139: Leverage Your Bitcoin Savings With Aki Balogh

 

Aki Balogh is the Co-founder and President of MarketMuse and the CEO of DLC.link, a platform that lets users lock their Bitcoin in escrow, supply Bitcoin as collateral, and earn a yield while maintaining full ownership. We discuss ways to leverage your Bitcoin to earn a yield, what a wider crypto adoption means for other currencies, and the basics of Bitcoin smart contracts. 

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Leverage Your Bitcoin Savings With Aki Balogh

My guest is Aki Balogh, the Cofounder and President of MarketMuse, an AI-powered content intelligence and strategy platform and DLC Link, a tech company allowing Bitcoin hoarders to earn a yield on their Bitcoin while maintaining full ownership. Aki, welcome to the show.

Thanks for having me.

It’s great to have you here. You’re the first one who’s going to talk about Bitcoin on this show, even though we are 140 episodes in. I’m super excited to get my feet and the show wet into the crypto world. How did you become an entrepreneur and why did you choose marketing content and crypto as your fields? What attracted you to these fields?

I might have even inherited a gene from my grandfather to be an entrepreneur. My first “business” was I was selling jokes when I was seven years old for a quarter. It started off as a joke. At 14, I started a Hungarian film club with my mom, then at 15, I started a small business, 16 or 18. I started a conference series at the University of Michigan. I started another couple of clubs, a technology club for BBAs, etc. I’ve always been doing side projects and hustles.

Many years after that, I was at a venture fund, OpenView Venture Partners in Boston, looking at $5 million to $20 million investments for tech companies. The founder of the fund pulled me aside and said, “I like you but you shouldn’t be here. You should be building a company. You can do venture and invest later. Learn how to build a company.” The next thing I knew, I was starting market news where I was looking to bring AI to marketing. I did that for eight years and then passed that on to CEO Charles, who succeeded me and then started this new project where we’re enabling utility for Bitcoin. I would say it’s a little bit of always being entrepreneurial and then always trying to follow the technology that can make, I would think, the biggest impact on the world.

Charles Frydenborg was a guest on this show. He was a very interesting guest. We talked about market news and how you create and use AI to par content, but this is not a topic. We are going to talk about your second business or at least your follow-up business, probably not the second, maybe the 12th, I don’t know. Why did you get interested in crypto and what did you see in it that was promising for you?

I heard of Bitcoin in 2011 when I was in San Francisco, but I didn’t do anything about it. A lot of people have my early crypto sob story of I had some amount of money and I could have put it in Bitcoin, but instead, I put it into myself, which in hindsight might not have netted the return otherwise. I didn’t get into it because of the tremendous sob swings we saw.

This is another Hungarian connection. Steve was born in Hungary. I am from Hungary also. Not everybody in crypto is from Hungary, but one of the people who’s rumored to be Satoshi is Hungarian Nick Szabo, but that’s not what it was. I was leaving market news and looking at new projects. I got interested in the crypto Web 3. I made an introduction for my friend Lazo who has a software development agency where they built crypto stuff and they ended up winning the project to build the Chivo Wallet for El Salvador, which is El Salvador’s Bitcoin wallet.

Their president, Bukele, made Bitcoin like legal tender in El Salvador and they needed a wallet technology to hold the Bitcoin. These Hungarian guys went and built it. There was a first wallet that didn’t work and then they built the second wallet and it worked great. What I saw is when they launched the wallet it had 250,000 daily active users right from launch and over a couple of 1 or 2 months, it got up to 4 million registrants, which is also astonishing. I think you have to have an El Salvador citizen number and ID number to get the wallet.

A large part of the country adopted it and the promise of that one use case was the ability to send digital currency or to send money from the US to El Salvador without having to pay Western Union because Western Union and other payment firms take a 10% to 15% cut of these global remittances and 70% of El Salvadorians get money from abroad because it’s a small country.

We’re talking $400 million a year and fees saved by sending digital currency. That one use case alone drew me in and seeing the actual usage drew me in, then when I was in Bitcoin, then I learned about the other use cases. It’s used as a store of value and cryptographic proof or reserve currency for the world, which I can get into. The fact that this is happening now on a global basis with many millions of users and trillions of dollars in capital going into crypto, it’s big a thing going on in tech in my view.

