Motley Fool cryptocurrency expert Bernd Schmid joins producer Ricky Mulvey to discuss what long-term investors should look for in the emerging crypto space, including:
- How to think about allocation.
- The real-world problems that blockchain platforms are already solving.
- Fundamental differences between Bitcoin (CRYPTO:BTC) and Ethereum (CRYPTO:ETH).
To catch full episodes of all The Motley Fool’s free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.
This video was recorded on Jan. 23, 2022.
Bernd Schmid: For us, long-term investors, I generally believe that Bitcoin has a sincere chance of not replacing, but being a competitor or even just an alternative to gold. It could be there in 5-10 years. Then I don’t mind if today I pay, what is the price now, $40,000 today and $30,000 tomorrow. It’s for me mainly the same option that I have on the future.
Chris Hill: I’m Chris Hill and that was Bernd Schmid, The Motley Fool’s Cryptocurrency expert in Germany. Today on the show we’re going in-depth on crypto. Let’s face it. This has become an area of investing with a lot of noise. Bernd joins producer Ricky Mulvey to discuss how to find value amid all that noise. How to think about allocation if you want to dip your toes in the space. The fundamental differences between Bitcoin and Ethereum and a lot more.
Ricky Mulvey: I’m so excited for this. Joining me now is Bernd Schmid. He’s our crypto expert and the Lead Advisor for the Fool’s Digital Explorers Program. For me, especially as I have explored this space, it’s confusing. It’s deep. There’s 80,000 cryptocurrencies out there. Bernd, what are some of the general principles you look at when you’re evaluating? Essentially what’s good and what’s bad?
Bernd Schmid: Hey Ricky. Thanks for having me here. I’m definitely very passionate about the space, though I wasn’t aware that they were already 80,000 of these things out there. However, probably anyway, 90-95 percent of them aren’t very useful. There’s actually two things I’m looking for to answer your question. One that I look for when I analyze such a project is the one that it solves a real-world problems in the way that wasn’t able to being solved without the technology it’s built on like Blockchain distributed such technology. It should really imply the technology in a way. But it’s also a problem that otherwise wouldn’t be solved. The second one is are they actually doing it? Is that code already written? Is that network effect generated? That’s actually what I’m looking for. Are there people joining this network? Is there a way forward on this where we see exponential growth for this technology on this project development.
Ricky Mulvey: Is there a problem and is there room for growth, seems to be the two ideas here that you are really looking for. Hearing you on past interviews, something I started thinking about too, is when we talk about crypto, we’re really talking about three types of things. There’s crypto currency, there’s asset-backed currency, and then there’s platforms. Can you briefly talk about the difference between those three?
Bernd Schmid: Yes. But I have to say this is a framework I used to work with, but it’s continuously evolving. But for broad concept, I think it’s still useful to have it. Cryptocurrencies, people generally like to talk about cryptocurrencies when talking about anything in this space, Ethereum is cryptocurrency, Bitcoin is cryptocurrency, and whatever Solana, whatever people know. It’s all cryptocurrencies. In my point of view, I’d like to differentiate a little bit because in cryptocurrency you have to word currency. But what is a currency? A currency is a medium of exchange. It can be used as a solver like money. But not all of these. What people call cryptocurrencies in my opinion, or even objectively, don’t try to solve the problem that currencies or money are trying to source. I’d like to reserve the term cryptocurrency for coins or projects who do that actually, like Bitcoin. Bitcoin, like if you read the white paper, it was meant to be a medium of exchange, digital medium of exchange. It’s definitely cryptocurrency.
Ricky Mulvey: You’re not seeing people trying to build applications on top of Bitcoin like they can on something like Ethereum.
Bernd Schmid: Actually it could happen and it does happen. I don’t know if it will succeed in the end. But from the idea of the concept was meant Bitcoin, the medium of exchange in the very short white paper. Whereas Ethereum for example, the second biggest project out there, also in the hundreds of billions already, it was meant to have programmable the money. Like you write programs, so-called smart contracts in which are running on the platform. That’s why I wouldn’t call Ethereum or Ether a cryptocurrency. But I would see this as a so-called platform, the second big pillar that you were talking about. Then I think it’s third, you mentioned asset-backed tokens, security tokens, for example. Or you could, for example, tokenize real estate that makes you create a token on the blockchain, for example, on Ethereum that represents a digital right on really a real estate project, for example, a building. It’s not a cryptocurrency, it’s also a platform, but it’s a token which represent some real-world value.
