Everything You Need to Know About DeFi and Crypto EXPLAINED | Tom Bilyeu

Welcome. Today we're going to be talking specifically about cryptocurrency, anything in sort of the the DeFi world. Now, I want to be very clear. Um I don't consider myself an expert in this. So, my goal is just to spur your own research. At the end of this video, my hope is that you'll be doing research. That's it. Um I do hold multiple cryptocurrencies, so full disclosure on that, and I'll talk more about what my portfolio looks like as we go. Um but keep that in mind as we dive deep. This is not financial advice. I do not have a crystal ball. I cannot see the future. You need to do your own research. All right. With that, let us get into why we are here to discuss this incredible transformation. My question is, what is the quickest way to learn about crypto for anyone new? So, YouTube. YouTube unto itself is one of the greatest inventions in modern history. The fact that any of us could go on right now and take an MIT course for free on YouTube. If you type in cryptocurrency, Bitcoin, Ethereum, whatever, DeFi, anything that you want into YouTube, you're going to get a slew of results. In the beginning, you want to look for crowd validation. So, what's got a lot of views? That's going to be a great place to start. Now, it may have a lot of views and still be worthless, but it's a very good place to start. When you're learning anything new, first you need to understand the language. So, every new area, industry, topic, all of that is going to have its own vernacular, its own jargon. And to really begin to understand it, you have to know what people are actually talking about. So, first it's just, "Hey, we're going to watch a bunch of content, and we're going to begin to learn the words that people use." Now, part of the reason that I suggest doing this on YouTube versus, say, books is that the publication cycle is very long, and things in this space are changing so rapidly that, personally, I probably only watch about 5% of the content that I consume on the topic of cryptocurrency is more than a week old. Now, when it comes to voices that I resonate with, and everybody needs to figure out whose thesis makes more sense to them, figuring out how people view the world is very important. Uh Michael Saylor for me is somebody that has really been influential. Raoul Pal is somebody that's been really influential. I've interviewed both of them. As you go deeper down the rabbit hole, there's Robert Breedlove as you start to like learn about sovereignty, and you start asking questions like what is money, which is one of the more interesting questions that you will need to begin asking for cryptocurrency to make a lot of sense, then it gets incredibly interesting, and you'll be able to start to create your own thesis about where you think the world is going because you understand humans, which is ultimately all this is about. Markets are driven by people. We want to understand those people, and then we can make predictions on what they're going to do with their behavior, which is essentially what a market is. You have to bet against the consensus, bet against the consensus, and be right. And that's how you end up making money in any sort of public market. And you'll find different people. You'll find people that talk about buy and hold, Michael Saylor. You'll talk to people about what's called macro investing, understanding big trends, Raoul Pal. You'll find other people that are more day trader-y. Uh BitBoy Crypto is a guy that like that's what he talks about, and in the beginning that was like really fun for me, and I watched a lot of that content, but then as I realized, uh that doesn't really fit my personality. I gravitated more towards people that are looking at this as a psychological transformation even more than a transformation of markets. All right. Been sort of researching around Bitcoin and Ethereum, and wondering, are there other coins that you've seen that we should be paying attention to? And kind of also along with that, can you help educate us on the blockchain relationship to each of the coins? Most coins are on their own blockchain. Some have created forks of other blockchains. So, Polygon for instance is a fork of Ethereum. So, there definitely are people that are doing that and each one of them are going to have their own coins. Um So, understanding why you like a given blockchain will help you understand why you like a given coin. And that becomes, I would say, critically important to think from first principles. Otherwise, all you're doing is aping into something based on FOMO. Now, when you have a thesis, like I'll give you an example of two competing platforms. So, you have Ethereum, which is its own blockchain, and then you have Solana, which blockchain. Now, both of them are taking a very similar approach to the market. NFTs is one of the big plays. It's certainly not the only play, but it's a big play for both of them. And what they've done is taken very different approaches. So, with Ethereum, their primary modus operandi is to make sure that they're maximally safe through distributing all of their nodes so that it isn't centralized. The problem is that it's very low throughput. And on layer one right now, there