I like that you talk about these traditional uses of Bitcoin. Don’t get into the NFT word and Web3 because I can relate to this idea of having a reserve currency that is independent of government and it can be a store of value. It’s like gold as it used to be, but I don’t get the other spinoffs of the crypto word, which can be a little bit harder for me to grasp. Can you explain what this crypto word looks like? What are the fringes and the core of it? Where do you see it going to evolve going forward?

It’s a big topic because although it started with Bitcoin and there are certain reasons for that which walk through more, but crypto is a mix of everything from crowdfunding and the desire for people to invest in technology projects without being accredited investors or without putting very large amounts of money at stake. One part of it is you can speculate on tokens, but they are liquid. Unlike another venture project when you put some money in, you can also pull it out. It’s like trading.

Today, crypto is like a mix of everything from crowdfunding to the desire for people to invest in technology projects without being accredited masters or without putting very large amounts of money at stake. Click To Tweet

You have crowdfunding, trading and open source movement which is behind Bitcoin and many projects. That pool, those communities, you have NFTs, all the those they raise, and what they can be used for. You have DAOs, which are decentralized governance systems, who are maybe anonymous or pseudonyms, can vote on things, allocate money and make investment decisions.

You have 7 or 8 things that have collided in one. The basis of Bitcoin is censorship resistance. It’s the idea that your money and your banking should be “permissionless.” Instead of applying for a bank account in order to be able to store money, you should be able to do it because you are a human being. You should have the ability.

The basis of Bitcoin is censorship resistance. It's the idea that your money and your banking should be “permissionless.” Click To Tweet

It’s banking the unbanked. It’s global payments. It’s a store of value similar to gold where it can be an inflation hedge where gold can be mined but cannot be printed by central governments. The government chooses to print a bunch of money and inflation goes up to 10%, 20% or even as high as 80% plus in some countries. You want to have a place where you can park your cash or your wealth where it’ll stay there.

Those are some of the main forces behind Bitcoin originally, but it’s picked up much steam. It’s now interesting where we’re definitely in an early state still because if we would say that coin was the first stage of crypto or Web3 and we’re in the third stage right now, the biggest use case for crypto is buying another crypto. A lot of the DeFi, the Decentralized Finance that’s happening with crypto is literally taking something and then swapping, trading or splitting it into different sub tokens or it is pretty nuts.

To the earlier point, that was made that they don’t all map to real-world use cases just yet. Tokens for more tokens. It doesn’t make sense to even the people in the industry. When we see all the places where it can go, I think it can build a decentralized financial system of the future by the time we’re done with all of this.

There are other currencies than Bitcoin. I was always wondering how much room there is for other currencies. The word is more like consolidating currencies. You’ve got the Eurozone countries who consolidated the water currencies into the Euro and some countries adopted the US dollar. There’s a consolidation towards the US dollar and disappearing in the real world, traditional currencies, then you have these cryptocurrencies which are then appearing and multiplying. Why is there room for more currencies? How is it better to buy a new investment or currency than an existing one? Can you enlighten me on this point?

One of the biggest benefits of Bitcoin is that it’s decentralized because it doesn’t have a central project, there’s no founder and the Bitcoin miners are the ones validating the transactions and the decisions are made. Whatever a majority 51% of all miners can vote for, that’s what happens. That says Bitcoin, aside from all of the other tokens, including Ethereum, which is a very large project, but all of the other tokens have centralized teams.

There’s a founding team and a named founder. They represent investments in specific projects. it’s like buying stocks. When you’re buying into any of these, they’re over 20,000 tokens. At this point, all of them are like a company. If you buy into the Ethereum value proposition, you buy their token. It’s like owning a share of their system.

To me, that’s the easy way to navigate it. The position of the SEC is that Bitcoin is a commodity or the closest to a commodity and everything else is security. They’re all individual companies. I don’t see an upper limit for how many tokens there are many startups in the US, even the ones that are not in Web3. Presumably, they could have tokens like at market news. We had a market news credit that you could buy for dollars.

What if we had a market news token? I’m not saying we need to do that at this point. Future projects could be token denominated if it helps them as well. It does make things a bit more complicated and it might be curtailed. If the SEC starts calling everything in security, then you are not going to want to necessarily do that. The current state is you have 20,000 individual projects that you can speculate on.