Ricky Mulvey: I am excited to dive in deeper into those three types of cryptos later into this conversation. But something I have generally struggled with is crypto is generally a place where you dip your toe and you have to use these exchanges. It’s not something that you can necessarily easily, I should say, there are ways of doing it, but easily hold in something like an IRA. For someone who is newer to crypto, let’s say they have about 1,000-5,000 dollars. This is money that they are comfortable setting aside for 3-5 years. How do you generally think about allocation for that beginner who’s willing to dip their toes in?
Bernd Schmid: It depends also on your interest. But I think most people who just want to have the interest as an investor and don’t want to use these ecosystem so far. I would say open an account with one of the bigger exchanges you find just to drop some names. It’s not an endorsement, Coinbase, Gemini, EverLaunch, Anchorage, Kraken, that does a couple of exchanges out there. Each offers different kinds of coins, but all of them offer the bigger ones. That’s where I would start. Like Bitcoin, Ethereum, I think still worthy of an allocation. Then depending on how deep you want to get into the weeds, there’s certainly an actually very prior, in my opinion, very promising projects among the 80,000 that you mentioned. If you just look at the top 100 and sure anybody can find 10-15 which could excite them if they have the time to dig into. I would probably stick with your example. If I had $5,000, I would probably put 80 percent of it, 50/50 into Bitcoin and Ethereum and the remaining 1,000, probably in one or two projects that excite me most off the bigger ones.
Ricky Mulvey: There was the concern, or there is a concern among some cryptocurrency followers that if you don’t physically hold the cold storage of your tokens, if you don’t have it on a USB drive that’s locked away somewhere, you don’t own that token, especially if it’s on a exchange. Is this something that sounds like something that you don’t necessarily believe in? Do you feel comfortable using these large exchanges for crypto transactions?
Bernd Schmid: I do feel comfortable. The ones I mentioned, I don’t have any bigger concerns about those now. For example, Binance is one I like to use. They have two platforms, one for non-US and one for US investors. Probably it doesn’t affect US investor so much but I use the one [inaudible 00:07:19] type. It’s actually the biggest exchange out there, but oftentimes have issues withdrawing my coins from there. I’m one who likes to use these coins, like usually put them on my wallet and then employ them in the DeFi project or whatever I want to do. I want to stake them. Binance sometimes doesn’t let me do that.
Ricky Mulvey: Especially when they see active trading, they’d occasionally shut it down. That’s been a subject of criticism among a lot of investors. I think one reason that people have been a little bit fearful of getting in, especially to those smaller named cryptocurrencies.
Bernd Schmid: That’s fair. I actually don’t subscribe to not your wallets or not your keys, not your coin. I still believe that whatever Binance shows me I own, I really own. They know who I am and I don’t think anybody could take it away from me aside from some real hex that could happen I suppose. But I generally feel more comfortable, especially if it’s bigger amounts to have it on my own wallet and control it myself. But that’s really just me personally.
Ricky Mulvey: But aside from just the risks, aside from the cybersecurity aspects, you mentioned that there are some exciting projects and problems that these coins are trying to solve. What’s one problem you’re seeing addressed in crypto right now? A meaningful problem that is being solved by this kind of technology.
Bernd Schmid: There are so many. It’s difficult to just pick one example. But one, just because I researched it, I think yesterday and today is a broad checks that actually do video livestreaming. I wasn’t aware of that. But apparently, for broadcasters, video livestreams are really expensive. If you have the numbers, correct me if I’m wrong, but it’s really a couple of dollars per hour or was it hundreds of dollars and then you need setup fees and all these things. One main reason, this is the transcoding, so you’re broadcasting it but then you want to have the receiver of the video being able to play it fluently if that’s the right word without interruptions, and so people with lower bandwidth, they cannot download your video properly, the bit rate and the quality of that you uploaded it with, but they want to have a lower quality to have a fluent stream of video, and there are others with a high bandwidth, they won’t have quality video, and that means actually the video that uploaded needs to be so-called transcoded in the different bit rates that can be adjusted based on the user’s bandwidth.
