signers on the liquid network were to do something that was undesirable to the asset holders, they could fire them. Basically they could take the last snapshot of the chain, they can run a full node, look at the chain and elect some new block signers.

Samson Mow (01:04:52):

I think most tokens like are not needed. You can build on top of Bitcoin without making an altcoin.

Preston Pysh (01:05:02):

And when you say most, you’re implying that there are times to do tokens as far as fundraising, similar to what you do in an equity kind of deal, correct?

Samson Mow (01:05:12):

Yeah. And that’s a security.

Preston Pysh (01:05:13):

And that’s a security. Got it. Was there anything that we didn’t cover that through your interview process after this big announcement that you guys would like to clarify or highlight that you think is an important highlight?

Samson Mow (01:05:31):

Oh, we’ve covered a-

Preston Pysh (01:05:34):

[crosstalk 01:05:34] We’ve covered a lot here.

Samson Mow (01:05:35):

Yeah.

Preston Pysh (01:05:37):

Adam, do you have anything else?

Adam Back (01:05:39):

Yeah, that was pretty efficient. I think one of the technical financial detail that might interest some of your audience, the subset of them is that the Bitcoin upside that we’ve been describing is basically an option, a Bitcoin option. A cool option is the right to the upside up of a price at a duration. So these are European cool options because you get the right at the end of the term, and there are option valuation models, the Black-Scholes model. So you can apply a Black-Scholes model to it and see the expected value on the Black-Scholes model is about 2%. So if you add the 2% to the coupon, you end up at the conventional bond rate, 8.5% which is kind of the norm that El Salvador has been issued.

Adam Back (01:06:33):

Now, the Black-Scholes model I think it’s not really great for Bitcoin because it doesn’t look at past price changes. It’s more about volatility, but in any case, it’s just another data point that somebody without much of a Bitcoin view could run some conventional modeling tools on the two components in the bond and see that the combined coupon is in norm.

Preston Pysh (01:07:03):

I think it’s an important note as well, and we were talking about this a little bit before we started recording Adam, most of this $8.2 billion worth of sovereign debt that El Salvador has was issued at the 7.1 to about 9.5% coupon yield at the time of issuance. Because it’s trading at a discount, because those bonds in the after markets have traded at a discount to the face value of those bonds, their effective yield, the yield that they’re going for today is a higher yield to 12, to 13%.

Preston Pysh (01:07:40):

I know some of the people in the Twitter comments were saying, what’s the big delta? Why am I seeing these yield at 12 or 13% today and you guys are doing an issuance at 6.5% before the special coupon, the special Bitcoin coupon? And I think it’s important that they understand that those issuance are trading at a discount and it’s an effective yield that’s up that high, and it’s actually more in keeping with the initial rate of 7 to 9% that a lot of the debt had been put on the market. I think that’s an important consideration as well.

Adam Back (01:08:13):

Yeah. And I mean that the discount, basically the bond calculation is that if it’s trading a discount, it pushes the implied interest rate up, right?

Preston Pysh (01:08:25):

Yes.

Adam Back (01:08:26):

So in any case, that is reflective of the credit ratings being reduced. It seems like partly in reaction to the…

Preston Pysh (01:08:41):

Bitcoin Law.

Adam Back (01:08:44):

… Bitcoin legal tender law. So, some of the ratings agencies, kind of various establishment Bitcoin is risk to them. That’s curious side effect, and partly due to normal economic factors like COVID, levels of debt, ability to service debt, I presume not being a specialist in El Salvador economics or the ratings of these things. But any case, I think an interesting point is the Bitcoin component may actually reduce the default risk because it’s a second track to see repayment, which is on a first track, you’re relying on the conventional, the government will typically do revolving more bonds to refinance previous bonds from the country’s coffers and tax revenue and stuff like that to repay the coupon on the principle.

Adam Back (01:09:38):

Here you’ve got the second tranch, which is the Bitcoin component. And in many of these variously conservative models, the Bitcoin component alone could repay a principle and leave much left over in, including the half of it, the $500 million that’s invested in the infrastructure or later in the Bitcoin city. I think it’s a pretty interesting leverage bet on the future. If it turns out that Bitcoin is digital gold in the same way that previous centuries saw blackgold and oil and the petrodollar start to have a big influence in the world, they could find themselves as the new oil, wealthy country of the world in the digital realm.

Samson Mow (01:10:25):

Yeah. You just have to have a little bit of foresight and see where things are going. I guess the other topic is risk of default. There is risk with bonds. There is always a risk of default, but like Adam is saying, that is significantly reduced by having that Bitcoin component and that’s by design. So, you do 10 of these bonds, stagger them out a little bit. Well, El Salvador is accumulating their treasury of Bitcoin and that should allow them to repay all bonds and pay the principle on these bonds too. But there’s a lot of interesting things we can do. I’ve been kicking around this idea of maybe tokenizing some of their existing bonds. Like I said, one of their bonds is traded on the Luxemburg Stock Exchange. We could wrap that, tokenize that, and then bring liquidity to that bond, to crypto traders, and then issue another bond to buy back the old bonds. And that new bond would also be a Bitcoin back bond with the 50% Bitcoin component to it. So maybe that one bond will fix all of their old bonds.

