Crypto is Bigger Than Just Bitcoin with James Diorio & Jake Ryan

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1:30Hello, I'm Anthony Scaramucci, and this is Open Book, where I talk with some of the brightest minds out there about everything surrounding the written word, from authors and historians to figures in entertainment, neuroscientists, political activists, and of course, Wall Street. Sorry, I can't resist. Before we get into today's episode, if you haven't already, please hit follow or subscribe wherever you get your podcast and leave us a review. We all love a review, even the bad ones. I want to hear the parts you're enjoying or how we can do better. You know, I can roll with the punches, so let me know.

2:04Anyways, let's get to it.

2:13Okay, so joining me now on Open Book is James DiOrio and Jake Ryan. They are the authors of Crypto Decrypted, which is a great book. It's debunking myths, understanding breakthroughs, and building foundations for digital asset investing. And Rick Edelman, a good friend, wrote the foreword on this book as I'm dropping my microphone. Awesome stuff, guys. I really enjoyed the book because it lays out in a really easy to understand format what everything is. What is an NFT? What is the blockchain? What is a layer one technology? It's all here. And so all you have to do is buy a copy of this book and you get it all.

2:58OK, what is digital scarcity? I mean, to me, when I read the table of contents before I started the book, that's my first thing I always do is read the table of contents, see what the hell is in the book. I said, all right, these guys are answering the questions that people want to know. Even people in our industry would benefit from reading your book because they pretend that they know things that they don't, myself included. I really didn't understand the whole NFT marketplace until after I read Crypto Decrypted. So let's start with the two of you and your background. So, Jake, you go first.

3:31Tell me about your background, how you met James, and then, James, you tell me. Yeah. I know your background, but I want my viewers and listeners to hear your background, James. But you go first, Jake. I almost called you Jack in the introduction because I was thinking of Tom Clancy. Yep. And, you know, you know. I've gotten that one and I've gotten the, you know, Jake Ryan from 16 Candles. So all good references, good movies. Yeah, my background, I got a degree in computer science from the University of Texas at Austin. I focused in artificial intelligence. I did some research work in the field of AI around using neural networks for computer intrusion detection.

4:10I went out and got a, my first job was with MCI, which doesn't exist anymore, but it was a, you know, S &P 100 telecommunications company. And then started a consulting firm in the early 2000 aughts and did that for 15 or 16 years. I started to get into angel investing and venture capital in 2014. I worked as a mentor with a venture firm out in LA. I did my first blockchain venture investment in 2015. I bought Bitcoin for the first time in 2016. And then really thought about, you know, one of my passions was investing. And so, you know, venture capital is a lot about pattern matching and about understanding what's about, you know, what's going on and some trends and investment themes.

5:00I did a lot of trading just for myself in stocks and options. And so we had James and I had been going out with hedge fund manager for dinner once a month for many moons. And he said, you know, well, you really understand this industry and, you know, you have some good returns in history where you could you could prove that you could you could invest in trade. And so started the hedge fund and, you know, crypto hedge fund in 2017 and 2018. And James started out in his advisor, and you can hear about him. Yeah, go ahead, James. Yeah, my story is similar. You know, I'm a computer scientist and was a technologist the first part of my career, but really moved into becoming an operator.

5:45So I built five businesses, bought two, sold two. And, you know, Jake and I worked together originally, you know, around the year 2000 and kept in touch for that period of time. And how I got here is I never expected to be in this space. But in 2016, Jake said to me, Jim, you need to go buy some Bitcoin. And it was$674 a coin. But I was way too smart for that. I looked at it and I didn't understand it. And I said, Jake, this is nuts. You're nuts. Good luck with your crazy crypto thing. And when I sold my business in 2017, I said, gee, maybe I'm nuts. And maybe it's me that's the problem. So I took a year and I went all over the world.

6:28I went to conferences in Dubai. I was in the EU, all over the US, Toronto, and I digested everything I could. And I became convinced of two things. This technology was going to absolutely change the world, but people didn't know how to explain it. And I would go to conferences and people would use all the right buzzwords, but I'd say, what does that mean? And they couldn't really unpack it. So ultimately, this led to becoming an advisor for Jake and then coming on board with the fund and growing the fund with him. but that's what led to uh you know crypto decrypted which is a sequel not a sequel but the second book after jake's first book uh crypto asset investing the age of autonomy designed to explain this the first book is almost like a textbook the second book wiley said could you write one for humans so we kind of wrote it i love that you have your mom at the end of the podcast we wrote this for our moms we wanted our moms to be able to understand this space because I almost missed it because I just didn't get it.