This is apparently really expensive in the current world with YouTube and Twitch and everybody, and they have the resources to do it, but if you now use for example, make it short. It turns out for this transcoding process, you could actually use yours or my computer, mainly it’s the GPU, your graphics card essentially. It does the transcoding process very efficiently, and so you can make a peer-to-peer system, a network of people who provide essentially a GPU power to this network and broadcasters can use it and users benefit from it, and they can actually cut the costs I think roughly to 1/10 of what these centralized entities use. It would be possible without blockchain, but blockchain now you can build in these incentivization mechanisms that you would actually be really interested in providing the GPU power, because you get directly reimbursed by these coins that are being generated. So you can use this technology to create this network and create the incentives for people really building this peer-to-peer system. It’s happening.
Ricky Mulvey: It’s the right balance of there’s a problem which is the way that we use GPU power on our computers is incredibly inefficient, but also the personal issue of Bernd in Germany, why would I share my GPU with you here in Denver, Colorado, and this is a way of incentivizing people to participate in that exchange.
Bernd Schmid: Yes and you know there are so many problems. If you just think about all the censoring going on in Twitter and YouTube. This is because these platforms are controlled by centralized entities. One of the three big promises that they call them, the crypto or this distributed ledger technology brings is actually the removal of the middleman. You can replace these people in the middle with the technology that cannot be censored in the end.
Ricky Mulvey: Yeah. There is one example of that recently on Rule Breaker Investing. David Gardner sat down with Aaron Bush and he talked about with the removal of the middleman in terms of smart contracts. The example he used was, let’s say you wanted to bet on the North Carolina basketball team, I wanted to bet on the Texas basketball team. A smart [inaudible 00:12:02] could have smart contract and that bet could take place without any middleman. Texas wins, I would get the money, North Carolina wins, you would end up getting the money. Are you seeing smart contracts being used in that kind of way particularly in the gaming space?
Bernd Schmid: I see this is happening. They definitely exist and it’s very easy to do. There are so many examples like this. What I don’t see is right now many companies employing this type of technology like using smart contracts to make such systems which already exist more efficient like sports betting, but I have no doubt in my mind that this will happen because this smart contract, once you have, it’s there, you don’t have to maintain it. Well it does have some costs operating for the transaction to generate, but it’s very cheap to then operate such a system.
Ricky Mulvey: I think I could imagine why a sports gaming company though would not want to employ that because it would in essence cut the spread that they have on these games, but I would think that if you were invested in the gaming space, especially excited about these sports gambling companies, this is something that you maybe would want to be concerned about or look into because it could be a huge disruptor for them.
Bernd Schmid: Thanks Ricky for framing it like this because that’s actually the case. These people would disrupt their own business model if they would use these kinds of things. They are the middleman and they have no incentive replacing themselves. This is this dilemma.
Ricky Mulvey: I want to move on a little bit to talk about Bitcoin because I think it’s the most well-known brand. It’s where I have some complicated feelings toward it because it’s the biggest brand name, but it also has a lot of problems. One of the issues that I have seen are two; one of which is that the ability or the room I guess for price manipulation, and the other being transaction time. The amount of time it takes for those blocks to move on average is 10 minutes. As a medium of exchange is that simply too long when you expect. If I Venmo you five dollars, I expect that to happen instantly or I worry about where my money went. Do you think that transaction time is too long for it to be a useful medium of exchange, 15-20 years from now?
Bernd Schmid: Yes. I don’t think so that Bitcoin will fulfill the vision that Satoshi Nakamoto, the writer of the Bitcoin white paper, the inventor, had for it to be a medium of exchange. I think most people actually don’t see Bitcoin now that way. Bitcoin I would rather now see as a potential replacement, or a competitor to gold as a store of value in an inflationary environment. For many people, Bitcoin has been that and it could be in the long term. However, we talked about things being built on top of Bitcoin. There’s something called the lightning network for example. It was meant to solve exactly that problem and this transaction like it’s called lightning fast settlement times. It’s happening very fast. It’s cheap. There could be stuff built on Bitcoin that might bring Bitcoin in that direction. On the other hand, I don’t know if we need that. We have already let’s call it competitors of Bitcoin who actually are much better at fulfilling this medium of exchange value. They have very fast settlement times, etc., and I think they could do that better.