are layer two things coming and now we're we're getting in danger of, you know, going too deep down the rabbit hole too quickly. So, I'll just stay at layer one. I'm well aware that there are layer two solutions. In fact, Impact Theory is building something on a layer two solution. But right now, I'm just talking layer one. So, on layer one, you have very high security, very high confidence that the changes to the blockchain are all legitimate. But, it's very low throughput. On something like Solana, where they're taking a more centralized approach, so they have fewer computers that they have to fewer nodes, maybe they are tied to computers, but fewer nodes that have to be, you know, communicated with to verify a transaction, it increases their throughput, but some would say that it decreases their security. And about, I don't know, 3 weeks ago, a month ago now, there actually was a day where both chains were attacked on the same day. And Ethereum did not go down, and Solana did. But, the interesting thing is that it didn't seem to really impact the price of Solana. So, there's a lot of community belief that the advantages, even though you may get these occasional moments where it's more more vulnerable to an attack, that the community is saying, "But, the throughput and the and what that does is it ends up reducing the fees." So, everyone's complaint about Ethereum, low throughput equals high gas fees, high gas fees mean that even just like if you wanted to buy a $5 item on the Ethereum blockchain, it might cost you $50 in gas. And so, and it could be way more. You could be trying to buy something that's $300 and spend $1,000 if there's what's called a gas war. And this just happened during our Founder's Key Sale. There was at the very end, there was this moment where another project was launched that had nothing to do with us. And then, as the price went down on our keys, on the relentless keys, people FOMO'd in trying to get it before the sale ran out. Those two things happened at once, and you have people paying crazy gas fees to try and get their transaction to go through. We can get into why later, but now, like at just a high level, that's sort of the the big question being asked. Now, I own both Ethereum and Solana, just full disclosure, I own way more Ethereum than I own Solana, which is my bet, really even less than my bet of security, though I love that. My bet is network effects, known as Metcalfe's law, that the more people that are using it, the more valuable it becomes. And so my core thesis around the things that I buy from a coin perspective, do I understand it from a use case standpoint? So I'm what people refer to as a utility maximalist. So if I can't see and understand how it's going to be used, then I don't really care about it. And then two is are there a lot of people in that space? And so when I looked at Ethereum and we were going to be making huge investments as a company in terms of what we built on the back of, to me there was just so many more technical resources on Ethereum and so many more people using it. But again, all I'm trying to do is spark people's thinking, so go and research Solana. It's very interesting. And people that are mapping the adoption curve, it shows a very similar curve to Ethereum. If it were to follow that, then you would be laughing to make huge investments into Solana now over Ethereum, which may be so much deeper into its value curve that there's less upside. May, right? I am not moving in that way. I am more invested in Ethereum because of the way I view it, because I have a thesis. But this is where everybody has to understand the technology and develop their thesis. So, as you get more educated, then by all means start exploring some of these what are called altcoins. So you have Bitcoin, nobody calls Bitcoin, well, nobody that I've ever heard calls Bitcoin an altcoin. Some people call Ethereum an altcoin, but not many. And then sort of Bitcoin, Ethereum, and then most everything else is considered an altcoin. There will be huge debates in the comments over people whether they agree or disagree with that, but I would say that represents the majority opinion. So, I would say if you're just starting out your research, start by understanding Bitcoin and Ethereum, why they're different, why they matter, where this is going, and then when you're really comfortable there, start exploring some of the other things. But, there are so many chains and so many coins, I don't know that any one person could legitimately stay on top of it all. Um so, that's where your thesis becomes really important, and then to invest based on your thesis. Because I'm in the Philippines, I'm just curious if, you know, currency and nationality, if that if that matters or if that makes a difference when you're investing in crypto. And then, also because it's all digital, how do we like protect ourselves from scams or any of those negative hacks that happens in the internet? Yeah. Okay, so we are way outside of my depth when it comes to the nationality and what's going to happen there. So, full disclosure on that, but now I'll walk you through my thinking. You need to figure out what is legal in your country, what you can do, what's okay. Um that is a huge focus for us as a