7:30And this is going to touch everyone on the planet. And we want people to understand it because this isn't going anywhere. You know, as a technology, obviously, there's an investment opportunity, but it's a technology. It's going to shape everything. Well, first of all, I put you in touch with my mom. She'll never understand Bitcoin, just so you know. You barely got her off the rotary phone. She does have a touch phone, but it's like one of those wall units that you would remember from the 1980s. You know, Alex Keaton used it in Family Ties, but I'm with you. But I want to give you each a chance to make the elevator pitch, though, because, you know, why would anybody need – I mean, I know the answer, but I need you to give the answer.

8:12Why would anybody need a hedge fund? Why don't you just buy Bitcoin and go long Bitcoin or long Ethereum and shut the lights out for five years? Yeah, sure. Sure. I think we tell RLPs definitely buy Bitcoin. You know, we think Bitcoin is great. Bitcoin is sound money. Bitcoin will be at the root of what we call the autonomous economy. But money is required, but not sufficient. There is a technological revolution that we've just started. We've really completed the age of information and we're going into a new age, what we call the age of autonomy. And it comes by through a cluster of innovations, IoT, artificial intelligence, robotics and blockchain.

8:59And I would say that, you know, IoT creates a massive amount of data. AI can be used to synthesize that data into knowledge. Robotics use that knowledge in the physical realm to generate economic activity. But it's really that blockchain is going to be able to use that knowledge to generate economic activity without human intervention. And that really is the moat or the competitive advantage in this new technological revolution. In the age of information, it was about getting specialized knowledge. It was about if you'd become a lawyer or a podiatrist or a computer scientist, you had specialized knowledge and you could turn that into competitive advantage and generate an income.

9:46In the next technological revolution, in the age of autonomy, it's really about building autonomous operation. We have knowledge now democratized with things like ChatGPT. Anybody can write a program with ChatGPT if you go and use it for a few iterations. And so what's going to be the compelling technology in this technological revolution? And you need to be able to build autonomous operations. And that's what is the, you know, the innovation stack is what we invest in. And so right now we don't have mutual funds for that yet. And so if you want to take a diversified fund approach, hedge funds are your opportunity to do so.

10:29And I'll add on to that really quick is, you know, innovation is where wealth is generated. We look at Bitcoin as a wealth preservation asset, much akin to gold, right? You know, Paul Tudor Jones just came out with another endorsement. Uh, you've got BlackRock and Fidelity and all these guys are saying, Hey, this is a gold. It's better than gold. And Bitcoin's gone from a penny to, you know, 69 ,000, a 69 million percent gain. We're not going to see that again, right? We'll see gains, but not at that level. But the innovation stack is where you can get real multiples. So that's what we focus on.

11:04And we think the real opportunity is, and, um, it's based on, as Jake said, the age of autonomy thesis, but here's, what's hard. There's 10 ,000 different crypto assets out there. How do you know what to invest in? How do you know what you want to jump into? And then once you do, candidly, do you have the stomach to ride it through? Because, you know, we're dealing with markets that are volatile, right? So we look at the window and look at how these things are going to grow and look at the opportunity to take advantage of the overall innovation stack and, you know, provide that value to our investors.

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12:19From afternoon coffee runs to stocking office supplies and even team dinners, you can earn miles on all your business expenses. Plus, you can earn 125 ,000 bonus miles for a limited time through October 29th. The Delta SkyMiles Reserve Business card. If you travel, you know. Minimum spending requirements and terms apply. Offer ends October 29th, 2025. Yeah. And that's where we're going to get multiples. We're just not going to see in Bitcoin anymore because it's still so low on the adoption curve. People still don't largely understand blockchain technology and what it is. Right. Companies are adopting, but it's still very, very young.

12:52It's like the dial up modem age still in this technology. okay i mean you know obviously i i agree with everything you're saying but i want to give you a chance to say it in your own words i think that the great thing about the book is how clear it is okay so i want you both to give me an example from the book and i want you to speak with the clarity frankly that you speak in the book and so so let's talk about something that nobody understands okay we'll start with you diorio okay what is a byzantine general and what is the Byzantine General's problem. Okay, perfect. This is the thing that nobody's talking about that everyone should talk about.

13:32And this is why we wrote the book. There's a lot of books on how and what we wanted to write a book on the why. Why does blockchain technology matter? So it matters because it solved an unsolvable computer science problem. And that's called the Byzantine General's problem. And it was a top 10 unsolvable computer science problem. And so it says this, you know, and it's got a scary name, Byzantine means you'll never understand it, but pretend it's really simple. It's actually, it gets a bad rep. I've got 10 generals, you know, 10 generals, and they're going to attack a city. If they do it together, they win.