Ricky Mulvey: One other area we talked about is the potential for price manipulation in Bitcoin. I read this on Business Insider. It said, “The top 40 percent of all Bitcoin is held by just under 2,500 known accounts.” So price manipulation, especially it can happen at the smaller levels, but even at the larger levels, even at the area of Bitcoin. Is that something that concerns you as a crypto investor?
Bernd Schmid: It doesn’t. I mean you can have some very long philosophical discussions about this, but I think there are about 14 million wallets out there with non-zero values of Bitcoins in them. That means 40 million owners of Bitcoin, 2,500 of them. It’s like 0.01 percent or something like this. A bit less.I don’t know. It’s of course a few people. But what are they in for? The question is like what is their motivation? If they want to manipulate the price, let them do that. They can manipulate it down by selling their Bitcoin, but then what do they want to do? So they ultimately solve the problem because they have to distribute this Bitcoin to others and if the network grows broader and then this problem puts off itself, its such a philosophical discussion. I think you cannot manipulate the price in the long term. For us, long-term investors, I generally believe that Bitcoin has a sincere chance, of not replacing, but being a competitor or even just an alternative to gold. It could be there in 5-10 years. Then I don’t mind if today I pay, what is the price now, $40,000 today and $30,000 tomorrow. It’s, for me, mainly the same option that I have on the future.
Ricky Mulvey: I think price manipulation can be, I see your point, at an incentive level, it doesn’t work because if you own the currency, you want it to go up and then you can only, it’s hard to sell your way up, especially if you’re creating more supply and the demands stays stable. But I think that is a general concern, especially for the smaller coins. Something like Dogecoin. We saw that a year-ago with Elon Musk going on Twitter and you start to worry about the incentives. Why is he so excited about this cryptocurrency that seems to be a meme coin, but doesn’t really solve any hard and fast problems that I can see.
Bernd Schmid: The world has become weird in some ways. [laughs] This is one story I’ve never understood that much, why you Elon Musk was jumping on this. Indeed. Mainly because I didn’t see a value, probably I might just, not probably, but I might just be wrong, but I don’t see a value and the problem that Dogecoin solves, and why Dogecoin is more suited to whatever Elon Musk thinks that it’s supposed to do than any other coin out there.
Ricky Mulvey: Whatever he wanted. Let’s move on to number 2. This is the idea of platforms that we mentioned in the introduction. Platforms’ a little bit different than Bitcoin, which is a digital gold medium of exchange. This is where we start talking about things like Ethereum and Solana, the things that NFTs are based on, that more applications are based on. One question I don’t understand Bernd, and while I have an expert here, is, what is it about Ethereum that allows developers to build on it in an easier way than something like Bitcoin?
Bernd Schmid: It is mainly because Vitalik Buterin, one of the founders, the main founder of Ethereum, he actually saw Bitcoin, if I remember correctly, I think he wanted to make Bitcoin programmable. But Bitcoin has [inaudible 00:18:52] that’s here today, and I think that’s one of its qualities. It has the strong community which thinks, no we don’t want to change the code. It is like what it is and we want to keep it and that’s our strength. He said, but look, if you make it programmable, you can, and we mentioned these sports betting and there’s so many used cases out there with smart contracts. He said, “I can use this technology to just create programmable money, so I’ll do it.” That’s what he did with Ethereum. It could very easily happen. You can take the code of Bitcoin, extend it and make it similar to Ethereum, but Ethereum has done it first in an alternative way and has generated these network effects and now it’s quite big already, people are using it. It’s been quite successful.
Ricky Mulvey: So the users of Ethereum are more willing to change the products than that Bitcoin. Can you think of some of those changes? One of which I, again know very little about, that’s why I’m asking you, is that, Ethereum is moving to a proof-of-stake model instead of, in terms of mining and how you are rewarded with those coins. Can you describe a little bit about some of the changes you’ve seen with Ethereum as it’s developed?
Bernd Schmid: Yes, I will do that. But first to this Ethereum developers or the community, more willing to change? Probably, yes. But that’s also because they’re different use cases. Ethereum wasn’t meant to be what Bitcoin is.
Ricky Mulvey: Yeah.
