SEASON 1

1. Introduction Hosts
---[00:00:00] Michael: Hello, this is the Santiago y Miguelon podcast recording. In our show we break down complex concepts into simple content.[00:00:13] Santiago: We do this by applying the Socratic method where one of us is the teacher and the other is the student. Our chats rang from anything, FinTech, web three to security.[00:00:24] Michael: And hi, I'm Michael, a serial entrepreneur experienced in FinTech. I talk about startups and I'm always looking for ways to improve life.[00:00:32] Santiago: And I am Santiago. I love finding solutions to complex problems. I focus on the intersection of people and technology. I navigate the world with both an innovator's mind and a security hat.2. Introduction Of Episode And Concepts
---[00:00:47] Michael: Welcome to the show. Hey Santiago, how are you?[00:00:51] Santiago: All good. All good, Michael. Thanks. And you?[00:00:54] Michael: I'm I'm doing fantastic. We have a really fun show, for today. The pilot episode is called "scam me once shame on you scam me twice, shame on me" and we will then conduct a forensic analysis of an NFT scam that happened to me uh, a few weeks back. I actually owned a Pudgy Penguin NFT, and it was a worth around $10,000 USD. As it turned out, I signed a malicious contract with my Metamask wallet and then I didn't have it anymore.[00:01:25] Santiago: Oh man. I'm really sorry. That sounds terrible.[00:01:28] Michael: Yeah. That's okay. No worries. I learned my lesson from it.[00:01:31] Santiago: But I I think that I hear a couple of terminologies not clear for me. Can you help me with the following. You you said wallet, you said smart contract, NFT, and blockchain. What are those?Explanation of wallet
---[00:01:47] Michael: Yeah No I think that makes total sense to talk a little bit more about that also for our listeners to follow along.Let's start with the first one. A wallet right In Web3 they can be either uh a software or a hardware wallet So either it's something that just lives on your computer or it's actually something physical Which you can plug into your computer that wallet will store your cryptographic keys and enables you to sign smart contracts.And then I was talking about Metamask. It's one of the brands of wallets that exists and it's a browser extension for for example Google Chrome but it can also be an app on your on your phone.[00:02:26] Santiago: Okay okay.Explanation of smart contract
---[00:02:29] Michael: Then the other thing was a smart contract so that's a piece of code that is actually deployed on the blockchain That code itself will then interact with elements on the blockchain such as uh cryptocurrencies, NFTs, or even other smart contracts.[00:02:44] Santiago: Okay everything started making sense.Explanation of NFT
---[00:02:47] Michael: Nice. And then the the most important part the NFT what is that then. I spoke about a Pudgy penguin NFT.So NFT is an abbreviation for non fungible token which in itself is a record on that blockchain which is then associated to a particular digital asset. As I said one use case of NFT is then a piece of artwork which can then be displayed or used as a profile picture for your social media. The one that I owned was Pudgy Penguin. It's a collection that started somewhere around in the summer of 2021.[00:03:22] Santiago: So that means that technically I could claim ownership on a JPEG that I hold in my computer.[00:03:34] Michael: Uh yeah I think you can put it that way. I don't think you will hold the image on your computer will probably be stored somewhere on the cloud But yes you then can prove that you own that particular piece of image.[00:03:46] Santiago: Okay cool.Explanation of blockchain
---[00:03:48] Michael: Then the last thing maybe obvious for everybody but we should just make sureit's covered right blockchain that's a distributed ledger with strong immutable properties And you can think of it in a way as a database which lives on many computers in the world and keeps track of transactions in Web3. So let's take an example where I then transfer maybe some cryptocurrency to to you that transaction that transfer of assets is then recorded on that blockchain.[00:04:17] Santiago: All right. Actually you are helping me to remember my cryptocurrency and blockchain lecture I had some months ago. So thanks for that. All the concepts are coming back.[00:04:28] Michael: Awesome well I mean let's let's test it a bit though because given that you had that workshop and then also given the fact that you are a cybersecurity expert. The one thing that I'm still kind of struggling with understanding is. That NFT like I own it or now I don't own it anymore but how where where does it live like do I have that NFT within my wallet?[00:04:50] Santiago: Yeah that's a good question Michael.That's very common misconception. So the the term wallet might lead us to believe that it is a some kind of box that we have and we can just put tokens or cryptocurrency inside.This actually not completely right. And uh I think that you hit really an important concept but you say that your wallet actually helps you to claim ownership of an asset and this ownership is stored on the blockchain[00:05:25] Michael: What that means is that your wallet is a combination of three elements your public key. That is how people will uh recognize that is your wallet. You can think it as an identifier. Your private key there is the cryptographic material that allows you to claim ownership on this wallet. And third software or hardware that help you to manage transactions and interactions with the blockchain. Gotcha. Well that that's then really different right. So if I try to rephrase that quickly so that means that a wallet in Web3 is you have a public key which is basically your wallet address. Then there is a private key which only you know which with you sign transactions and then your wallet is also some software that helps you manage and sign these transactions That's what it is. And that's then so different from what uh a wallet is as I know it right. Like the one that I physically carry with me in my in my pocket in which I have these coins that that are if they are in that wallet they are mine I think it's a really interesting change of mind that you need to have in order to to start working with Web3.[00:06:33] Santiago: Yeah .That's definitely one of the most important ones that and this decentralization I believe that those are the hardest steps for people to make in Web3.3. Michael To Share How He Got Hacked
---[00:06:41] Michael: All right now, moving on to the part where I got hacked.[00:06:45] Santiago: That's a sad but interesting part uh, Michael, and, uh, luckily enough, you recorded what actually happened just after the incident. So there is what we will be listening to now and for the ones that are only listening to us, this part is highly visual. What we are gonna try to bring you through what is actually happening and what you are seeing.Visual explanation of the scam
---[00:07:05] Michael: So, this is how it all went down. I was on my phone, browsing Twitter, on my way to work. And I get tagged in this quote tweet with a whole bunch of other people. And it's referring to what looks like an original tweet by the Pudgy penguin issuers. so. I'm not paying a lot of attention, click into it.And then in this case, the message said, you could claim your second season Pudgy penguin by going to this link. So yeah, the link, it might look a little bit suspicious, but it looks authentic enough with the.com. I was not doing a lot of proper due diligence when I clicked into the link. I will now go to the actual website that I clicked into because that's not this one, this one doesn't seem legit at all. The one I got into was this one here, right? So it says claim free Pudgy penguin in season two to vibe with the Pudgy penguins that you own. And I owe one. so the website looks completely on brand and nothing suspicious here. I just went about, you know, claiming the Pudgy Penguin and when I claim it, that's when it will start connecting with my Metamask wallet. And don't worry for this particular, exercise. Now I've actually created a completely new wallet. The burner wall, nothing will be stolen if I connect it. as you also saw just now, while I clicked the claim link, it redirected to my Metamask And now within Metamask there is a browser that will, open up that URL. So it makes things even more, obscure and obfuscated uh, for me to really find out what's happening. so I press claim. Then this message appears,I have already connected my wallet, but now I get a transaction. Like it asks me to sign a certain message. I'm oblivious to what is happening. Of course, I see some potential threat here, but I sign the message. And then the moment I do that, nothing happens. There's no like, Hey, you now got, you know, you got your Pudgy penguins, nothing of the sort Right. So I tried clicking again, signing it again, and nothing happens. And this is when the theft has already occurred.The Mental State Michael Was In
---[00:09:32] Santiago: Oh man. Every time I listen to this recording, I get sad again. But, okay you walk us through how the hack actually happened, how the fraudster got into, into you.What was your mental state at that moment?[00:09:46] Michael: Yeah. Yeah, no, that's a great question. I, I had to take some time to really think that through. And I think there's three elements to it that contributed to this, to this mental state. The, the first one is I was commuting. I was actually on the bus, so I I'm just always paying less attention than I would do if I were at home or at work and then I'm behind my laptop right.Then the second thing is, uh, I hadn't slept very well that day. I just had a newborn which is keeping me up.And then the third thing of course is is FOMO. Clearly and and it's not necessarily the the financial part of it. Of course it'd be great to buy into an NFT at the right time and see that financial upside by holding it but it's actually more on the the social side of things that I really generated FOMO.I was on Twitter a lot that week reading and and absorbing all kinds of information from influencers. And I was like if I want to be part of the Pudgy Penguin community or of of Twitter and and Web3 I need to act on things right I need to be participating in all of this. So I think that really pushed me into the the mental state that I I was in when the scam happened.[00:11:02] Santiago: Thanks for sharing. And I, think that's very important to to understand also that there is a... all, all of your reactions, we're really human, right? So when, when we want to uh, make sure that we, that we use a technology in, in the best and possible way. That should also consider our natural human reactions. We will be tired. We will have this sense of FOMO urgency. We all want to get rich, uh, overnight. So I think the fact that you share that is also very important for this forensic analysis. So thanks for that.4. Santiago to comment on what happened