What about Bitcoin? If the supply of Bitcoins is limited and the mining keeps slowing down, there are fewer and your Bitcoin is being generated, but this is the commodity cryptocurrency and the demand is increasing, then is this a good thing or is it a bottleneck? The US dollar is growing with the need for growth of the economy, the money supply needs, and then the US government prints more money, making the currency stable in a roundabout way. What’s going to happen to crypto? Is it just going to keep going up and then crash? Is this a good thing that it is, “Even though it’s not stable,” like growing or it would be better if it was more stable and perhaps the supply of it could increase with the economy?

From usage and a planning standpoint, it would be better if it was stable or more similar to the dollar in the sense of these large up-and-down swings. We haven’t ever done this kind of experiment before in the world. It’s creating a new type of digital gold where gold is mined, Bitcoin is mined, the supply is fixed, and so on.

It does have a predictable monetary policy. 1 Bitcoin always equals 1 Bitcoin when you’re in the Bitcoin land, but then when you’re trying to use it as a global reserve, it is problematic if the reserve goes away. El Salvador saw that because they had to write off about $100 million in their Bitcoin assets because of the crash that happened caused by Web3 projects, but then China swooped in, gave them some more money and now the presidents went on Twitter and said, “From now on we’re going to buy one Bitcoin every day going forward.”

The idea of having a reserve is cool. It encourages savings. Especially in the US, there’s a lot of spending and putting on credit cards. Now you have an easy way to save and put money into something where 1 Bitcoin will always equal 1 Bitcoin in the future with the idea that as adoption increases, the US denomination of that Bitcoin is going to go up. That’s where it gets. People get either excited, afraid or sick of the volatility.

To answer your question, as we get more adoption, it’ll level off and always have some volatility, but it should become more stable in the future. I’ll put it this way. It seems like an attractive place to park wealth. If you have extra money that you don’t need to use right now and you want to put it away for the future.,but you may not want to put it in stocks and bonds, maybe they don’t pay more than inflation or whatever. Maybe they do, but it’s very minor than them putting this in a place where it literally cannot be taken away from you that has some interesting benefits. It’s one that I would recommend to friends and family.

I was thinking about what could be the impact on economic policy if that gets a wider adoption, essentially, wouldn’t that remove the power of the government to manage the economy and economic growth and could we be looking at big fluctuations in the economy and have another great depression because when the goal price going up and down, it can create some gyrations in the economy as well, couldn’t it?

I’m sure that has been a source of monetary policy before. When I was getting into Bitcoin, living in the US, I was thinking from a US-centric view. The first thing I would say is the dollar, which is the world’s reserve currency is fantastic and frankly more useful in more ways. You can use it as a medium of exchange. You can buy things. The dollar is still very strong. Bitcoin is, to some extent, about the Fed printing money and there was a lot of money printed. That hurts. That is even a moderate use case. I think this will be extremely useful in places in Africa and South America where literally we have situations like in Argentina where there have been three massive devaluations.

The Federal Reserve was stolen by the prime minister. Everybody lost their deposits because the government had to claim everyone’s bank deposits. That’s the horrible behavior the people want to insure against and the willy-nilly printing of money. It’s a nice use case. It’s nice to have, but if you’re in a country where you don’t have access to dollars or you do, but you have to go through banks and jump through hoops, this is an alternative. That will keep people honest. Would the amount of Bitcoin crypto be large enough to swing markets tremendously? It’s possible, but it’s such a small percentage of gold and derivatives and on.

For example, the total derivatives market is $1 quadrillion. It’s a $1,000 trillion in notional derivative contract value. Crypto is $1 trillion in total. I forget the amount of gold, but I won’t say it’s $60 trillion or something. It’s a small fraction. The core principle of anything built in the blockchain is that it’s open source ideally, or almost all these things are, and it’s on the blockchain that cannot be controlled by anyone. It ferrets out corruption, which is the goal of all of this is to empower people to own their assets and make them resistant to people stealing them from them, even if those people are government people.

The core principle of anything built on the blockchain is that it's open source and cannot be controlled by anyone, so it ferrets out corruption. Click To Tweet

There are enough minors that they cannot be consolidated.