Bernd Schmid: Bitcoin didn’t want to be what Ethereum is. It makes sense to have these two systems and probably more in the future. In terms of Ethereum developing further, it’s a very good point that you mentioned this switch to proof-of-stake. That’s a very big change that’s actually, it’s in the transition stage right now. I think the switch will appear at some time this year, where they will switch from the so-called proof-of work, where they have to employ a lot of computing power to contribute to the network, to a proof-of-stake, where you actually don’t need much computing power. This will make the network 99 percent, I think, more efficient in terms of energy consumption.
Ricky Mulvey: One of the interesting things about Ethereum in these platform solutions tokens is that people can build on them, and one way that exists in Ethereum is something called Layer 2 solutions. Bernd, what are these? How should investors look at them?
Bernd Schmid: It’s a great question and it’s a topics we could talk about for hours only. It’s very complex. But these Layer 2 solutions they want to solve a specific problem, which is the problem of scaling. So Ethereum is like Bitcoin, it’s a proof of work system, we talked about that before. Based, like how they set it up, is they can process about 15, 20 transactions per second at a maximum. That’s it. That’s by far not enough. Just have a reference, Visa and Mastercard, they can process tens of thousands of transactions per second. On top of Ethereum you already have applications which could actually, theoretically require this amount. You have fixed changes where people trade coins with each other. You have lending protocols where constantly people deposit tokens and lend on. There’s activity happening and the Ethereum’s blockchain just cannot transact or process all of these transactions.
That’s why the fees are very high, high demand, supply is limited to this 15-20 per second so you pay a lot of money. These Layer 2 solutions they want to solve that by building on top of Ethereum. Layer 2 solution to keep it simple is something separate, let’s call it two system which processes all these transactions. For example, specifically for one of these exchanges, it processes all of these transactions, but it’s settling them only in batches on Ethereum. Let’s say there are many traders on one of these exchanges, they’re training coins with each other, and let’s say these exchange is built on the Layer 2, then you have 1,000 transactions per second. Then these are being batched together by this Layer 2 solution and then sent to Ethereum in one transaction. Essentially you settle these thousands or thousand transaction in one transaction on Ethereum and that’s how you can make Ethereum scalable.
Ricky Mulvey: That’s a way you can get the gas fees lower as well. My understanding is that with Ethereum, the more transactions, the more congestion there is on the system, the higher the gas fees are. That’s been a big problem for people who want to transact on there because one of the promises of crypto is getting rid of the middleman and then I can see people being understandably annoyed when they see these high fees to do a transaction on these DeFi systems.
Bernd Schmid: Absolutely.
Ricky Mulvey: I want to talk about Solana for a sec too because that’s a solution, a coin, a token, whatever we’re calling it on this podcast, that has a lot of attention. One reason is because it has lower gas fees, lower fees associated with it. That was a primary reason that I set up a position in it. I guess I’m asking, is that investment thesis sound to you, or do you think those Layer 2 solutions for Ethereum will eventually get around those high gas fees on the main platform?
Bernd Schmid: This is also like a topic in itself and really interesting question, you framed it very well. I think indeed Solana is meant to do something much better that Ethereum does, which is exactly that the scaling problem. Solana can now, the promises that they’re able to scale as much as Visa, Mastercard, what I mentioned before and do this is really fast, settle very fast and gas fees are low. They do this by sacrificing on another dimension, which blockchains have the aspect of decentralization. A blockchain works, you have a lot of so-called nodes. These are, let’s say, called servers. They’re running this blockchain and the code and on them in parallel more or less.
In Ethereum, almost anybody can do it. In Solana, it’s very high hardware and software requirements to do that so then, not as many and that’s why people say Solana is not decentralized. But that aside, I think Solana has this really interesting value proposition. Now exactly, I don’t see Solana competing right now with Ethereum, but with this Layer 2 solutions, like if I’m an application and I want to build a blockchain application, a decentralized exchange or whatever, I can decide, do I go to Solana or do I go onto a Layer 2 of Ethereum polygon. For example, both have similar promises and another alternative. You ask me with how I see that play out? I don’t know. My current feeling is that you will have different layer ones. You will have a Solana, you will have Ethereum and probably a couple of others and each specialized in what they do best and people being built on top of that. I’m not 100 percent sure about Layer 2 solutions. I used to think you don’t need them if you can do that on the Layer 1.