---[00:11:36] Michael: what is then your like your take on all of this Santiago like with your technology hat on what can you say[00:11:43] Santiago: Well, I think there is a lot to unpack. So there is new technologies, there is old tricks. But I think that before starting, I need to confess something because one of the things that you asked me is. Santiago what actually happened technically. So that's a conversation we had a couple of weeks ago.Though I am in technology for several years already I have been in cyber security as well for, for some years. Uh, and I am somehow up to date on this Web3 movement. I am definitely not an expert, but I must confess it took me reasonable effort to understand what happened so I can also recognize that there is such a cognitive effort for everyone else, for the layman to kind of put everything together and what is happening.In the high level, what happened is a malicious website asked you to connect your wallet to it that gave them access to your address. Then the same malicious website asked you to sign a contract, which in fact was allowing them to transfer out your NFTs. And finally the scammer the fraudster with this allowance with this contract, took all your NFTs away from you.Scammers are eternal businessmen
---[00:13:05] Michael: Yeah. Yeah. Well, it sounds very sophisticated this fraud then, no.[00:13:12] Santiago: Well, the sophistication comes from the technology Web3 is new. There is a lot of new building blocks, but I actually recognize that typical scam. Think about that Web3 doesn't exist. What happened is a fraudster misappropriated, something that was belonging to you[00:13:34] Michael: Hm.[00:13:35] Santiago: Through some gap in your understanding or technology or lack of context. And, uh, at the end, this scammers are businessmen, and they just found that there is a huge gap that they can abuse in web 3 and remember that at the end. It doesn't matter if it's Web3 or Web4 Web5, there are an ever evolving adversary. Right. They will just keep up with the, with the progress. They will keep up finding new stuff.[00:14:07] Michael: Gotcha. I, I mean, we've spoken about this before, The fact that scammers are, are actually businessmen themselves, right. I find that such a insightful perspective where. It makes sense for these people to do whatever it is they do. It's just that it, it is considered illegal. But they are just as the, both of us were they're entrepreneurs, but what do you mean like ever evolving adversary? Can you maybe elaborate a little bit more? Like what, what do you mean by that?[00:14:36] Santiago: Yes. Sure. So think about, you said they are entrepreneurs, right? Entrepreneurs are always looking into, the next thing. So they're they're they are trying at the end to maximize their financial rewards. Right. And when we close a gap, when we close a door, when we make their life harder security-wise.They cannot make money with their, old attacks. They need to evolve to be able to continue in their line of business. So it is uh, it is a cat and mouse game. Every time we put a new defense, they learn from it and then they find it a new way to exploit that.[00:15:20] Michael: We will never get rid of them. They will evolve in their techniques and maybe one day we convince them to change business because everything is so secure digitally that they decide to go to another domain. I find it hard to believe. Um, but at the end end they will move along with us.Responsibility for scams
---[00:15:37] Michael: But then that begs the question, like who is responsible for scams. Who is responsible for making that environment more secure, who will then make sure that these, these scammers have a hard time in Web3, right?I think eventually the user is responsible, but as a whole ecosystem, we could do a lot better into designing Web3 tools the wallets that we're using, or maybe how certain transactions are interpreted, what is your opinion?[00:16:04] Santiago: I totally agree with you. It's both ways. So it is at an individual level. We need to make sure that whatever we do, we understand.But at the frontier of these Web3 new technologies as a community we also need to make it more accessible to people that don't necessarily are experts in technology cybersecurity, or that are the whole day into that like you.Actually you have a really good understanding all this new landscape and for yourself was even hard. I have a background in technology and for myself was hard. So a as developers of, of these new technology, these new protocols, we need to make sure to make the place so secure that our grandma can interact with it.We have a long way still, but I hope that in the, in the next years, I can confidently say to my parents, to my aunts, look, you know, in Web3, you, you can feel safe because people are watching over, over your back.5. How can you prevent this from happening?
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[00:17:12] Michael: Yeah, so that now we understand a bit better how I got hacked and what exactly transpired. I think we can now get into that part of learning from this and maybe preventing this even from happening again, right.[00:17:25] Santiago: Yes. I think that now we are in the stage that, we can give our listeners some tips and tricks, about how to handle these scams. Because at the end, the scammers will always be there.[00:17:37] Michael: Yeah, exactly. So, uh, then let's discuss what as a consumer you can do,to protect yourself better.I think there are four steps in this whole scam part where you can start thinking a little bit more about certain things you should be watching out for.Those four steps are the mitigation before the actual scam happens. Then while you are in the scam, how to see the signs, the third one would be after unfortunately, that scam happened. What is that mitigation I can do to contain the outcome of the scam. And then the fourth one is,a potential recovery, right? So I'm gonna walk you through those four, uh, steps. This list is definitely also not exhaustive, I wanna point out there might be multiple ways of going about this, but these are at least the things that I found on my journey when I was trying to go through this process.Step 1: Mitigation (before the scam)
---[00:18:27] Michael: So we go into the, the first step, the mitigation before the actual scam. Something I should have done. And which I now luckily did is I, I should have gotten a hard wallet,That is not directly connected to the internet. I did not have that. I actually had all of my NFTs in that Metamask wallet, which is a hot wallet and directly connected to the internet. I think that's step one.Then another thing you can potentially think about is keeping your, so to say minting wallet separate from your holding wallet. So where I would maybe mint that NFT in that airdrop or whatever it is. If I had done that with a wallet where I only had some ether to pay for transaction fees, then I would've never been suffering this, this scam. Right. Like my NFTs would still be in that holding wallet. So I think that's the second thing you can think about.And, the other thing might be more of, a mindset that you need to get into. Where you need to realize that some of your digital assets are starting to become very similar to some physical assets that you might be owning. Right? So that golden ring in a way, I mean, $10,000 for an NFT, it's in a way a golden ring that I have, but then online, right?Step 2: Seeing the signs (during the scam)
---[00:19:38] Michael: Then the second step is seeing the scams, sorry, seeing the signs during the scam. I think in hindsight, what I really realize now is that I should not have been doing all of this on my mobile phone. Of course the mindset or the mental state was there with the commute and all that. But I should not have even been doing any of these kind of transactions on my mobile phone. That device isnot giving me all of the flexibility, the functionality that I need in order to come up to a proper due diligence. Of course you should also be doing diligence as to who's offering what, like, uh, also not ideally replying to certain maybe direct messages that you get from people on your Discord or in your Twitter? Like be a little bit cautious.Same with the links that you are visiting. So in this case, I visited a link called pudgypenguins.gift looks very legit, but if I had checked, for example, in the Discord of the Pudgy penguin collection, then I could have seen that it was not part of their official, links list and quickly realized that it was not a, a proper website to go to. The last one is making sure that you understand what transactions you are signing, and I know this sounds very obvious but you'll be caught up a lot in the moment where you're just signing stuff and you're not really looking at what it is that you're signing.Step 3:Mitigation (after the scam)
---[00:20:52] Michael: The third thing, if you do get,scammed, then, this is what you can do to kind of mitigate or contain the, the outcome of it. the moment that you realize that your wallet has been compromised, You can see it as something you should abandon right away. So you should create a whole new wallet with a new, seed phrase with a new wallet address. And then you can, if there's anything left, which in my case, there actually was you move out everything out of that old wallet. So the compromised wallet, you make it empty, move it into your new wallet.And, I think maybe this is the part that sounds a little bit silly or something that you might not think about. It's also the feeling of being scammed,Like you maybe want to talk to people about it because it, it is in a way you're, you've been stolen from It's, uh, something that happened to you that might have an impact on you and where you perhaps wanna seek some, some comfort by talking to somebody.Step 4:Recovery
---[00:21:44] Michael: The last thing is the recovery. And quite frankly, this is super, super tough. I have, I have gone into it, understanding what it would mean. Meta mask has set up some sort of an arrangement with a third party that will help you try and recover these assets. But the truth is if these assets are not, high enough in, monetary value, which in my case, it looks like, or sounds like it is, but they are recommending somewhere around the 70 K to 80 K mark. Then only then it starts becoming interesting to,engage such a third party to help you retrieve the assets, but things you you can do is report a police report. You can do that online in your local jurisdiction or also at the FBI in the US. And you can reach out to all of these platforms with that police report. So I went to Open Sea. I told them that I've been, suffering and, a scam and they subsequently reported these NFTs to be,uh, involved in a fraud,Uh, yeah, that's it. Those are the four, four steps that you can take in order to do something about, uh, your protection right now.Step 5: Record a podcast
