0:00

You're listening to TIP. Hey, everyone.

0:03

Welcome to this Wednesday's release of the Bitcoin Fundamentals

0:06

podcast. Today's show is part

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two of a two-part discussion with

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the incredibly talented macro investor

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Lynn Alden. Lynn recently published

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a book titled Broken Money. And if you haven't

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heard the first part of the conversation, I would highly

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recommend you go back into your podcast app

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and find the episode that precedes this one.

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And if you've already listened to that first part, well, welcome

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back. And we're getting ready to talk

0:29

about the merging of a credit-based

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money ledger system with a commodity-backed

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money system into a single new

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technology, which is Bitcoin.

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During this conversation, we talk about many different

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technical trade-offs that Bitcoin makes, such

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as privacy versus auditability,

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scripting, and smart contracting. Why

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many people look at Bitcoin as old technology

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relative to many of the other crypto projects

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and what they're missing with that point of view,

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along with many other important topics. So

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with that, here is part two with Lynn

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Alden on her newly released book,

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Broken Money.

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You're listening to Bitcoin Fundamentals

1:09

by the Investors Podcast

1:11

Network. Now for your host,

1:14

Preston Pysh.

1:25

All right. So I'm back here with Lynn

1:28

Alden talking about her brand new

1:30

book, Broken Money. For people

1:32

that are just joining us and haven't

1:34

listened to the first part, I highly,

1:37

highly recommend that you go back and listen to

1:39

the first part with Lynn, Stig, and

1:41

myself, where

1:42

we talk really about the first half of

1:44

the book and the history and

1:46

the technology of money and how we've

1:48

kind of come to this third phase.

1:51

If you listen to the tail end of the last conversation,

1:54

Lynn talks about there being like basically three

1:56

phases.

1:57

We're getting ready to go into a deep discussion

1:59

on this. third phase. And

2:02

before we go there, Lynn, my, as

2:04

I look back at the conversation that we just

2:06

had in the first part,

2:08

and you did such a great job talking

2:11

about how money kind of is at

2:13

the center of all these conflicts

2:15

throughout history. And

2:17

I think a person who might be hearing some of those

2:20

ideas for the first time are asking

2:22

themselves like, why is that the case? Or are

2:24

we overstretching this correlation

2:27

that money's always at the root cause of

2:29

all these geopolitical conflicts that

2:31

we've seen throughout time?

2:33

I guess I'm just trying to really get to the essence

2:35

of why is that? Why is

2:37

that the fundamental thing? Is it because like,

2:40

if we look at it from a first principle standpoint,

2:42

that money represents energy

2:45

exchange between two parties. Is

2:47

that truly the essence of why

2:50

money's always at the center of this? Or is there something

2:52

else that you would kind of define?

2:55

I think who has the ability to siphon

2:57

value from others and redirect that value?

3:00

It's just obviously a foundational

3:02

aspect of organization

3:04

and ethics and

3:06

conflicts and peace and that kind

3:08

of thing. And as monetary

3:10

technologies have changed over time,

3:13

it changes the power structure of

3:15

who can siphon that money and rearrange it. And

3:17

then also how thoroughly they can do so. So

3:20

how easy it is for them to do it. Do they have complete

3:22

control over doing that? Do they have partial control? Do they

3:24

have minimal control? And so these things

3:26

really matter from a domestic

3:29

perspective, a geopolitical perspective.

3:31

And anytime someone studies a field,

3:34

they tend to believe that

3:36

that thing is like the core of a lot of other

3:38

things. Right. So I try to have to overstate

3:41

things to say, okay, literally, everything

3:43

in the world can be tied back to money. And you know,

3:45

it's not really the case. I mean, we have the world, a complex

3:47

place. There's human nature. There's just

3:49

the rules of physics, for example, there's just limitations

3:52

for how the world works. There's always going to be conflicts

3:54

and challenges and things to overcome,

3:57

but money along with energy and

3:59

a few other.