On the other hand, there are some really interesting technologies being developed. Very complex stuff. The most interesting to me are so-called technology based on zero knowledge proofs, which is a mathematical concept. There’s a company called StarkWare from Israel, which does it, and they’re building Layer 2 solutions for Ethereum. What they say and what it does is actually they solve the scaling problem without sacrificing, for example, the decentralization that I mentioned before. With this StarkWare solution, they say, you actually inherit the security of Ethereum, the decentralization of Ethereum, but you have it scalable. That actually means you have all the benefits of Ethereum without the drawback the low transaction speeds. If this really proven to be true and if they can generate these network effects that we talked about in the beginning of the show, I think these Layer 2 solutions, they stand a chance and potentially even on Solana, why not having applications with hundreds of thousands of transactions per second running on a Layer 2 on Solana, depending on the specific requirements that they have.
Ricky Mulvey: It’s more about how people are using the solutions and maybe there is one for this idea that the more decentralization you have, the more difficult it is to process a lot of transactions at once. The third place I want to go with this discussion is the area of cryptos that scare me the most, and that’s the asset-backed currency. This is I think where you’re seeing a lot of controversies, this is where you’re seeing a lot of difficult to enforce promises. We talked about asset-backed currencies is this thing that I own a token, which means I own a share, could be anything, could be a piece of real estate. It could be a book that somebody bought. I guess my question is, is this where solutions are a little bit more difficult when you’re saying, I own a token that’s backed by a stake of ownership and a book or the piece of real estate or the future earnings of an athlete.
Bernd Schmid: That’s fair. I think here’s the legal aspect like it’s not solved right now. I think there will need to happen a lot of things and they’re happening. I don’t know how fast, but in the next 1-2 years, I think we will see solutions. If somebody offers, let’s say, a piece of real estate on the blockchain; how do you trust this guy that you really own this piece of real estate by owning the token, you have to verify that yourself. But here’s the good thing there’s regulators also in place. That’s actually, the SEC that they have regulations in place for so-called security tokens. I think a real estate or a token backed by real estate in the end would qualify as a security token. That means somebody issuing that they will need to be regulated and they will have to fulfill some reporting standards and all these things and make it transparent, like what do you actually really own? It’s actually possible to verify they can only trade on certain regulated exchanges in specific cases. I don’t like this word in this case, but I have to use it, you are protected in the certain sense. If you can trust that this guy if he trades on this exchange, that actually they have done the due diligence for you, and you actually do own a piece of real estate if you buy the token.
Ricky Mulvey: Then there is also a way that asset-backed tokens or bringing in collectibles that I think are both interesting and raise a lot of questions. One of which was, there is a DAO that bought a book. That is essentially how this person interpreted Dune and how it would be a movie and they bought the book is a DAO and then said, we’re going to make it animated series based on it. But now a lot of critics are saying, just because you buy a book doesn’t necessarily mean you own all of the rights associated with it. I think you’re going to see a lot of these interesting legal questions play out. Unfortunately, some people get burned in the process.
Bernd Schmid: Yeah. I didn’t know this example before, but this is a really good example of what we talked about before. That you’re buying the book, but you don’t have the right to generate whatever based on the story in the book. If they bought the rights, they wouldn’t need the book. They could form a DAO to buy the rights if whoever owns it is willing to sell it. I don’t know how you legalize it in the end, but if you own then as DAO, this right, then you could actually do all these things. You could create movies, etc. But yeah, this is actually the legal aspect. This is not a blockchain problem that will be solved, but how do you do it in a legal way to do these things? However, there’s no question in mind also that this is going to happen. Why should? For example, the rights to a book, why? Wouldn’t you tokenized it? Why wouldn’t you put it on the blockchain? It makes it very easy to generate the market for these things. Or think about patents, intellectual property rights in the patent office. If you put it on a blockchain transparently, you know what is there and at any point of time, you know who owns which patents, for example. If you have the patent in your wallet as a company, you can at any time say, look, we have this patents, like the processes it makes it so much more efficient if you want to sell a patent you just make a blockchain transaction and that’s it.