---[00:22:50] Santiago: Maybe as a last, tip in stage, you can also record the podcast to try to share your experiences.[00:22:57] Michael: That might actually be step five. Correct?[00:23:01] Santiago: Now, but jokes apart, I think is very important to share with the community what happened because that's the only way that we start realizing that we still have some homework to do.Reduce cognitive complexity when understanding a transaction
---[00:23:11] Santiago: And that actually ties into the, into the next point there is that, what can we to become better as a, as a community to design better systems, not necessarily only Web3and what will be the necessarygoals that should be there in any new technology so that it is somehow considered actually safe. because it doesn't matter if it's the physical world or it's in the digital world or is in some kind of virtual reality one. I think that we need to work until the stage that we reduce the cognitive complexity of a field.For example, in this case Web3 and everyone, or the majority of our population is able to understand what actually happened.In your case, you receive a popup with some hash saying,do you approve this transaction? It's very hard to get this understanding of what are, what are you actually seeing. If you think about it, we also had it at some point with the domain names, right? So do you remember that before we didn't have this green lock or actually this SSL mark? So you will not really easily see, oh, there is an HTTP S that this tiny S was very important and now browsers make it quite visible for you. Oh, you know, in your mind, if there is not a lock, maybe it's not a website you should go into. These are an example of reduction of cognitive complexity.Increase context awareness
---[00:24:44] Santiago: The second point is increased context awareness. So what is happening around what you are seeing that can give you these hints? You mentioned one of your tips is you need to do due diligence and then this due diligence needs to be somehow being able to deduce from context.For example , when we receive scam emails we know that if they're in the junk box, those might be not the email that you wanna go through. So somehow technology is giving you context awareness that in this context, the emails are high risk. So those are elements that are still not really smooth in Web3. And definitely we need to work towards that.Achieve the level of security that we have in web2 🙂
---[00:25:30] Santiago: The third point is any evolution of technology should be as least as safe as the predecessor, right. And security wise safety wise, anti scam, anti fraud, mechanisms have actually worked a long way in Web2. We might be laughing aboutscam emails, but the, the people getting a scam actually are not that many these days Why? Because there is this scam filters. there are a lot of systems that are trying to reduce,the probability of someone getting a scam. you have junk boxes. You actually know a lot more about, phishing is and I think that's something that we should aim.Web two has reached some kind of maturity is not perfect. There is a lot of dark places in web two as well. But web three definitely should at least reach these web two level.Of course Web2 is centralized. So it's very easy to apply very strong policies or opinions in a centralized manner. When you go decentralized, it becomes more complex. And I think therefore the, the discussion it is user responsibility. It is the community responsibility. Those are questions, a bit harder to, to answer, but it's definitely something that we should be definitely working towards. If we want this Web3 to be widely accepted.And maybe one lastpoint that I wanna mention here is, we solve problems when they happen. Right. But as founders of Web3 or new technologies, let's also learn from what happened before let's don't wait until. Now we get this scams in NFTs, or Web3 let's start solving this scams.Let's take a look at history at what happened before. And let's let's start from there. Let's let's not allow that this happened if already happened in another kind of context.6. Outro
---[00:27:22] Michael: And with that we end today's pilot episode scam me once "Shame on you scam me twice shame on me".[00:27:30] Santiago: And we cover a lot today Michael.[00:27:33] Michael: We definitely did I explained how I got scammed out of my Pudgy Penguin NFT through a malicious contract on a dodgy website and with some good old social engineering that really exploited my FOMO mental state.[00:27:47] Santiago: Then we went more in depth on what exactly happened technically And we have a bit of a discussion on who is responsible of keeping us safe.[00:27:56] Michael: Definitely and then with me just now we learned some ways as to how to avoid being scammed yourself.[00:28:02] Santiago: And we also discuss that scammers will be scammers.And for mass adoption of the that technology or any technology we need to lower the complexity bar and make sure that we have a secure environment that is done by properly designing our systems of the future.[00:28:18] Michael: Yeah totally So let's leave it at that uh thanks for listening to the Santiago y Miguelon podcast.[00:28:25] Santiago: Thank you guys. See you next time.

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Intro
---[00:00:00] Michael: Hello, this is the Santiago y Miguelon podcast recording. In our show we break down complex concepts into simple content.[00:00:13] Santiago: We do this by applying the Socratic method where one of us is the teacher and the other is the student. Our chats rang from anything, FinTech, web three to security.[00:00:24] Michael: And hi, I'm Michael, a serial entrepreneur experienced in FinTech. I talk about startups and I'm always looking for ways to improve life.[00:00:32] Santiago: And I am Santiago. I love finding solutions to complex problems. I focus on the intersection of people and technology. I navigate the world with both an innovator's mind and a security hat.Why identity? What is it?
---[00:00:48] Michael: Hey, Santiago, welcome back to our show. How are you?Hey Miguelon. I'm fine. I'm really excited of the topic of today That's great. So what, what, what do you have, in mind for today?[00:00:58] Santiago: Well, in this second episode, we are getting a bit more philosophical. We are getting in this interesting but more challenging topic of identity and we came with the realization that independently of what you believe, , if your body is what makes you you or something more transcendental like your consciousness.[00:01:18] Michael: We need to define identity. So after all, we live in this society that expects that individuals will continue to be who they are day after day. Yeah.We've tried to cut this down into three particular sections. First we wanna go over, why identity, what is it even, then we'll ask some fundamental questions around how to design for, identity. And then lastly, uh, we'll talk about what technology can offer. Not just Web2 maybe Web2.5 and even Web3.Explaining the structure
---[00:01:48] Michael: Right. So In order to facilitate this discussion about identity a bit more, we've done some preparation in advance by rethinking this through, and we came up with this, uh, scheme here that we have right in front of us or, for those people who are, listening to us. we'll definitely be able to talk you through it.If you're viewing our podcast, then you can follow along, onto the, the screen share that we're currently showing. So this is kind of what the, the scheme looks like. We'll just discuss it, layer by.Let's kick it off now with, uh, so identity itself. Maybe you wanna dive into this, uh, Santiago.Defining Identity
---[00:02:22] Santiago: Yes, for sure. We define identity as our need for persistent uniqueness. So that is the first concept So you have the individual, the uniqueness, and the temporal component.We like to think about ourselves like unique beings. Right?So you are unique, within this group within this society. Um, there is only one Miguelon. There is only one Santiago even though you change with time, right?And there is where the temporal component goes into place. Miguelon of 10 years ago was not the same Miguelon as today.[00:03:03] Michael: That's very interesting. Right? So that temporal component is so important because you don't want me or you to all of a sudden be a different identity tomorrow, next week, next year, right? So we need that to be consistent. That's why that temporal component is in there.But then maybe a question still around the uniqueness. Why is that uniqueness then so important as a part of identity?[00:03:24] Santiago: Well at the end, you want to recognize yourself as, a non-fungible beingyou wanna be identified as yourself not to be lost in the mass.[00:03:34] Michael: We, we as humans also care about something being unique because we, uh, assign value to that, right? By it being unique. So if there is only one Mona Lisa hanging in the Louvre. Then that is way more valuable to us than if every single art museum in any city had one Mona Lisa hanging, right?So it is, uh, us as human beings who apparently are wired in such a way that we care so much about things being unique, including our identity.Corporal and Spiritual Identity
---[00:04:04] Michael: Great. So now we spoke a little bit about the definition of identity, right? And I think then in our research we also found out that there's also a distinction between it being corporal versus spiritual. You wanna elaborate a bit more on this?[00:04:18] Santiago: Yeah, sure. Uh, I think very first naive intuition on, on how to define ourselves is based on our physical qualities So when you see a person, you are able to say, okay, this is Miguelon, because how he looks, right?You can think about passports that, that mention your height, eye color, um, your, uh, sex,Those are all, corporal features that are helping to identify yourself. But then very quickly we enter into a difficult space, right? Because what happens when Michael cut, uh, his hair and then he doesn't look like the one in the picture. Is Michael still Michael? And, uh, I think that, that, uh, you share with me a very nice story about Theseus. Uh, maybe you wanna share it with our audience.[00:05:14] Michael: Yeah, for sure. It's kind of a thought experiment. So this boat of Theseus is, uh, a boat that is built out of wooden planks, and then over time, The, the boat gets maintenance, uh, which means that some of the parts will be, uh, uh, removed because they're rotten and then will be replaced with the same kind of plank, but then a new one from a different tree.And then over the years, over time, uh, this, uh, maintenance crew manages to rebuild the boat completely from its original planks into completely new and different planks. But it looks exactly the same. And then the question here is: Is that boat still the same boat or is it the, a different boat? So did that boat keep its identity or[00:05:57] Santiago: So what do you think, Michael? It is the same boat?[00:05:59] Michael: Yeah, that it's a, it is a tough question, right? I mean, um, I think from my, engineering point of view, which I would lean more towards is I think it's still the same boat.[00:06:10] Santiago: And, uh, maybe let's, let's, uh, deep dive a bit into the, other thought experiment. Let's imagine that you have this tele transporting machine. And how this works is basically it reads all your dna, the arrangement of your molecules, et cetera, and then, copies them into another machine far away in Mars, right?And, uh, the, of course you are tele teleporting yourself, so that basically means that you will stop existing on Earth and start existing on Mars, that will be a one to one experiment with, um, with the boat experiment. But what happens if this machine fails? Right? And for some reason it, uh, fails to delete you from Earth and suddenly there is two Michaels, one in Mars and one on Earth.The memories that you have. those help you to identify yourself. So at the moment that, that you have two Michaels, um, maybe in that split second, just before them opening their eyes. They are the same Michael. But very quickly, they will start diverging into, into two different identities. One will continue his life in Mars. The other will continue his life in.[00:07:22] Michael: Very, very nice. For today's, uh, identity discussion, we have decided to keep things a little bit simple and given that tech is typically more looking at something tangible, we will, adhere to the corporal definition of, uh, identity.[00:07:39] Santiago: That's correct. Let's, don't get too philosophical and let's go back to, to the pragmatic.Goverments as Identity Issuer