3:59

key things like that are clearly among

4:02

the foundations of power and how we

4:05

interact with each other and

4:06

who really has kind of control over

4:08

others. And the first part

4:11

we talked about ledgers. We talked about

4:13

commodity money. We talked about

4:15

why each of them exist, why

4:18

each of them have benefits and

4:20

setbacks in their use.

4:22

We use so eloquently lay out

4:25

the importance of the telegram, being

4:27

able to communicate and send information

4:29

at the speed of light from Europe to

4:31

the United States and how you can manage

4:34

ledgers this way in a much more cost

4:36

efficient way,

4:38

but you're not able to immediately

4:40

settle. So as we look

4:43

at this new innovation,

4:45

Bitcoin, blockchains,

4:47

all of this, what is this

4:50

enabling that has never been like truly

4:52

at the essence and first principles? What is that

4:54

enabling that hasn't been able to be enabled

4:57

historically?

4:58

Two things. One would

5:00

be instant settlements throughout

5:02

human history, information and

5:04

material could only move as fast as humans.

5:07

So, you know, you can't a thousand years ago,

5:10

Europe and China could not instantly send information

5:12

or value to each other. You had to move along the Silk Road to

5:15

do it.

5:15

And ever since invention of the telegraph

5:18

and specifically the deployment of the telegraph throughout

5:21

the 1850s, 1860s, and globally

5:23

by the early 20th century,

5:25

we've had the ability to send information

5:27

around the world instantly, which includes

5:29

transaction agreements. Whereas

5:31

of course, physical settlement of precious

5:33

metals and other value can only happen at the speed

5:36

of matter, transportation,

5:38

and more importantly, not just transporting it,

5:40

but also authentifying it. Basically all

5:42

the logistics of securing and authenticating

5:45

that value. And once

5:47

we had more bandwidth, once we

5:49

had more complex encryption, once we had

5:51

more complex organizational structures,

5:54

what the invention of Bitcoin is in a way

5:57

is the first introduction of a credible

5:59

way. to settle final value

6:01

nearly

6:02

as quickly as we can do transactions.

6:05

The kind of the first period of human history

6:07

was everything slow. And then the period

6:09

of history from the telegraph up to

6:12

right before Bitcoin was transactions are

6:14

fast, the settlements are slow.

6:16

And post Bitcoin, we're in a world

6:18

where final value is fast

6:20

as well. So transactions and settlements can all move

6:23

roughly at the speed of light. The second

6:25

thing I think is the ability

6:27

to build a credibly decentralized

6:29

ledger. So until

6:32

this point, any ledger is controlled

6:34

by humans is centralized. So

6:37

a central bank runs the monetary

6:39

ledger for their country, for example. A bank

6:42

runs the ledger for their clients. And

6:44

we basically build ourselves with a hierarchy

6:46

of ledgers. So there's like smaller

6:49

ledgers built on top of bigger ledgers. And

6:51

at the foundation is the central bank. And

6:53

it's just a centrally controlled ledger where

6:56

they can determine how many units there are.

6:58

They can determine who gets to use those units.

7:00

They could take units from some others. They

7:03

could redeploy those units. And

7:05

they can double the amount of units. They can triple

7:07

the amount of units. They can cut the number of units in half.

7:10

And what Bitcoin is interesting is that it's a

7:12

ledger,

7:13

but no single entity is in control

7:15

of that ledger unless they're willing

7:17

and able to expand so much physical

7:19

resources that they can control the majority

7:22

of the hash rate.

7:23

And even then,

7:24

they're still stuck by the rules of the nodes, which

7:27

are themselves decentralized as well.

7:30

And so it's very hard to gain

7:32

even partial control over the ledger. And

7:35

it's nearly impossible to gain complete control

7:37

over the ledger. So it's easier to censor

7:39

transactions than it is to make more Bitcoin, for

7:41

example.