Preston Pysh (01:11:31):

Sounds like the creativity is the limitation here.

Samson Mow (01:11:34):

Yeah.

Preston Pysh (01:11:36):

Not you guys have the creative limited, but I’m just saying, this could get really interesting in the coming couple years, especially if this performs similar to like micro strategies, convertible note that they were issuing. And I suspect it will, and I’m sure you guys are having, I don’t know, but I’m assuming you guys have had tremendous success with your Blockstream Mining Note to date with it being the subscription rate on that I would imagine was very high. Very exciting time. Very, very exciting time.

Samson Mow (01:12:13):

It takes time for new ideas to be digested by the marketplace. Like the BMN, when we first launched it, I think it took us like two weeks to sell out. Right, Adam? Like two weeks.

Adam Back (01:12:25):

The first one took a while. It was prior to operation 2, so we started selling it in March this year and the mining started in July. So I think people felt more uncertainty at that point.

Samson Mow (01:12:37):

Well, I think they didn’t understand it. And right now every trench we’re selling sells out in minutes, and I think we’ve sold 40 million now, and there’s just a massive amount of demand for it. But once the market digests the Bitcoin bonds and they understand the impact and the potential also for El Salvador, I think it’ll take off. We just need to launch them and get them out the door and sell them out, which I don’t think is going to be an issue. And then it’s really going to take off. More nation, states are going to be doing these bonds more private companies too. It’s just a new model.

Preston Pysh (01:13:13):

My last question for you guys, is there a supply chain impact for hardware, for mining hardware specifically? Moving forward, do you see that inhibiting more deals like this if you can’t get your hand on mining rigs?

Adam Back (01:13:30):

There are supply chain issues in general at the moment for [inaudible 01:13:35]. You’ve seen that with, in the news about automotive, even that which is a different process as older process equipment. I think what tends to happen there is mining profitability is extended. Normally the market would be producing more miners and it currently is to catch up with the commodity economics, but because of the shortage that’s harder. And this is also one of the reasons that Blockstream acquired Spondoolies-Tech in our recent round to build their own miners to, everybody is still supply chain constrained, but what happens in a supply chain constrained world is the manufacturers charge a premium, and the prices are up three or four times, maybe more since last year.

Adam Back (01:14:30):

And so, if you were in a business of providing mining, operating mining, prop mining, a company or a sovereign level, you are subject to those manufacturing premiums, which absorb some of the mining profitability rates. So if you could manufacture your [inaudible 01:14:53] you’re in a better position to keep that part of the upside.

Samson Mow (01:14:56):

I think El Salvador, they’re going to do a lot more with the bonds. The first bond will be for infrastructure, energy infrastructure and mining, the subsequent ones for Bitcoin city, but there’s a lot to do when you’re building out and building infrastructure for a nation state. There’s a number of things you could do with that money and it doesn’t all have to go towards mining, which is okay.

Preston Pysh (01:15:19):

Gentlemen, give people a handoff where they can learn more about you. We’ll obviously have your Twitter handles in the show notes. Is there anything else that you guys want to hand off?

Samson Mow (01:15:29):

Yeah. You can learn more about Blockstream at blockstream.com and on Twitter, it’s @blockstream. We’re on all social platforms, just Blockstream.

Adam Back (01:15:38):

And we’ve also recently started a podcast hosted by Jesse [inaudible 01:15:44] who’s recently one of the people working on a modeling for this bond. We are covering some of these topics there. Blockstream is talking to Blockstreamers about Blockstream products, not a conventional podcast. It’s just a way for us to explain. We do a lot of interesting things and we need to explain more of it and make it more accessible to people. That’s the thought process though.

Samson Mow (01:16:11):

Awesome. We’re opening up to, more I guess to, I think for one of the subsequent ones. We’ve got more. It’s from [Specta 01:16:17]. So people building on Blockstream tech also are welcome to come on.

Preston Pysh (01:16:21):

Oh, that’s awesome. So we’ll have a link to the podcast there as well. Gentlemen, thank you for your time. This was amazing. I was learning so much. I just appreciate every time you guys make time to come on this show.

Samson Mow (01:16:34):

Thank you, Preston. It’s always a pleasure.

Preston Pysh (01:16:37):

If you guys enjoyed this conversation, be sure to follow the show on whatever podcast application you use, just search for, We Study Billionaires. The Bitcoin specific shows come out every Wednesday and I’d love to have you as a regular listener. If you enjoyed the show or you learn something new or you found a valuable, if you can leave a review, we would really appreciate that, and it’s something that helps others find the interview in the search algorithm. So anything you can do to help out with a review, we would just greatly appreciate. And with that, thanks for listening, and I’ll catch you again next week.

Outro (01:17:09):

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