---[00:07:45] Santiago: So we now have established that we then want an identity for our uniqueness, and that being persistent, then we want it to be something corporal. But then still the question is, who will then issue that identity?Yes, that, that's a great question, Michael. that's also one of the reasons why, to focus on the physical attributes. because at the end that is all what we had, some time ago when governments start, Having the needto issue these identities. So at some point, the group was big enough so that, the group could not just rely on, me knowing you. So the group will need to port your identity somehow. Right. And that's, that's called identity issuing.The main, identity issuer currently that supports wide acceptance is governments,because those are the wider social groups.Whereas you can think other small groups or communities being able to issue identities like Costco. You can have your Costco card saying that you are Michael with your picture. This might not be widely accepted, so you cannot identify yourself, at university with your Costco card. so there is somehow an an intrinsic monopoly on identity issuing,that also speaks about the trust that you attach to an identity. So if you show me your passport, I am more likely to trust that than if you show me, um, your library card. Um, we, we trust that governments, issue, identities correctly.[00:09:25] Michael: Right I think what is super interesting to understand is that then with, again, these nation states emerging in maybe the 18th, sorry. No, the 19th and 20th century, that all of a sudden we start to have this scale where at scale we could start issuing identity through a government.And probably perhaps before this, it was too difficult with all of our communities, which were too fragmented, which were not necessarily speaking to each other at a high level as much. Only then we really started to be able to, to do that right. Issuing identities. I think that's a really interesting thing.And somehow all of the other identities that are issued will always someway, um, go back towards that government identity that has been issued, So that government identity still hasthe monopoly over a lot of things.Even if initially you sign up with just an email address and a password for maybe like a wealth investment,account, at some point they will want to to know who you truly, truly are. And the only thing you'll then show is your passport or, uh, any other identity.[00:10:31] Santiago: So what you're saying is that basically my passport defines who I am, right? That is, what we end up,in the, chain of trust.[00:10:40] Michael: Yeah. And it's, it's very, impactful right? To, to understand that. And then, why do we even wanna be identified in the first place? What is the purpose of all of this then?[00:10:52] Santiago: To be able to participate in societies, in groups, uh, in services, we need to be identified, There is a,a pull and push, force from the individual and from the group. The group wants individual to participate and the individual wants to participate. So you, you have this, very nice dynamic on individuals want to use services.You can think about, banks that is, very basic and universal service. I wanna be able to get a bank account and the group in this case, the consumer of this identity that is a bank wants to be able to verify my identity.So there needs to be this, uh, identity layer present at any time in, in our societies.Identity Processes: Identification, Verification, and Authentication
---[00:11:44] Santiago: You can think that this identity issuing monopoly very quickly evolves one to one to the single sign-on model. So if you think about it, we have a single sign on, uh, for governmental issued identities.[00:12:02] Michael: Right. So, but that, that's already when people wanna prove that they are who they are, but like, there's a whole process still around how to get that identity from the, the government.[00:12:11] Santiago: Yeah, that that is correct. And I think that you got it right. So there is a set of processes going parallel to this whole identity story. We can, summarize them in, in three steps: identification, verification, and authentication.The first one, identification is you claiming an identity. So you claiming that you are Miguelon to towards your identity issuer,The second one is verification, so there is the need to establish a link between your claim identity, saying, for example, you're Michael, and the identity that will be issued, your passport, for example.If you, if you lose your passport, this process is gonna happen. You are gonna go to government office. If you're gonna say, I am Michael, I need my passport. I lost it. So there will be, a process to verify that you are exactly that you are who you are. And if that, finishes correctly, there will, there will be a new link established between the new issued passport, and yourself.And finally,is the authentication part. You link your passport with your identity and you prove it in front of a consuming entity. and this is how I am proving your passport, you are authenticating your identity.Physical and Digial Identities
---[00:13:43] Michael: My, my baby was recently born in, in Singapore, And, um, governments have always issued their identities as a physical thing. So, uh, a passport birth certificate. And in this case, funnily enough, she actually got issued a digital birth certificate, which is the original version of that certificate.So there is no physical proof of it. And that's where we start seeing that these governments are now, issuing more and more digital identities, but they, they also come with their own problems, The moment that we start using technology, sure it's great, it's more efficient, but at the same time, we're seeing so many more scams, so many more hacks, that will also have its repercussions.Digital challenges
---[00:14:27] Santiago: Yes, that's totally right. And let's just don't forget that for years, since there is identity issuance, there has been identity thieves. The, the challenge with digital is that, the moment that you find a weak spot in the process, everything becomes more scalable, Instead of only forging one document manually or trying to bribe some kind of, government official to issue a new passport, you can exponentially, risk this, this whole chain, and it's a chain based of trust and that is why, there are really, really big challenges on digital identity, processes.Fundamental questions
---[00:15:08] Michael: Great. So we spoke about why identity, what is it even? Andwe got a good understanding of that now, and that will prepare us to ask some more tougher, fundamental questions,around the design of identity So the both of us, we've, um, uh, sat togetherand,uh, figured out three key topics.One, privacy, two, uh, data ownership. And then three, who is then actually the problem owner of that identity itself, right. let's go over them, one by one now.Privacy
---[00:15:38] Michael: The first one is, privacy. how important do you think privacy is to,designing identity?[00:15:48] Santiago: That's a very difficult question.I don't think there is a right answer, we are gonna run the risk of, heavy, opinionated answers and personal beliefs. Privacy is a very tricky thing, so it's something that, most of the time we don't want to consciously think about, and when we think about it's a bit scary but in this ideal world that I, I, I have in my head and that, uh, hopefully we get closer when building it, privacy, makes sense in the context of a digital right for individuals. And I believe that there is this intrinsic separation in between, what happens in the public and what happens in the private space.I hadthis discussion with friends,in different moments. And somehow people value in a different way actions that are done in public and actions that are done in private.I always like to ask, when you go to the toilet, do you close the door? And 99% ofmy friends says, yes, I close the door independently of what are the privacy views? And, and the second point is that, um, there is a very strong movement towards this, um, monetization of data,And, independently of what you believe, maybe you wanna monetize your data and you wanna sell it I think that's totally fine as far as you understand the consequences and the data that you are, um, you are sharing. At the end is about knowing, so if you wanna. If you wanna sell your privacy, that's perfectly fine, but you should know that you are selling your privacy. What do you think Michael?

[00:17:35] Michael: I just wanted to clarify one distinction that you make there. Uh, you speak about public versus private, uh, privacy. Uh, I think this seems to be much easier to define in the physical world, uh, like the example you gave of, uh, of a toilet where you close the door or you don't.But I believe these days it's, it's that that distinction is much harder to make, uh, online or digitally speaking. What is public, what is private, uh, and, what popped into my mind the moment you said it is, um, we've seen the FTX, collapse happen over the past, uh, what is it, week or so? Like there have been taken screenshots of, uh, his Twitter dms, for example, uh, or of his Slack where he had certain comments.And whereas that then is somewhat private, right? I mean, it's in a, in a group, uh, selected group of people, people decide to take a screenshot of it and then share it with a wider audience. So it is so much harder in, uh, the digital environment to to know where is public, where it's private, and you might even then argue that anything that is in the private space might eventually become public.Yeah, fully agree.Who owns the data?