14:09If they don't do it together, they lose. That's a pretty easy problem, right? The question is, how do you do it without anybody in charge? So how do you get peers to work together without someone calling the shots, right? How do you know that the communications they send to each other are reliable? How do you know that they can act in concert? And normally, in the digital world, that's never been possible. You've always got a counterparty. Your money says whether you can, excuse me, your bank says whether you can send a wire. Or PayPal says whether you can send money. Or a video game says whether you can actually use the magic cape or something from the game.

14:47And that's not how we work in the physical world. If you were sitting right next to me, Anthony, this is a$20 bill. I could hand this to you. You can take it. I pulled it out of my pocket. I hand it to you. There you go. Take it. It's yours. And you're done. You don't have to ask the government, your state, your business partner, your wealth manager. we can just do that we can transact in the physical world and now we can do that in the digital world i can have a digital thing i can prove it's unique if it's unique and i can transmit it to someone else just because i want to without the interference of a third party it's frictionless and it's peer-to-peer and this is why blockchain matters this is what makes everything possible And the reason we talk about this so much is a lot of people are scared of the space.

15:41But once they understand this innovation, they see what's happening and there's an opportunity here. Now, again, the problem is, as I mentioned earlier, we're in the dial-up modem age, right? Remember back in the dial, you unplug it from your wall, plug it into your modem. And two minutes later, you get some stream of data and you get that. Who knew that that would evolve into the phones we carry today or the, you know, the smartphones that we have today? Everyone wants to get that in blockchain today, but we're still in a dial-up mode of age. You know, Jake, this is a part of your history, right?

16:15Yeah, I mean, I can just remember in the mid-90s working for an ISP, people would call in from all country of Texas saying, I just bought the Internet. Can you help me, you know, get connected? and we would have all these problems with connectivity in the internet age back then, but we still could envision a PCS or personal communication system or personal communication device. And we thought we'd be able to stream movies and all these things that we could do, but we couldn't do it for another decade, right? It took that long before we got the iPhone or a smartphone. We had BlackBerrys, but really the iPhone was a smart improvement.

16:56And so that's where we are today, where we can envision what the future is going to be like. But we're still dealing with, you know, technical constraints. And it's just all part of the adoption curve. It just takes some time. So I want to be the skeptic now. I'm 60 because I actually am 60. And I'm a blockchain skeptic. I'm a traditional finance person. And yeah, the Byzantine general sounds cute and you did a great job of explaining it. But really what you're talking about is just financial blather. It's a mathematical blather. It has absolutely no use cases. It has absolutely no, there's nothing, it's not worth anything.

17:40Okay, I've responded to that. Okay, so when Uber came out. I just have to point out that I don't believe any of the shit that I just said, but I'm trying to, okay, okay. I need you to respond. You gave out the straw man. And so when Uber came out, they came out with a new business model. And it was different than we had been doing business prior before. No question. Prior businesses called pipeline businesses, where they might have owned either the sales or the demand. Like if you were a hardware store, you owned a bunch of supply of hardware, but you didn't own the customers. Right. It was a pipeline business.

18:18And what Uber did was to come in and provide a different type of business, a two-sided marketplace where they own both the supply and demand and created a marketplace where they could meet in real time. I have a bunch of drivers and I have a bunch of people who need to go places. And they created the most efficient business model. And that business model has an unbelievably competitive moat, right? Right. You know, many people have tried to break into, let's say, Facebook. Right. Google Plus came out. It had better technology. But Facebook was able to keep on all of their users because everybody had already uploaded their photos and they didn't want to convert to another network.

19:04We call those network effects. And so Google did not win. Facebook continued to win. Even when they bought Instagram, they would fight Snapchat because they were able to come out with, you know, mimicking the same functionality that Snapchat had, but they already had the network effects. And so this type of model has revolutionized business and operations. Well, tokens are really just efficient, two-sided marketplaces. They can generate a protocol that allows supply and demand to come together in a real-time market. And that's the most efficient way to build an Uber company. In the future, all of these Uber-type companies, these two-sided marketplaces, are the most efficient way to generate both the production capital and financial capital of that company is through a token.

19:59And so many services are going to be delivered on this. I'll give you one example. There's a token called Render. Render allows for if you have a smartphone and you have some GPU power that you'd like to give to the platform, you can rent out your GPU power. And Render will aggregate millions and millions of phones and computers and GPUs. And then users can use the Render token and use it to maybe get a lot of compute power to generate training for an AI agent or render a metaverse that takes a lot of GPU power. So they can do that within this token structure. You know, they don't need a storefront and board of directors and all these things to deliver this functionality.

20:51It is the most efficient way to deliver a two sided marketplace. And in the future, when autonomous operations become the competitive advantage, this is going to be the mechanism and vehicle that allows business transactions to happen in the most efficient way possible. I got to carry you around with me, Jake. I feel like I'm just going to pull the back of the string in your back and let you rip like that because I think it's a very solid explanation. James, let me turn to you for a second, okay? I'm going to hit you with three questions at the same time. All right. So give me three different paragraphs.