Ricky Mulvey: Some ownership cases, it’s going to make a lot of sense, but you’re still at the very beginning stages. I think for creative projects it’s going to be maybe more difficult than just intellectual property. I can’t imagine dealing with a decentralized group of folks who want to have input on how we’re going to adapt the animated series of Dune and having to listen to all of those notes, but Godspeed and good luck to them. A couple of final questions wanted to ask you before we wrap up this Sunday show. What are some publicly traded companies? Maybe you’re a little bit concerned about getting involved in crypto directly. What are some publicly traded companies that you think are using crypto and blockchain DeFi in an interesting way?
Bernd Schmid: Love the question. I’m talking about book here. Full disclosure, I own this company and it’s a major part of my stock portfolio that I still own. I think there’s one which so far has been doing that better than anybody else. Like in terms of utilizing blockchain, there’s lot of other companies, I think which would profit from the general trend, for example, Nvidia, I think it’s a Fool favorite, which produces hardware that will be used, and many of these proof of work systems. But one company which really tries to solve problems which can be solved without blockchain before is Overstock. Not Overstock itself, the retailer, their company. Well, you know them better than me. I’m in Germany, I cannot use them here. But they’re actually an online retailer, competitor is Wayfair, I think they sell a lot of home furniture, and the history is really interesting. It’s another podcast, you should talk to the founder of Overstock about that. But based on the history, they have decided to go into blockchain.
They’re also one of the first ones, if not the first one to accept Bitcoin as payment in 2013 or so as a side note. However, they actually develop a system themselves called tZERO. tZERO tries to solve the problem that we experience almost exactly a year ago with what we saw with AMC in the stock market. Where actually more shares were sold short than actually shares outstanding on the market and then you create these short squeezes and all this havoc in the markets and Robinhood has to close down and all these things. This could be solved or this problem wouldn’t be there if you had a settlement system where you actually know exactly at which point of time who owns which share, which right now is actually not the case if you really dig deep.
Shares right now are settled at the T plus 2 time frame. That means if you buy a share from somebody else, two days later, it will be settled generally, and tZERO as the name suggests, they build it on the blockchain. You could do the same. It’s essentially instant. If I buy an Overstock share from you, it gets transferred to me and I know I own it. That’s it. An Overstock does it and not only with tZERO, but because they have started to build knowledge with blockchain and these technologies, they invested in other start-ups and they do this under the umbrella of Medici Ventures, which is a subsidiary of Overstock and they own really interesting blockchain start-ups in there. Some of them doing really interesting stuff and it’s really being employed. Another one that excites me a lot, they do central bank digital currencies. Actually Nigeria, one of the biggest African countries, they have used the Overstock’s subsidiary to implement their central bank digital currencies. I think also Bahamas or Barbados, one of these Caribbean islands they also do it, and more and more countries are doing that. Then they have votes, digital voting, like voting on the blockchain. Well, you guys know a bit or two about how difficult the current voting system could be. Overstock is the one company that I own for that, where I think they can really solve a lot of these issues out there.
Ricky Mulvey: That’s not the one I would have expected. I was going to guess like an Nvidia or computer chipmaker, but Overstock, something that I will be putting on my watchlist. Bernd Schmid, lead advisor on crypto at The Motley Fool. Appreciate your time.
Bernd Schmid: Thank you for having me, Ricky.
Chris Hill: That’s all for today, but coming up tomorrow, what investors should know about China’s middle-class and the stocks that could benefit from their consumer spending. As always, people on the program may have interest in the stocks they talk about and The Motley Fool may have formal recommendations for or against. Don’t buy or sell stocks based solely on what you hear. I’m Chris Hill. Thanks for listening. We’ll see you tomorrow.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
Bernd Schmid owns Bitcoin, Ethereum, Overstock.com, Solana, and tZERO Group, Inc. and has the following options: long March 2022 $15,000 calls on Ethereum and short March 2022 $2,500 puts on Ethereum. Chris Hill owns Alphabet (A shares), Amazon, Nvidia, PayPal Holdings, and Visa. Ricky Mulvey owns Ethereum and Solana. The Motley Fool owns and recommends Alphabet (A shares), Amazon, Bitcoin, Coinbase Global, Inc., Ethereum, Mastercard, Nvidia, PayPal Holdings, Tesla, Twitter, and Visa. The Motley Fool recommends Alphabet (C shares), Overstock.com, and Wayfair. The Motley Fool has a disclosure policy.
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