company, like as we were getting into the NFT game of like getting all the legal counsel that I could around what's the right way to do this, you know, I want to be supporting these products 40 years from now, and I do not want to be in regulatory trouble. And so, I think that's a real thing, you need to really look at that and assess what's going on in your country. Now, having said that, the internet, and you can think of cryptocurrency is sort of the internet of money, where it is truly distributed, there's no way to stop it. The only way to stop it would be for every country, all at the same time, to make it illegal, and then crack down on it somehow at the um protocol level so that it couldn't leak out of the country. Now, I can't remember if I'm remembering this correctly, but I'm almost certain I am, that in I think it was in India, when they made it illegal, the amount of crypto being held in India went up. So, this is one of those things, like it isn't even though you can track everybody, you can track the movement of currency. It's crazy. So, people that say, "Oh, this is about moving illegal stuff." This is the worst way to move illegal things ever, because it is all visible on the blockchain. So, uh but, you can be anonymous. But, once you find out who that anonymous person is, then you could track every single thing that they're doing. But, because it could be anonymous and you can access it over the computer, cryptocurrency isn't in your country or not in your country. It's on a distributed ledger everywhere. That's great news. That means that it's sort of anti-seizable. So, the government, if you were to memorize your seed phrase, which is a whole thing, there's when you set up uh this is certainly true when you set up a MetaMask account. That one I've done so many times, I'm just intimately familiar. When you set up a MetaMask wallet, you get a seed phrase. That seed phrase is 12 words long. Don't ever share it with anybody, literally nobody. Lisa does not know my seed phrase. So, you there are other things there, because if I die, then Lisa doesn't have access to that money. But, you need to understand that that seed phrase is everything, so don't give it to anybody. To your second point about how do we protect ourselves? Now, that means if the government wanted to come and seize, let's just say Bitcoin for ease, they wanted to seize your Bitcoin, they would not be able to, unless you gave them access to your account. So, from that perspective, as Michael Saylor likes to say, it makes it a negotiation. It does not make sense for the government to kill you, let's say, because if they do, then they'll never be able to access your money. It will literally be gone forever. So, this is the first like money that you can actually take with you to the grave because gold, they just dig your tomb up and they get your gold. If you die with your seed phrase and it's not written down, that money is gone forever. Theoretically, you just ratcheted everyone else's value up pro rata across everybody that owns Bitcoin by that 100 coin amount. So, very interesting. So, anyway, the government can't seize it. It's technically distributed. If you have your seed phrase memorized, you could then move to another country, go back to MetaMask, input your 12-word seed phrase, and your money's there. So, now all of a sudden, like if you think, I mean, we're just This is dark, but if you think about what happened in Nazi Germany, people were like sewing gold into the their garments and trying to escape with their wealth intact that way. Now, memorize 12 words, you're gone, and you have everything with you. It's absolutely bananas. So, this is a radical shift. Now, how do you protect yourself from scams? You have to understand what social engineering is. Right now, there are people watching your email, somebody else's email, whatever. They're watching everything you do. Just assume. And so, like this happened uh I guess I won't throw anybody under the bus. I have been involved in a company where the following happened. They wrote an email where one letter was changed, and it's like an I to an L. You know what I mean? So, at a glance, it just looks normal. And they write talking the way that that person talked and was like, "Hey, would you wire 50 grand to this address and we I just need it done today, so please." And but they knew like all the context. This is about this project, a real project, sent it to the right person in the company from the right person, said like talked in the way that that person talked, kept the email short the way that that person keeps their email short. Everything is crazy. And so, they just sent it. Poof. That 50 grand lost forever. No way to get it back. That's how people get you. So, you need a system in your life, like at Impact Theory, you can never ever ever, under any circumstance, send money of any amount, any kind, no gift cards, nothing. I will never ask you to buy something. I will never ask you to transfer money unless you look into my beady little eyes and I say, "Hey, please go do this." And it's always tempting to be like, "Oh, well, I know this project is moving and uh we're all busy and I can't Nope. That's the only way to avoid a phishing attack. Now, I'm super worried as deep