21:27You ready? Yeah. What's going to happen in regulation for crypto? Okay. Could regulation still kill it or is it beyond being killed at this moment? is crypto bad for the environment and are we in a crypto bubble okay got it so perfect so regulation we need regulation you know we no regulation is not going to kill crypto um unless we get regulation that is designed to kill crypto the state change that's happening right now is look this is an innovation stack and you know part of the reason people are still having a hard time getting their hand around is we call them cryptocurrencies. I hate that word.

22:09They're not all money. They're technologies, as Jake mentioned, and they can do different things. We need regulation that's appropriate for this space, right? We had Congress passed the joint house bill to overturn SAB 121, and then it was vetoed by President Biden. And that was a mistake. That was movement that was going to go ahead and allow banks to custody this. We need to empower our institutions, our banks, our businesses to use this technology. And here's the issue, Anthony. If we don't do this, the U.S. is going to fall behind as an innovator. And that's what's happening now. We need to get individuals in office who are going to embrace this or the U.S.

22:57is going to fall behind. And we can't afford to fall behind. What's going to happen is our thought leadership will leave the country. it'll go to other places where it is regulatory friendly so is it going to kill it um if we set it up to kill it it will but we turn that corner we need the right kind of regulation to promote innovation and we've always done it as a country um and it's time we do it again and i think we're finally getting to that point so that's very exciting all right so that's that's my spiel on regulation okay um and uh you know by the way we we've got fit 21 coming up we've got other We've got things happening, and there's a lot of senators who are really arguing about this happen.

23:35Go to the environment. So the environment. A lot of people talk about, and that's one of the big shell games, that this is really, really bad. Every new technology is going to come forth, and it's going to have some type of impact. The Bitcoin blockchain is very energy intensive, but it still uses less than half the energy used by the banking industry or the gold industry. It's kind of one of the things that we like to talk about as a shell or as kind of a strawman argument. The reality is that this is going to move us to being more of necessity is the mother of invention. Elon Musk was pro-Bitcoin.

24:15Oh, my gosh, it's bad for the environment. I'm anti-Bitcoin. And then he formed the Bitcoin Energy Mining Council. Well, what's that about? That's about getting into renewables and using different types of energy and driving different types of energy. We've got hydroelectric. We've got flare gas, which is used for mining rigs. We've got wind. And being able to do these and have mining operations in different areas where they can be decentralized will actually promote getting new types of energy into the world. So we think it's actually going to drive forward the innovation. And by the way, just about every other blockchain out there is not the energy suck that Bitcoin is.

24:56You know, the Bitcoin blockchain is a proof of work. A lot of energy is expended. You know, Ethereum, proof of stake. Other layer ones, different consensus mechanisms that are not so energy intensive. So we think it's going to really be progressive and make some change. So that's very important. By the way, one other thing interesting. Look what's happening with energy right now. Microsoft is lighting up Three Mile Island again, right? Because the energy that's going to be required for AI, for all of these things, for our data centers is going to be staggering. So we have to get to new levels of energy, and we're seeing it.

25:31And that's not even Bitcoin or blockchain related. That's AI related. So we're seeing this happen across the board. All right. And that was, what was your third one? Oh, is this a bubble? No, it's not a bubble. It's a cycle. There's an old Mark Twain quote. The rumors of my demise have been greatly exaggerated. You know, someone thought he died. They published that. He responded with a telegram. People have been predicting the downside of this since it started. And the reality is now it's been embraced. It's been embraced by the biggest asset managers in the world. BlackRock manages$10 trillion in assets.

26:09Right. 10 percent of the world's investable assets. They're behind it. Fidelity is behind it. You've got 83 percent of the Fortune 500 are adopting blockchain technology. So that's very interesting. You've got Citigroup, which has an FX products they're launching on a blockchain. Franklin Templeton is launching a money market on blockchain. And then you've got companies like Starbucks and Walmart and FedEx, which are all experimenting with it. So the technology is getting adopted. What we need to do is realize that this is an innovation, and the innovations take time to mature. It's not 10 ,000 types of monies, and we need to pick which one is going to be the next big money.

26:46Forget about that. This is an innovation stack. We need to go forward. And the thing that's interesting about this is we've seen consistent cycles. We've seen these cycles go, and we're entering another one right now. And the big driver for this is the monetary cycle. The big thing that we're seeing right now is liquidity being pumped into the system. We just had a rate cut, and they've seen a very clear correlation to how these markets move with liquidity. We're seeing global liquidity. We're seeing with China, right, pumping money into the system. We're seeing rate cuts across the world. So as we enter this loosening economic cycle, this should actually drive the next phase of the run.