---[00:18:57] Michael: So our second fundamental question is who owns this data Who is the one that has the choice over this data? Can I, for example, decide, or as a government to delete my identity or can I, can I ask a bank to delete my account? Yeah, it's, it is actually very funny, when you just said it like, um, you can go to a bank and then ask them to delete, I think that that would be doable. That would be workable. But if you go to your Mexican government right now and ask to delete your passport and or, and your nationality and you don't really have anything in replacement of it.I highly doubt they will do it, right. So then that means that in this case, at least the, the ownership over that data is belonging to the government, even though it might be you, right? It's the same with you maybe being able to change your name. Like if you per tomorrow wanted to be called Fernando, then I think everybody will be able to adopt it as long as you correct them.But you'll only be able to tell that to the government if you, I guess, pay them to change your name because they, they then still own that identity of where you were actually called Santiago. That's, that's quite fascinating. And I think the other thing that we are definitely seeing in this, regard is, The move from Web2 to Web3, where Web3 claims that you own your data, whereas you didn't.I think that should, um, absolutely be the case that an individual should be able to own their own data. But again, I, I do not, um, yeah, but maybe that's more of the problem owner statement but I do, I do think we need to facilitate that, right? We need to help them be able to own that data. Like your next door neighbor or whomever, your grandma will not be able to own her data herself. We need to help her own her data.[00:20:52] Santiago: So if I can summarize that, um, I think that the, one of the main, uh, points is that the identity is an asset for the individual, right? Uh, data ownership is on the individual side. We need to enable this individual to exercise those rights over this asset.[00:21:16] Michael: What do you think?[00:21:17] Santiago: I definitely believe that is, uh, something that belongs to the individual. I do see the challenge not only on the practical implementation but alsohow we organize identity on how to exercise this. Because, um, whereas digital allows us many options on the, on the, on the ownership side, so we can suddenly exercise data ownership in front of banks, in front of, uh, big techs, et cetera. And you can even think about the GDPR helps us, uh, a lot in that space, right?So basically, because I live in Europe now um, I can ask, um, any company in the world that I want my data to be deleted in any of their servers. That is a very strong right on my, on my data. Um, what I don't, I am not completely sure is that I can do that with the government, So even if, if we move forward in this fully digitalized society, one of, of, uh, my biggest questions is, can an individual choose to stop existing for that group? Because, um, we already mentioned there is this very strong pull and push between individual and, and, and government wants one individual to be identify and the other wants to participate in services. The moment that the individual doesn't have this, um, need to participate in any service provided by this group or society. Will the group allow this person to stop existing? I don't know.[00:23:06] Michael:That's a good question.Problem Owner
---[00:23:08] Santiago: But I think that this discussion really, uh, moves us forward to the third, uh, fundamental question that is, who owns this problem? Who is supposed to provide a solution?If you are part of a, a group of a community, of a nation state, I really believe that, uh, you as a partaker, uh, even if you are passive in a way, you have ownership and you have an obligation to somehow contribute to this, being in existence.[00:23:44] Michael: So let me clarify a little bit. That sounds very deep. Uh, so me being a Dutch citizen, um, if I want to have that Dutch passport, I want to use it for my government single sign on. Then I should expect that I somehow also need to pay, whether that's, uh, through my help or my support in, uh, keeping this system alive of that passport because it's giving me benefit.Uh, of course it's fine if I outsource or delegate that to a government or a certain ministry within that government that then takes care of all of that. Uh, but if I as a, again, as a member of a community want to,enjoy certain benefits, I do believe that I myself also need to pay, even if I'm not the one leading the pack.[00:24:33] Santiago: So, for you is the government is solving this as a proxy of the individual having this need. And, and I, I fully agree with you. I, I think that, uh, the government as overarching society, organizer is the one that should provide the solution. And at the end, we choose, or not to participate in this, in this group, right?What is Web2 offering us?
---[00:25:02] Santiago: Awesome. So we now have these, three fundamental design questions that we have our own personal answers on, and then it's interesting to see how technology currently has been trying to address these questions. So, um, out of your experience, what is Web2 currently offering us?Well, Web2 offers two things. One that falls directly on the problem owner, that is governments. So I think more, more and more governments start issuing some kind of digital identity. Some of them centralize it, right? Like, uh, Singapore and Netherlands and others are moving towards that.And the other one that is I think more and more, uh, interesting how the solution came to be is the social sign-on that it is, very widely accepted proof of identity, right?So all these, uh, big techs, uh, Google, Facebook, Apple moved, step-by step into becoming the identity providers for many of the services online, so you don't need to make an account, you just link them. Um, and, and they, they somehow realize that it is a very, uh, interesting control point for any kind of service in, in the web.So they're not problem owners. Somehow they offer a solution to this, uh, space that was empty on, on, on the web.[00:26:30] Michael: Yeah, exactly. And where maybe also even the government was kind of failing, or at least not able to offer their own implementation.[00:26:38] Santiago: Yeah, correct and not move fast enough. At the end speed is, uh, definitely something that it is of great value in, in, uh, in any digital solution.[00:26:47] Michael: So we spoke about problem ownership, but the, the privacy part, the data ownership. That kind of is lacking in Web2, especially with these social signons. So that's where hopefully now other technologies, uh, iterations of the web, like web 2.5 or Web3 can come in.What is Web2.5 offering us?
---[00:27:05] Michael: Web 2.5 is something that may be applicable to both Web2 and Web3, and there is a concept called decentralized, uh, identifier or a DID that, uh, potentially can help us, especially in terms of privacy.So what is that, DID exactly? It's uh, a string, anonymized that will still refer to a person. So assume for example, like your, I dunno, like your Twitter handle may be @ Santiago. Then from that Twitter handle, I can still deduce that it is you, right? It has your name in it. Then imagine that instead of that Twitter handle, it actually is a string of numbers that is unrecognizable to anybody, but it will still send a message to you and your Twitter handle.This may then be a way for us to, uh, keep our privacy. It's also a very standardized way of, introducing an identity across the board that can be compatible with anybody and everywhere.[00:28:02] Santiago: That's, uh, really interesting, Michael, and I think one of the key points here is that this standardization allows us also compatibility, right? And compatibility gives the chance to not only big tech play as identity providers, but anyone in different spaces, including governments.And that means that whatever service or application is underneath doesn't need to do, multiple times work of integrating with different identity providers. If you wanna be, uh, identified by a social identifier like, um, Google, Facebook, Twitter, or your government, or maybe Michael Identity provider, the integration effort is only once.Right and from there, from the DIDs, you can plug any, anything on top, right? It can be privacy preserving, but it can also be, uh, a regular social identity. It's a, it's a layer of flexibility that works towards, I think you are gonna, uh, share in the next section about Web3.What is Web3 offering us?
---[00:29:07] Michael: Yes, definitely. Yeah, that's a good segue indeed for, for Web3. So that whole decentralization movement is clearly something that we've seen over the years. Thus the DID. But, uh, another concept which is particularly relevant within Web3 is the decentralized identity. So you being able to own your identity and in such a way that it's, uh, not coming from a centralized institution.Then, uh, what do you need for this? You need clearly the blockchain because somehow, somewhere we need to store these identities, right? They need to live in some sort of a database, and that is then the, the blockchain.But you also wanna be able to, to verify the, these credentials, these identities. That's another very important part of it. So that verification that we also spoke about.And, uh, these decentralized identifiers then also come into play to make, uh, things easier to communicate with each other while still preserving the privacy.Soulbound token
---[00:30:07] Santiago: Yeah. And so one really good example of a decentralized identity is a, a concept called a soul bound token. Funnily enough in our pilot, we spoke about a non fungible token, that can actually be transferred. It can be sold, it can leave your wallet address.[00:30:23] Michael: That's in contrast to a soulbound token. It's bound to your soul or your wallet address and can thus not be transferred. This is one of the, the fundaments of that decentralized identity.Zero-Knowledge Proof
---[00:30:35] Michael: But in, in order to be able to verify that identity another, uh, technology kicks in where, uh, we use a zero knowledge proof. Zero knowledge proof means that maybe if you are, uh, the person who wants to verify and I want to be verified. Then you do not need to know the particulars. You just can hear from me that whatever I want to prove is true. That's all you need to know. That's the zero proof that you need.Why is this important? Because, um, again, because of privacy reasons at times, I might not want to be able to reveal, I don't know my date of, uh, birth right. Like is it really truly important for you to know that I am born in the year in 1986 when I enter your club and you're a bouncer? Or do you just need to know that I'm above 21 years, old of age.[00:31:26] Santiago: So that basically means that if I go to the supermarket and I want to buy, um, some wine. Instead of showing my ID or my passport or my driving license to the cashier, um, basically I could. Somehow scan or, uh, show myid, and then the only information that I will reveal to the cashier is if I am above the legal age of drinking or not.[00:31:55] Michael: Exactly that. Yeah.[00:31:58] Santiago: All right. That's actually really interesting. And, that is a bit of the power of crypto, right? I'm always amazed of that.Benefit Soulbound Token combined with Zero-Knowledge Proofs
---[00:32:05] Santiago: I have one question on the soulbound token. You mentioned that it is linked to your address. What are the, the benefits that it offer compared to just having your address? Why, why I cannot just identify myself with my address Why do I need this extra token on top of my, my wallet for identification?[00:32:25] Michael: Well, the, the wallet address itself is insignificant, right? There's no information in, in that. That soulbound token will contain that information.[00:32:36] Santiago: All right, so coming back to our framework of identity. The address is unique, right? But it cannot carry any information besides this uniqueness. And what you're telling me is that the soulbound token, I could attach, uh, other kind of, uh, features, right? For example, if I will have something similar to my passport, I could attach my, uh, nationality. To the soulbound token or any kind of other features where that I, that I believe are important for my identity.[00:33:08] Michael: Yeah, well, you could put your whole passport, uh, in a digital version onto the blockchain and attach it to that wallet address. And then it's, depending on the, the, the implementation through the zero, knowledge proofs what information out of that soulbound token will be revealed. So if they only need to know you're from Mexico, then only that information will be revealed. If they only want to know your gender, then only that may potentially be revealed. I think that's how you should look at this.[00:33:42] Santiago: All right. That sounds super exciting, but how far are we, Michael, because all this Web3 space sounds like we are already here, but it, it is something that is there at conceptual level or is something that I can just start using?[00:33:56] Michael: No this is definitely still conceptual. The zero knowledge proof is in fact something that does already exist. Even though we didn't know we would be that fast, uh, this year we have been able to, roll out this technology in production. But the soul bound token, as such as I explained, it just now is still conceptualized. But it is possible to execute upon. It's just that it needs some time.Conclusion on the future of digital identity
---[00:34:21] Santiago: So all these new concepts that are, being attached to this, name Web3, are one of the things that, that, that we are mentioning here, is that potentially we have the power to solve all these three problems that we outlined before.By, decentralize identity and identifiers we could solve the, the privacy concern. The data ownership could be solved for example, with zero knowledge layer. You could reveal only what you want to reveal. And because you are owner of your, of your identity, you can also decide what it fits you the best.And finally, and that is a bit of the more challenging step that is towards the problem owner. So how do we enable problem owners to solve this in the digital space? And that's where DIDs, decentralized identities, are a very appealing solution for, for government to start tapping into, which is privacy preserving, and, uh, is friendly towards the data ownership perspective. I'm very curious to see where it is going to go to, Potentially in the future we all have all this problem solved and we say it was problem of the past.