fakes get better and better that people can fake your voice, fake your likeness. And so, now it like gets into like secret words that only the two people know and that you never write down, you never put digitally, but you really have to be thoughtful because you definitely can get scammed. And the last one I'll say, I'm not 100% sure this is true, but I'm pretty sure because we were just talking to one of our developers about whether this is possible or not. What ends up happening in the NFT world, you'll have your account with all your amazing NFTs and somebody will send you something. And let's say like, "Oh, man, it's ugly. I don't want that." And so, people send it. They they burn it. They send it to a null address, a dead address where it will never be accessed again. But, now you've done a contract interaction. And according to our developer, I still can't believe this is true. It's so hard to accept. I don't want it to be true. If our developer is right, that they can write something that's called on interaction, if I remember right, where it will do something. So, it could say on interaction with this contract, allow me access to sell everything in their wallet. Now, people have said that that's exactly what's happened to them. Now, every time somebody looks at this, it seems like the punchline is they were probably fished. But, if our developer is correct and you can bake that into the the contracts, then that may be possible. So, I will just say, if you are an NFT collector, as I am, never ever ever, under any circumstance, engage with a contract that you don't know. Great news. If you're watching this episode, that means you're actually doing the work to research this new world of finance, cryptocurrencies, NFTs, Web 3, all of it. Seriously, I commend you. Most people are going to write all of this off without even looking into it, and that means that most people are going to miss out on what could be, in my opinion, one of the greatest wealth transfers in history. Now, look, it's incredibly important that you do your own research. I cannot see the future. I just know that something very important is happening right now, and it warrants you taking the time to look at it, to do the research. Now, if you're excited at all about learning about all of the changes, then I invite you to join my special community of like-minded people on our Discord by going to impacttheory.com/discord. Since you're watching this video and learning about crypto and the future of the blockchain, you should know that this really is the future of Impact Theory. About 9 months ago, we decided to pivot because I can see that this is where the world is going, and this is truly the moment of disruption that we've been looking for, and Discord really is the best place for you to begin to engage with that side of Impact Theory. We've launched our first flagship NFT, the Impact Theory Founders Key, and our holiday feature narrative, Mary Mods, which is also an NFT project, and I promise you, you're going to be blown away by what we're doing. We've got a lot more planned for years to come. We have a long-term, very aggressive, very fun road map. So, if you want to turn this learning into action, I hope you will join us in our Discord community at impacttheory.com/discord. All right, back to today's episode. The problem that I see is that cryptocurrency in general is speculative right now and it's hard to imagine how it can become functional for commerce, especially when you're talking about low value transactions. Like for example, in my in my line of work, a lot of my transactions might be under $20. And so things like gas and the time of transactions to to process, those things are really critical in order for us to use cryptocurrency for commerce. So I have my question is what are your thoughts around that? And just to add another layer to that, do you see commerce, the type of commerce I'm talking about being built on a proof of stake chain or a proof of work chain or both? Man, these are great questions. So and I'm glad that you said to add another layer to that because that's the answer. So now we get into layers. So you have layer one, which is the the main net on Ethereum. I'll just use Ethereum because it's the one that I understand the best. Uh you have main net, layer one, transactions are settled in a slow manner but with a high degree of confidence and finality, spread out over a maximum number of nodes. Um very slow throughput, very high gas fees. Then you have things like Immutable X, which are layer two solutions which use something called a ZK roll up, which is a zero knowledge proof. It's very complicated mathematics but can be done very quickly that ensure that it we have confidence that this thing is real um but it is done lightning fast. And then in batches, they settle up to the main net. So now for very low fees, essentially, like to give you an idea, um we have a NFT marketplace called renders uh which is coming very soon, built on the back of Immutable X layer-2 solution and the we just eat the cost cuz it's so so minor that we don't pass that on to the end user. So, there's it's a gasless environment for them. Right now, NFTs are only high-end, right? Like, you're buying a cheap one is like a thousand