There are consolidated entities, but the vast majority of them are mining pools where the biggest miners in Bitcoin, by and large, are pools of people who have put their machines together into a large pool. Mining is very decentralized to the point where there is one minor that owns 20% of the hash rate. I could be totally wrong on that because I’m thinking of marathon and their dukes with other companies.

The only way to mine that much hash rate is going to be very hard to collude or to create pollution. For Bitcoin, it’s much harder to do that. These miners are in all these different countries and you can’t find them and whatever. For some of the other projects, that may be a bigger risk for Ethereum is people have pointed to 50% of whatever Ethereum servers or in the US. If the US passes a law on US-based servers, then they could control that.

These systems are much more decentralized and much more modular and auditable than anything that has existed in finance so far that if we go from 98% perfect, there’s 2% still an option for collusion or something. We’re still 98% ahead, which when it comes to trillions of dollars, makes a big deal. That’s why banks and governments are taking this very seriously now.

DLC Link helps people make a yield on their Bitcoin. How do you do that? How is Bitcoin lending a thing? How can someone make a yield?

There are a number of use cases, but the biggest use case we’re solving is great. I hold Bitcoin, but while I’m waiting many years to retire or whenever I might need those funds, can I earn something with this because there’s an opportunity cost? Bitcoin doesn’t itself generate a yield. Unlike a company, when you buy company shares, you’re buying into the future profits of that company. With Bitcoin, you hold some number of it and then it’s there. What people can do is they can use Bitcoin, think of it again as gold, as collateral and take a loan in another token or in dollars.

Let’s say golden dollars to make it simple. You put up some gold because you have a lot of gold and now you take some dollars against it. You take those dollars and you invest it into the stock market or whatever you want. You earn a return. As long as the price of gold doesn’t plummet, you’re earning a return while you’re holding. It’s all showed, not the taxable event, because you’re taking a loan.

While people are holding these tokens, the coin included, they should be able to do this. However, the only way the problem we’re solving is, and that’s an existing market, by the way. There’s one platform I was looking at. Even we are in a crypto winter. Everything has crashed tremendously, but there’s $6 billion in one lending platform called Aave. There are a bunch of other ones too. There are a lot of lending platforms because this is a common use case.

That’s great, but the problem we’re solving is when it comes to Bitcoin, when you want to take a loan, you take this decentralized money and you have to send it to a custodian, a third party to hold it because Bitcoin is not interoperable with any of the other chains. The other chains came later. Ethereum came later. A lot of the tokens are built on Ethereum. Think of Bitcoin and Ethereum. To make it simple, you cannot use Bitcoin in Ethereum. They can’t talk to each other.

The technology we’re building is an invention by a Bitcoin or it is the guy who co-created the Lightning Network, which is a big network on top of Bitcoin. That guy’s at MIT. He created the technology called Discrete Log Contracts that we’re commercializing. What our platform lets you do is instead of taking that Bitcoin, sending it to a third-party custodian, and then having that custodian land on your behalf, we’re letting you lock it in your wallet and do take the contract right from your wallet. You don’t have to send your Bitcoin anywhere.

I could take a loan, take my Bitcoin, lock it in my wallet, accept the terms and conditions, take a loan on it, do things with that loan, and if I pay the loan back, the Bitcoin is unlocked. If I default, then the Bitcoin is automatically swept to the lender side like a regular lender, except there are no humans involved anywhere. It is all smart contracts because the lending platform operates through smart contracts. It gets the price through other smart contracts called Oracles.

It’s a completely bankless decentralized system. The only way to do this is to have one custodian involved where you sent the Bitcoin. We have had three major custodians fail. Over $100 billion was lost from the failures of Celsius, a lender, Voyager, an exchange, Terra LUNA, a token and a bunch of affiliated businesses. FTX, which is a custodian and a bunch of other businesses, and Alameda, their sister trading firm.

You had five big companies blow up and then it has all these follow-on effects. If one of the biggest custodians blew up, you don’t know if the others might. Why take your decentralized Bitcoin and send it to somewhere someone who might frankly lose it or be irresponsible with it? That’s why we’re enabling lending from the wallet directly.

The wallet, is it on the blockchain as well?