Outro
---[00:35:39] Michael: So in our first section, we spoke about, why identity. What is it? Then we realized that we as human beings, apparently have this need for, temporal, uh, uniqueness to prove that we are in fact unique.[00:35:53] Santiago: And we also spoke about how you can view identity from the corporal perspective or from spiritual or consciousness, uh, point of view.[00:36:02] Michael: Exactly, and we, we decided, at least for this discussion, and also based on what we see in reality that will use the corporal identity for, for practical reasons, as the one that we're using.[00:36:13] Santiago: As well because governments, uh, use these corporal features to provide identities. We also discuss how governments have a bit of a monopoly on the identity issuance on the digital and the physical form, and, basically that governments are the first form of, uh, single sign-on to, different services. For example, to get a bank account.[00:36:38] Michael: And then I think I question you a little bit about like then what are these processes that are a part of identity? We realized that there is an identification process where you want to claim an identity. Then there is a verification process where in this case the government will verify that you are you. And then subsequently, you can use that identity to authenticate anywhere.[00:36:58] Santiago: And we end up this section with how moving towards a digital society and therefore digital identities poses many challenges because of the nature of digital solutions. They are more scalable, but also any potential weakness on our protocol, so, or our processes become more scalable.[00:37:23] Michael: And because of exactly this, that's why it's so important to start asking the questions as to how should we design identity. And that's what we did on our next section. So we spoke about three topics, the one, privacy data ownership second, and then third, problem ownership. And we gave our own personal opinions about this. And then we used these three design questions in our next section as to what a technology can offer.[00:37:49] Santiago: We very quickly review what, uh, is available in Web2, from the social, identity providers and the government ids, uh, physical but mostly digital. We took a look to what is the transition gonna look like in the web 2.3 with decentralized identifiers.[00:38:10] Michael: Yeah. And then, uh, in Web3, we introduced a concept of decentralized identities. And an example of this potentially is the soulbound token through zero knowledge proofs where we can actually execute on this idea of digital identity.Amazing. So let's leave it at this. Thanks so much for listening to another episode of the Santiago y Miguelon podcast.[00:38:35] Santiago: Thank you guys. See you soon.

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1. Intro
---[00:00:00] Michael: Hello, this is the Santiago y Miguelon podcast recording. In our show we break down complex concepts into simple content.[00:00:13] Santiago: We do this by applying the Socratic method where one of us is the teacher and the other is the student. Our chats rang from anything, FinTech, web three to security.[00:00:24] Michael: And hi, I'm Michael, a serial entrepreneur experienced in FinTech. I talk about startups and I'm always looking for ways to improve life.[00:00:32] Santiago: And I am Santiago. I love finding solutions to complex problems. I focus on the intersection of people and technology. I navigate the world with both an innovator's mind and a security hat.2. Personal story time
---[00:00:48] Michael: Hey, Santiago, welcome back to our show.[00:00:52] Santiago: Hey, Miguelon. Good to see you again.[00:00:54] Michael: Yes, it's, it's been a while. I mean, now virtual, but uh, we actually saw each other over the holidays in person, isn't it?[00:01:00] Santiago: Yeah, it was really nice to see you after three years, man. I've only seen your upper body part. Now I, I remember you actually have legs.[00:01:10] Michael: And we did another thing, uh, to our show, right? Like we had a bit of an upgrade.[00:01:15] Santiago: That's true. We are not sponsored by, uh, Logitech, but we are actually running two nice Logitech mics. So if you listen to my, uh, tummy making strange noises, well there is a reason.[00:01:29] Michael: Yes, we're picking up on that now. Awesome.How we got here
---[00:01:31] Michael: So, for today's show,we were just chatting about things, uh, the last time that we spoke each other, and then you actually came up with this philosophy of you never having any cash readily available in your bank account.[00:01:44] Santiago: Well, I have been, uh, getting my mind busy with, how businesses manage their money. It is very different from actually how individuals manage their money. And that got us to the point that, well, how did we actually learn to manage our money?[00:02:01] Michael: Yeah, exactly. Like what, What strategies do people even use, uh, how do they learn these philosophies of how to manage money? And that's then exactly the topic of today, right? Something we will call, uh, financial education.Structure of the show
---[00:02:16] Michael: So the, the structure of the show is a bit like this.We're going to be talking more about our personal stories, uh, associated to financial education. Then you, Santiago will, uh, introduce some key concepts that are vital in, in understanding how that all works. I'll be, uh, going over the financial education globally and how different governments are actually treating this differently.And then we will discuss, uh, two, two topics. One is financial education and evergreen problem. Will it always be there? And after that, um, something you just alluded to as well, can we potentially run our personal finances as a business? And then we'll wrap it all up.Santiago's story
---[00:02:59] Michael: So let's just kick it off right away. Um, can you tell me a little bit more, how did you learn about the, the value of money and how to, to manage it in general.[00:03:09] Santiago: Yeah, sure. Maybe also a bit of background. I, I was born and raised in Mexico City, so that will also come later in the story.Basically, in my family was very simple. when I was a child, I will get some pocket money, sometimes dailysometimes on the weekly basis. And well, I was, uh, somehow incentivized, indirectly incentivized by, by my, my parents to save money. Because if I would like to buy a toy that was, um, big enough to, to really want to save my, my daily, my daily allowance, uh, my parents will always say, okay, if you save half of the value of the toy, I will put the other half.[00:03:58] Michael: Right.[00:03:59] Santiago: So that was how, uh, a bit of my first approach to saving, uh, came into place. I will always have this, uh, financial institution, my parents, that will double my savings and, and, uh, allow me to buy, uh, whatever I wanted.[00:04:15] Michael: Sounds like a good deal, right?[00:04:17] Santiago: It sounds actually sounds like a really good deal. I have not found, uh, anything similar, af after I left home.And then I think the second approach I had with some kind of financial concept was, uh, not directly, but indirectly. I had a couple of family members that didn't do well, when dealing with credit, especially, uh, credit card, credit. And it is a typical case where, um, you get a credit card to pay the other credit card to pay the other credit card interest, and at some point, well, uh, you cannot get any, any other credit card, and that is a really, really, uh, bad situation.I think the, the family, understanding of credit card, or at least the, the only spoken truth was, uh, debt is bad because debt is credit card debt. And and you should stay away from it.But, uh, what about you? You grew up in a totally different country, miles and miles, away from me. How was, how was for you?Miguelón's story
---[00:05:21] Michael: In a country that you are currently in. So indeed, a bit of background about me. I'm originally from the Netherlands. Um, just like you as a kid, I, I did get pocket money. Uh, I remember spending that on, uh, candy, but also on, uh, something really cool that I just love doing, collecting, uh, soccer stickers from Panini.So every year, uh, either the, the competition itself or for the World Cup, uh, European Championships, I would actually buy these, uh, stickers from, a local tobacco shop and collect them.So the values I, I got as, um, as a kid from my parents were, uh, besides this, also similar, like you, I don't think we had relatives that actually really got into debts, but my dad, dad kept emphasizing that, um, getting rid of debt is very important. So he was very proud of the fact that his mortgage was paid off very quickly and that he didn't have that, uh, kind of hanging above his head anymore.Another thing that was super important is, uh, be very parsimonious, with money. So, for us, the, the option of paying for parking versus not paying for parking was very simple. The, the free parking was the option, even if that meant that we had to walk for half an hour.I think another thing that kind of, as a kid made a very big impression on me is, my dad used to work in the UK at some point in time. He got paid in, in pounds there, and he decided to put that money in a, in a Jersey bank account.So Jersey is actually one of the islands off of the, the French Coast in the English channel there. And, uh, it's like a tax haven. So it's considered to be, uh, a smart option to, to kind of store your money there. But that's all he did though with that money, right? So he just put it in a bank account and that's all it is.And I always thought that was like a super smart thing to do. But, uh, I think over the years what I realized, later on is that he just kept the money there. He didn't do anything with it. He was just saving it. And over time, even we saw the, the pound drop as compared to first the guilder and then the euro so that money just lost its value over time.So, yeah, that, that's kind of my story.3. Key Concepts