dollars. So, that's like a pretty rough environment for, you know, a 16-year-old kid who's just hyped like I used to be on Garbage Pail Kids. You want something that's really inexpensive. Call it five dollars for, you know, three or four of them. So, now to do that, you've got to be on a layer-2 solution, but the artist can actually afford to do that. Uh a coffee company could afford to do that. Any company can afford to do that, but it has to be built on a layer-2 solution. Those are going to become more and more pop Or, I should say, a layer-2 solution or a chain like Solana, which makes the trade-off of it's more centralized and therefore potentially less secure, but much faster and a low to no fee environment. Those are coming. They're already here, in fact, and they will just be rolling out more and more aggressively uh in the coming months. And I'll say two or three years from now, it'll just be a no-brainer from Bitcoin on the Lightning Network down to Ethereum and layer-2 solutions. Uh it it won't be an issue. Um people just now have to integrate with it and get accustomed to it cuz like on Immutable X, for instance, you have to first get like the Immutable X coin, right? Then you can spend the Immutable X coin and go back and do your thing. And so, that initial hurdle of like, wait, what am I doing? And you have to wrap your head around it. And so, in the beginning, it's a little confusing. And like everything in cryptocurrency, to get in is hard. But once you're in, it's so easy. And somebody I was just listening to a podcast today and they were talking about how if you tried to right now send uh currency from your bank account to Korea, then from Korea to uh Bangladesh, and then from Bangladesh to um Brisbane, and then to uh Belgium, whatever. Like, it would take so much time. Whereas, you could do that in 30 minutes on the blockchain. All of those different stops, changing currencies and everything. It is so fast. Uh it's really, really unbelievable. And as more layer two protocols get added, you'll see that time of dealing with the layer two protocol go down to even just to get in. But like I said, now when you're in, it's so fast. You don't get those big delays that you get when talking to mainnet. It's like you make a purchase on layer two, it's done. We can access the services globally, and we can also access talent. But then how do we pay them in crypto when the currency is so volatile? How do we manage uh to pay people and to receive payments? You you really have to think about whether you want to pay people in crypto or not, because sometimes it's going to work for you, other times it's going to work against you. So, the only way to mitigate that would be to pick a number that you're comfortable with. Let's say it's Ethereum. So, I've paid contractors in ETH. Uh and the way that we make it make sense is we buy that ETH at a certain price. And then when I'm negotiating with somebody, as long as I have bought enough of that ETH, then I know I bought it at this cost basis. Therefore, I'm negotiating at that rate. That's what their number would be in fiat in USD. And so, I either it makes sense to me or it doesn't. And that's the only way to remove the volatility. Now, the odds that you will be able to buy all the ETH you're ever going to need is essentially zero. And so, until you make the full transition to where you just think one ETH is one ETH, which is not an easy transition, and people um I've seen people sort of like, "Oh, what do you mean? An ETH is an ETH. It's like, no, not if you have to buy in a different cost basis, it's not. That one ETH is tied to when you bought it." And so, that's a really big question. I would much rather pay in fiat as of today. Now, as we build our stores up in ETH, that'll become a different answer. Um but right now, we still the vast majority of um the money that we've put into the company is all been put in in fiat. And so, there is that translation translation layer of being thoughtful about, you know, where did we buy in? Most people are perfectly fine to be paid in fiat because they can just translate that into ETH immediately at whatever the price is uh of ETH that day. And I don't think many people are going to negotiate ETH terms unless they have a pretty big chunk. So, if somebody said, "Tom, I want my entire year's salary paid out normal schedule, but I want it paid out in ETH." I would only do that if I pre-bought their entire annual salary that day and was like, "Cool, I'm locking it in at this rate, and I'm totally comfortable with that." And then, I know that I've got that money that I can pay them out. But you'd have to be really thoughtful because, let's say, next year if ETH does what many people hope it will do, that might be a nonsensical strategy to keep paying that person cuz it could go from their salary they're getting paid, let's say, 150,000 to they're being paid a million dollars. You know what I mean? Like, probably won't be that extreme, but you get the idea where it's like, I can't justify that amount of value for that role. That role just couldn't possibly add that kind of value to the company. And so, you have to be really thoughtful about long-tail risk when negotiating salaries in a currency that's got a high level of