7:42

But that's what this kind of represents. It's a

7:44

way for humanity to have a credible

7:46

scarce unit ledger

7:49

system backed by energy and

7:51

backed by encryption

7:53

and essentially controlled by a more distributed

7:55

set of users rather than,

7:57

say, 12 people to the Federal Reserve.

8:00

So you say it's backed by energy. So

8:03

it's not just a ledger. It's also

8:05

this commodity money simultaneously.

8:09

And we've

8:11

never seen something like that before

8:13

that you're able to have saleable commodity

8:16

money that instantly settles.

8:19

You write in your book, and I'm just going to read this quote

8:21

here. It's not an accident that it took

8:23

approximately a century and a half after transactions

8:26

were enabled to occur at the speed of light for

8:28

bearer asset settlement to also occur

8:30

at the speed of light.

8:31

If I were to describe in one paragraph

8:34

why money has been broken around the world

8:36

for so long while almost everything else

8:38

has improved substantially and you list energy

8:40

abundance, technology abundance, and so forth.

8:43

It's due to this gap between transaction

8:46

and settlement speeds that the telecommunication

8:49

era created.

8:50

Any comments on that summarization

8:53

of because really you're saying in that paragraph,

8:55

this is what this is all about in the future is

8:57

exactly that.

8:59

Yeah. So as I say, during the century and a half where

9:02

that gap existed, the problem

9:04

is that the only way to fulfill the gap is

9:06

basically centralization. You have gold

9:09

that doesn't move quickly, your

9:10

transactions that can move quickly. And

9:12

so the question becomes who do you trust

9:14

to manage that gap between transactions

9:16

and settlements because that necessarily exists in a

9:18

state of credit.

9:20

So who is the ultimate arbiter and maintainer

9:22

of that credit ledger?

9:24

And so basically throughout human

9:26

history, and especially this past century and a half,

9:29

most of the physical shortcomings of money, whether

9:32

they're lack of divisibility, whether

9:34

they're lack of speed, whatever the case

9:36

may be,

9:37

most of those were handled with various technologies

9:40

or new procedures that make

9:43

them more efficient, but at the cost of centralization.

9:45

So it's far easier to use banknotes

9:48

or credit cards and things like that than it is

9:50

to exchange gold and silver

9:52

coins with each other, especially for operating

9:54

in a complex global society. And

9:56

so we give up, we get all these benefits,

9:59

but we give up.

9:59

control towards the central entities that

10:02

can control that

10:03

abstraction layer,

10:04

which in this modern era has been nation states. Nation

10:08

states and the banking systems that they control.

10:10

And so what's interesting is that Bitcoin

10:14

is kind of this first kind of a

10:16

potential trend change

10:18

where it says, here's another efficient

10:20

way to do it. And this is the first one that doesn't further

10:23

centralize it. It actually decentralizes

10:25

it while still giving you those benefits of speed

10:28

and other capabilities. And I think that's

10:31

why so many people are interested in Bitcoin.

10:34

From an outside perspective, if you're in the United

10:36

States or Europe and your money works

10:39

well enough, you're

10:40

not worried about getting cut off from your bank

10:42

and you buy your groceries every week and

10:44

it's not a problem. When you look more globally,

10:46

it's a much bigger problem. There's 160

10:49

different fiat currencies in the world.

10:51

The long tail of most of them don't

10:54

hold their value, don't have any global acceptance.

10:56

And so it's very hard for people to save

10:58

in liquid value.

11:00

In the United States, we think, okay, so

11:02

the dollar degrades slowly. So

11:04

you got to buy real estate, you got to buy stocks, you got

11:07

to buy all these other things and that

11:09

works well enough.

11:10

I like covering the book, there's downsides

11:12

to that whole system, but it's workable. Whereas

11:15

say you go to Egypt, the currency degrades

11:18

much quicker.

11:19

The stock market is not robust enough to put

11:21

serious money into.