Yes. Your Bitcoin is on the blockchain. The escrow contract you move it into is on the Bitcoin blockchain. When it moves back, it’s on the Bitcoin blockchain. It never leaves the Bitcoin blockchain or your possession at any point in time. That’s a future we’re building with this platform.

That’s pretty significant because you are enabling people to use Bitcoin as collateral in a safe way without having to run counterpart risk on the institutions that handle it. Essentially Bitcoin whether completely controlled by a controller. They do control it through smart contracts to the degree that the contract allows them to control it.

The user controls what makes a decision on which lender to trust, and then when the lender presents the contract, they have to sign that contract. Like a lending contract, “Here’s the amount you’re putting up. Here’s what you’re getting. Here are the terms of liquidation, the interest rate you’re paying,” and you sign that contract in your wallet as the user. From there on, it’s completely out of your hands. It is controlled by smart contracts on the lender side, on Ethereum and on whatever technologies they use. All of that is, from there on, fully decentralized.

Smart contracts are still subject to the laws of the country and the decisions of judges.

I don’t know because those are smart contracts that run on a blockchain. Once you put this X on the blockchain, they’re just there. They can’t be changed. The only way they could be changed is if the entire Ethereum, 51% of the community changes them or they are forced to. Even if something huge like that were to happen, it wouldn’t influence your loan. It is immutable. It’s out there. Let’s maybe walk through this because it’s interesting, if you take a loan and then your country decides for some reason that you can’t take that loan, that’s too bad. It’s on the chain.

The country could arrest you as a person for taking that loan, but if they make a law after you took the loan if you were le legally able to take that loan, then it’s out there. If you’ve taken a loan with certain terms or whatever and it’s going to be repaid in 100 years, then 100, later that smart contract will unlock or whatever conditions you put on it. I’m sure it could not be changed once it’s on the blockchain.

Let’s say I take out a loan or I have Bitcoin. I use collateral and I make a loan through smart contracts. Someone borrows that money and they default on it. What if they default in another way them paying the interest and the principal? Let’s say they become insolvent, which can be a default under the loan or maybe reorganize themselves, which was not allowed in the long-term. Who enforces those def that is not super simple, like a loan repayment or then maybe in a smart contract, the only default is the nonpayment of the loan? You cannot have other defaults.

In this case, you cannot because the nature of a crypto loan is very limited because it’s a collateralized loan. You’re saying, “Here’s $100,000 worth of Bitcoin. I can take up to $50,000 and it’s secured by the presence of the collateral. There’s no credit check or driver’s license. You don’t even have to be a person. It’s the amount of money or tokens that show is mixed eligible. There are no other covenants possible. I haven’t gotten this question before, but it’s a great question is what happens if the lender disappears? Their code is still running on the blockchain.

The administration and some of the takeover.

Private keys to the wallet are the things securing it. Let’s say you lose your keys or keys are stolen, then somebody else now has those keys. The keys that you use to access the blockchain can shift around. A cord could decide that the lender now is something else or whatever part of the government and now, if they get your keys, then they will have access to it. Even then, the logic itself is embedded into the smart contract. All they would get is that loan instrument, but they couldn’t change the rate or something on you.

I think you got into a little bit of a rabbit hole. I hope the readers were able to follow the discussion, but there’s a lot more to it. If our readers would like to learn more, where can they go? How can they learn more about DLC Link? Give us some places where we can explore.

Our website is Dlc.Link. On Twitter, it’s DLC_Link. My name is just on Twitter at @AkiBalogh. Those are probably the best places to start. We have a YouTube channel and Discord, but Twitter is the best place to read about us.

Check out Aki Balogh, the Cofounder and President of MarketMuse, as well as the Founder of DLC Link, which creates these Bitcoin wallets that allow you to fully control your Bitcoin, make money with it, and open new avenues for Bitcoin investors. If you’d like to explore a custom business operating system that allows you to grow your business and take it to the next level to the top of the mountain, then check out my website StevePreda.com. Aki, it was great to have you on the show. Thanks for coming and sharing your very state-of-the-art knowledge about the crypto world and have a great day.

Thank you.

 

Important Links

• MarketMuse
• DLC Link
• Charles Frydenborg – Past Episode
• DLC_Link – Twitter
• @AkiBalogh – Twitter
• YouTube – DLC Link
• Pinnacle: Five Principles that Take Your Business to the Top of the Mountain