volatility. And so, I just talk to people in totally plain terms and say, "I you know, I'm not willing to do that. I can't have that long-tail risk in terms of the volatility of that asset. It could work for me, but I'm so bullish on it that I think it's going to work against me in an extreme way. And so, we've negotiated things and, you know, been very successful in doing short-term things where I'm like, "Cool, I'll just buy that ETH up front, so I know that I'm locking in my cost basis. Boom, nice and easy." Or said, you know, "Look, we're we're not able to do that at this time." You know, case by case. What are the uses for entrepreneurs and for businesses as NFTs and smart contracts disrupt the space? What are uses beyond the digital arts and the music? Cuz that's all you kind of ever hear, and it's like a song playing, you can't think of another song cuz that's the only thing playing. So, I'm trying to like expand my mind around it. I see value, I think relational to community, but kind of struggling there. Well, so let me give it to you in a non-technical way. Here's what the Web3 revolution is. It is allowing the community to capture the long-tail value of the products and companies that they support. That doesn't have anything to do with music, doesn't have anything to do with art. Now, it may be that those are very easy examples to give to people, and it certainly is the case that art has just taken off because the blockchain allowed for digital scarcity, which allowed people to capture the energy of artists that otherwise would never have created art. It allowed artists to market to a global audience cuz they don't have to ship anything. So, it literally changed the dynamics of the art community overnight. For Impact Theory, it took us from thinking in terms of creating plastic products that represented a character in one of our stories to representing that character digitally. So, don't think of us as art, right? Think of us as we made virtual a physical item. Now, what that's going to be for any other business is a question mark. But, I will say that creating some sort of loyalty program, being able to gamify your community, that's one of the biggest no-brainers ever. Um so, in the future, I promise you that when you go to Starbucks, it's going to be something on the blockchain that you'll have. And by the way, you can rack up your cards and then sell them. Uh if they do like Christmas, you know, whatever holiday gifts that are only available to people that have racked up their card and other people really want that, but they don't want to have to build their card up. Like, there will become a secondary market for things like that, just like there are secondary markets for gift cards. So, there will be all kinds of ways that people will come up with. This is why you have to think from first principles, understand what the technology is, what it allows you to do, and then you have to do the hard work of becoming an entrepreneur that understands your business and your community well enough to go, "Ah, I see where these two things intersect." Please don't sleep on this moment. The reason the rich get richer is because the system is designed to reward people who hold assets. But, the government makes it difficult for people to hold assets. So, you actually have to qualify to be able to hold certain kinds of assets, which is crazy to me. And how do you qualify for it? By having a million dollars. That's nuts. So, the traditional market, there's a massive amount of value that happens before it goes to an IPO. Once it IPOs, then the public market can address it and anybody can get access to it. Most people find the market confusing anyway, but at least then you can have access. But, there's this whole period before that where only people who are an accredited investor can get into it. What's happening right now obliterates all of that. It's distributed, it's outside of um not outside of government regulation, but it's being treated very differently. It's like gold is the easy way to think about it. And just like anybody can go and buy gold, but because this is that sort of initial early phase, you can get in early. Again, do your own research. I'm merely elucidating what why I think this is so important. That you can get in early on something that may end up being the biggest wealth transfer that anybody has witnessed in hundreds of years. This is going to be absolutely crazy. Don't take my word for it. Do your own research, but what's happening is super super important. Please go and understand it. Don't ignore it. Don't be afraid to feel stupid. You will get past that. You just have to keep going. Just keep listening, asking questions, not being afraid to look stupid. There is no need for the rich to be the only ones winning. Please, for the love of God, do your own research. Figure this out. Get in on this. This feels so important. All right, I'll leave you with that. You cannot You can lead a horse to water, but you can't make them drink. You can only hope to make them thirsty. I hope that I made you guys a little bit thirsty to go and learn about this. It would be huge. Uh Go forth with thesis, right guys? Don't get left behind on this one. Till next time, my friends. Be legendary. Take care. Peace.