---[00:07:39] Michael: Great.And before we then move on to how others are, um, are looking at how to manage their finances, I think it would be good if we just go over some key concepts, uh, that people will need to understand, if they follow along on this podcast.So which ones, uh, do you want to emphasize for today?[00:07:56] Santiago: I think at least in my, uh, financial education journey I can highlight three concepts that, um, I used to think different about them or not think at all. Uh, and those are money, interest, and risk.The first one is money. So in our, in our examples during the introduction of the podcast, money was something that was given to us and we did, we will buy candies.So this is called a medium of exchange. Uh, that means it is a recognized in between people to exchange food and services. Um, and that is how the majority of people use money. When I was, uh, a bit blown away with when I understood that money is also used by companies or actually, uh, financially educated individuals to generate more money.And so that stops being a medium change and becomes an asset.Where the second concept is relevantto introduce that is interest. Interest is just the money that somebody gets when lends money. So a bank will get money, by lending money to us, for example via credit cards. When you add time to interest, you get compounding interest. And this is when, getting earlier into generating this compound interest will, uh, always make you wealthier than being the best money manager in the world. There, there is a, there is a difference in between exponential growth, that is what you get when you are paid interest on interest. And linear growth, that is when you only get interest on, uh, the principle that is basically what you are lending. And I think you have a very interesting example, for this difference, Michael.[00:09:49] Michael: Yeah. It's, it's a super important phenomenon to, to kind of understand and appreciate. So I, I came up with an example, uh, let's say you start off with $1, uh, at a certain day and you would pay a hundred percent, or you would earn a hundred percent interest every day on that $1. Then it only takes you 21 days in order to get to $1 million, right? So that's very fast.Now, on the other hand, if you would opt for a different strategy where you start up with $1, but every day you receive $1, so you're not earning 100% interest, then um, you get $1 a day, it takes you $1 million to get to, uh, sorry, it takes you one minute million days to get to $1 million.And that's actually. 2,740 years, right? Not 21 days. So that kind of shows the, the, the difference between the two strategies. The one is then somewhat linear, the other is, uh, exponential and compounding interest is just, uh, much quicker to get you to your, uh, to your financial goals.Yeah, that that really makes a difference. And I think for humans it's really hard to understand the difference between exponential and linear. I think, I mean, if you can give me a hundred percent interest, Michael, I will definitely, Be better deal than, uh, what your parents did where they would double your money,[00:11:10] Santiago: It's a bit better indeed.[00:11:12] Michael: What is the, the third, uh, concept that you think we still need to know about.[00:11:16] Santiago: The third concept it, it is the concept of risk. In a very simple way, you can think about probability of something bad happening. Uh, and why is relevant to this, financial education topic is that whatever,or wherever we choose to allocate money, it has inherent risk.And if we can understand and, and rationalize, uh, this risk, it will help us to make better decisions. So risk has two important concepts. That is likelihood and impact, and I have a very simple extreme example, So let's say that you have a really big meteorite. It's flying around somewhere in the middle of the space. And you had this tiny likelihood to, uh, hit earth. What do we do? Do we ignore it or do we, I dunno, we all take a spaceship and go somewhere else. This a bit of the, the kind of decisions that you need to, to, to take. And if you're able to quantify the impact or the likelihood in a better way, that will help you to drive the decision that will maybe in this case help you survive as humanity.[00:12:30] Michael: It's like diversifying assets basically that you're talking about right here. Uh, so instead of then putting all of our eggs into one basket, we might find ways that are different baskets and then maybe moving to Mars, which is, uh, something that Elon Musk is trying to do, right? He is trying to send a spaceship to Mars, uh, maybe terraform it so it becomes a second Earth. Or maybe we can even find ways, uh, how to shoot the meteorite out of the air. Uh, have it dispersed into smaller meteorites that are maybe less harmful and might even be, uh, absorbed by our atmosphere.Um, so thanks for explaining the, the, the topic or concept of risk.4. Financial education globally
---[00:13:08] Michael: So now that we understand better the concept of money, compound interest and risk, the question is, is there kind of a, a framework of thought that can help us to navigate all this And the area that helps you to understand better how to manage your money, is called financial education or financial literacy sometimes.[00:13:30] Santiago: And we can define it very briefly as, um, the art or the area of knowledge that helps you to understand the value of money and how to leverage to your own benefit. And the question then is, how, how are different people in the world educated on this?[00:13:53] Michael: And then as, uh, a part of the research for this podcast, I, I kind of dove into this. I was just very curious, like, how did we both get our financial education? Is that then the same, uh, in every country? Might it be different? How is it for the average Jane and the average Joe out there?Just to keep it simple, uh, I picked the countries, that we are either from or are currently living in. So Singapore, the Netherlands and Mexico. And what is a super funny observation is all three of them seem to be doing it very differently. So somewhere in the middle of the spectrum, we have, the Netherlands, uh, where the government does help with financial education through a platform called, Money-Wise.And it serves then kind of as an education portal for, uh, consumers to, get themselves abreast with, uh, the topic of financial education. On the other hand, at this point, at least, there is no formal financial education as a part of the, the school curriculum.And then on the other side, we have, uh, Singapore, which very similar to the Netherlands, also has a, a platform called Money Sense, where they will explain all of the, the, the key concepts such as we just did. And in the, the educational curriculum, there is room for, uh, explaining this as well. So at primary school you learn the difference between simple things like needs and wants.And then later on in the curriculums, they all, um, for example at pre university levels, you'll learn how to set financial goals. So if there's something you want to achieve, like maybe buying a house, then they'll teach you how to, to get there, right?So, and then on the other side is, is Mexico, where actually none of this exists at all. The government of Mexico is, is not, uh, building a platform, nor is there any attention to financial education in the uh, curriculums.Who is the problem owner?
---[00:15:42] Michael: Now, Santiago, what do you think, should governments be the actual problem owners of, uh, educating the population?[00:15:50] Santiago: This is always a question, right? Who is a problem owner?[00:15:52] Michael: Hmm.[00:15:52] Santiago: I do believe so. If, we go back to our la last podcast, where we said that, uh, government is, um, some kind of a proxy for the individual to be able to live in society, and maximize happiness, I believe that financially educated people will eventually lead to better societies, where whatever economic system you have behind,So I think that's, that's something that should be available for, for everyone.[00:16:24] Michael: But I mean, if you look at like cer some facts, like Singapore still actually has a high amount of people that somehow end up in debt spirals because of, uh, these loan sharks that they're lending from. So even if they did get the financial education, it somehow does seem like they, they do, uh, tend to go down that route.And then for the Netherlands, um, according to the O E C D, it's actually in the top three of countries with the highest household debts compared to their gdp. Um, that sounds very high. Like, uh, as we spoke about earlier, is, is that then really a bad thing?

And, and for Mexico, what we currently see is that, half of the population does not have any relation whatsoever with, um, with any financial institution. And there is also 20% of the population that never even saves.[00:17:13] Santiago: I think those, those facts are, uh, really interesting. I think that one of, um, the also important things to mention here is that financial education is something that, um, you are worried about when your basic needs are are fulfilled, right? So I understand that in these three countries, there might be situations where you are not even thinking about that because you need to, to look for what are you gonna eat or what is your family gonna eat in the next week. And then there is no, there is no place for financial education.Having said that, uh, I think that you also help us, Michael, to understand, um, that in different countries you have different baselines, right? So I think that if, if in Singapore all the kids are educated, at least they know that they're doing it wrong, right?Whereas in Mexico, I can tell you that, um, if the majority of the people are still dealing to get access to a bank, there is really not a lot what they can do about financial education. So I think that we are all in the spectrum. So I, hopefully we are all gonna go to maybe where at least the tools are out there, uh, when you need them and when you can use it, you can use them. That will be a better situation compared to when you don't have anything.5. An evergreen problem
---[00:18:32] Michael: Nice. So before we look at how we can potentially solve for financial education, um, it is worth asking, is it a problem that can even be solved in the first place? If I break down financial education, I see two dimensions, one reach, two knowledge.Um, but then the question is, can we maximize both or will there always be people who somehow don't have the capacity to understand and, and, and manage their personal finances? Or is there perhaps technology out there that can one, uh, give them that access and two, provide them that knowledge?[00:19:10] Santiago: So what do you think, Michael? Because I also know that, uh, you are very much into Web3, right? And there is, uh, some options there, to tackle this problem from maybe a decentralized uh, way, but, uh,what can Web3 do for us or actually force society to help people be, choose better in their financial paths?[00:19:37] Michael: Yeah. Yeah. I think this technology can help us. I, I think, um, it's very hard to, to get a hundred percent financial, financially educated population, that that will be a very tough goal to achieve. But I think we can get very far and I think Web3 in particular will be able to help us with this. But as it is right now with the current status though, what I believe is that uh, it might seem a little bit paradoxic, but, um, the more we keep innovating, the harder it will be for people to eventually become financially educated. So in Web3 right now is just so full of jargon lingo, uh, that makes it so hard to grasp for people that even if they wanted to become financially educated, they, they just couldn't. It's like the, the, the hill was too high to climb, right?Um, and that's why I think Defi, as it currently stands is, impossible to to fathom. Uh, we need to drastically simplify Web3 in order for people to get there. Uh, and then if we do that, I do believe it will help us in increasing that access and increasing that knowledge.What, what do you think?[00:20:49] Santiago: Now I, I fully agree with you. So there is, there is maybe a third category we don't have a lot of control on. That is how com complex technology and, and also financial products are right. And I think the complexity of financial product has some somehow reached its pinnacle in Web3 because, uh, it is not only tech, uh, technological complexity, but also financial complexity.And, uh, the niche of people that understand those two well is quite niche.6. PFM as a business?
---[00:21:20] Michael: All right now, so that, uh, we assume or we think that we can almost educate everybody financially uh, Santiago, you came up with a quite a crazy idea as to how to potentially help everybody manage their finances because we can then maybe learn something from how businesses do that you care to explain.[00:21:41] Santiago: Yes, of course. so this comes from me spending too much time reading finance books. I suddenly wonder why I'm actually not managing my wealth or my money as a company do.So maybe the question is how do actually companies manage their cash?And interestingly enough, a company will always try to minimize the cash available. , We will understand why, later, but there is mainly two mechanisms for that. So when cash available at the end of the month, as a company, you either want to invest it somewhere, I think is strategy number one.Um, and there here's where the risk concept becomes relevant, right? So, uh, you wanna put money in a investment that, is diversified. So you spread your risk, uh, and can give you the return that you want.The other that is more interesting isa very successful strategy to, uh, minimize cash available is actually raising debt. The incentive that debt provides is that you need to pay your debt at the end of the period. Then this cash that you might have available, if you will not have debt, it's not anymore there. the business is not doing great, the company cannot pay, its debt. Well then the company is liable to pay debt with the assets it has. At any moment, the owner will go in jail or will need to give its house away because a company is not being able to repay, and I, I believe it's also one of the concepts when you told me Santiago, this, uh, is an interesting one, but it might not work because whereas you want to maximize your mortgage, uh, if the moment that you are not able to pay, you are going to lose your house. And that's when it clicked. So liability is a very different concept for personal finance management and business management[00:23:46] Michael: That, that's true. Uh, other question I still have for you is why would a company then want to minimize the cash available? So the free cash flow?[00:23:57] Santiago: A company has, uh, interesting conflict of interest. The owner of the company might not be the manager of the company. And this idea actually, I, I take it as a very valuable one for personal finance management, because when I'm working for my long-term goals, that I will, um, I will think that that's the owner of the company, the owner that has a long-term vision, whereas the manager is the one that, oh, there is a new microphone in Amazon.Maybe I, I, I should buy this microphone. So this is, this is where the conflict of interest comes. So in the cash available that managers have to, for example, buy a nice desk or have a fancy dinner with customers versus the interest of the owner of the company to make sure the company maximizes the finance, the financial wealth This is a very valuable idea for personal finance management because that also helps you, whereas you don't wanna maximize debt maybe in the same way as a company, you wanna minimize your cash available because I don't want to have this cash at the end of the month to be able to buy the microphone if I don't really need it.[00:25:13] Michael: Which is something you might regret.[00:25:16] Santiago: It's something I might regret.[00:25:18] Michael: Do we regret buying our microphones or?[00:25:20] Santiago: Well, I think that's something that we, uh, we will hear about, uh, later when, uh, when the podcast is out.[00:25:27] Michael: After the editing. Yeah, awesome. Uh, yeah, so I, I I think, uh, you sum it up nicely there, right? It sounds like we can learn a lot from how businesses run their finances but there might be certain, aspects of it that are maybe too complex or unnecessary for an individual to, to truly do so.I wanted to kind of elaborate on that by, um, mentioning that I, I did actually something similar for my personal finance management. I created this spreadsheet and, uh, this spreadsheet I use to calculate and understand my net worth and a lot of, or how I structured the, the spreadsheet is very similar to how a business will uh, do their accounting.So it has like a, a cash flow statement. It has an assets and liability statement. And, uh, out of all of that, I try and understand what is my financial health? And that's how I take decisions. So for example, like what we just spoke about, if I realize that I have too, uh, too much free cash flow, if there's too much money in the bank, then I'll try and find ways of me applying that somewhere, like investing it in one way or another.So that's, that is definitely an example how I, I at least learned from how businesses do it and then applying it to my personal situation.[00:26:49] Santiago: Was, was it difficult for you to structure this, uh, spreadsheet?[00:26:54] Michael: Yes, very difficult. I think, uh, this spreadsheet has in a way been, uh, kind of my, uh, learning process of me educating myself financially. So what do I mean by that is that it started out as a very simple spreadsheet in the beginning. Maybe one tab. And over time it just grew and grew into something that was more complex.Uh, and why, because I started understanding more of the nuances that come with, understanding your, your net worth. So it was really, it's, it's a product of my learning in in that sense. It's, yeah, the proof that I, I went through this, this course of financial education and I am now at a phase where I I'm not financially free yet. I wouldn't call it that, but I have, um, the feeling that I have a grip on it, that I, I know where I'm currently at and it gives me a very safe and confident, feeling.[00:27:48] Santiago: Yep. No, I think the, the path, uh, there. It's really what, uh, teaches you at the end right? So you need to, to learn by doing it,to spend time on it. And I, I, yeah, there might be no shortcut for that.[00:28:09] Michael: No, I guess maybe not. Maybe you need to put in the work . Um, which doesn't mean that you need to build a whole spreadsheet, but I guess, uh, writing some, some stuff down, some simple things like, uh, your assets, will help you in getting an understanding of your financial situation.7. Outro
---[00:28:24] Michael: And that brings us to the end of the episode of today. We spoke initially about our personal stories, our relation to money, how we have been spending and saving as kids and got taught that debt was bad.[00:28:37] Santiago: Then we share concepts that are important to understand personal finance management: money, compound interest and risk.And then we saw how financial education is actually approached differently in the countries that we are from. Then we went into discussing if financial education is an evergreen problem, or perhaps technology can help us to improve access and knowledge.[00:28:58] Michael: Yeah. And, and finally we looked at, uh, your crazy idea if potentially we can upgrade financial literacy by running your personal finances as a business.I, I really feel like we only scratched the surface of all of this today, uh, Santiago.[00:29:12] Santiago: But if at the end of this episode at least you wonder, hey, this compound interesting is very interesting for that will be the best outcome for me. What about you, Michael?[00:29:24] Michael: I, I completely agree. And I have a seven month old daughter. And all of the, the funds that she got over Chinese New Year, I put it into her bank account and invested it in, in ETF.So I really hope that by the time she's 18, that compounding interest effect will then, uh, have, uh, materialized.[00:29:42] Santiago: So it is a lot of 21 days in there.[00:29:45] Michael: That is a lot of 21 days in there.Thanks folks for tuning into the Santiago y Miguelon Podcast.[00:29:51] Santiago: Thank you guys. See you soon.

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