11:23

So people put it into real estate, which is illiquid

11:25

and

11:26

they have all these empty homes because

11:28

if you want to save,

11:31

go build a home and maybe a bit of rent

11:33

out in the future.

11:34

And so it's very hard for

11:37

developing countries, people in developing countries to accumulate

11:39

liquid capital.

11:40

And that is a friction that

11:42

is significant and exists. And it's

11:45

so, literally in 2023, there are doctors in Egypt.

11:49

If you ask them, how do you save money? They

11:52

say, well, I go to the black market, I exchange

11:54

edition pounds for physical US

11:56

dollars. I then hold this physical US

11:58

dollars.

11:59

my apartment with no interest, like

12:02

liability to be stole or lost in a house

12:04

fire or something. And that is the best

12:06

monetary technology they know what to save in. Wow.

12:09

Because they're not going to hold Egyptian pounds. They're

12:11

not going to put the dollars in Egyptian banks because

12:14

Egypt often has a dollar shortage. So they're

12:16

always prone to say, okay, well, we have

12:18

to take these dollars and we'll give you an equivalent amount of Egyptian

12:20

pounds at the exchange rate we decide.

12:23

It's very hard for them. And of course, the other option is gold.

12:26

Basically, houses gold and physical

12:28

dollars are their variety of options

12:30

that they have. And none of those are perfect.

12:33

It just shows kind of the frictions around

12:35

the world. And especially like that, if you want to send

12:38

money, it's like, well, you try to send money there and

12:40

it's like, well, this service doesn't allow you to send money to

12:42

Egypt. And this, this service doesn't let you send money

12:44

out of Egypt. So you have to like find the,

12:46

you try a second way. That doesn't work out. You

12:48

find a third way and that one works. Right? So

12:51

there's frictions both in terms of saving money and in

12:53

terms of transacting money globally, that

12:55

a hundred plus countries, billions of people

12:58

in the world encounter that is kind of

13:00

abstracted away from us in the United States

13:02

and Europe and Japan.

13:04

And we have our own problems

13:06

with money, but on a global scale,

13:08

the problems are much bigger. And it's in large part because

13:11

of this, this gap between

13:13

transactions and settlements. And therefore

13:16

in order to rely on a solid unit of account,

13:18

you need to rely on some sort of central entity, which

13:20

in the modern era is really the federal reserve.

13:24

So you wrote extensively about

13:26

Bitcoin prior to writing this book.

13:29

And I would argue understood

13:31

it as one of the top thinkers

13:33

in this space for quite a while. After

13:36

writing a book of this magnitude

13:39

and all the history and everything that

13:41

you studied and then wrote about Bitcoin

13:43

there at the end of the book,

13:45

what is something that you learned

13:47

or that you took away that you

13:49

didn't really know or think about prior to

13:51

writing the book?

13:53

So it's an amazing question because in broken

13:55

money, I inject my own kind of thoughts

13:58

to the organization and

13:59

emphasize key points that I don't see emphasized enough,

14:02

but it really draws from hundreds

14:04

of other people that have created so much

14:06

amazing literature or podcasts

14:09

or books or various mediums of

14:11

information.

14:12

So whether I'm talking about older technologies

14:14

or the Bitcoin world, if

14:17

you look through the citations, you'll see a lot of familiar

14:19

names that people that have put out amazing

14:21

content.

14:22

I think what sparked me to write the

14:24

book was the realization of

14:27

how big that... How important that

14:29

gap between transaction and settlements

14:31

is.

14:32

So the fact that transactions occur at the speed of

14:34

light and settlements don't is a technological

14:37

accident of history that I think shaped a lot of

14:40

the past 150 years. So I think that

14:42

learning about the importance of that, I

14:44

also enjoyed diving into the

14:46

arguments between commodity money theorists

14:49

and credit money theorists and to really

14:51

tease out those nuances. So I tried to

14:54

steal... Even arguments I disagree with, I would

14:56

try to steal man and find out, okay, who's

14:58

the smartest person that makes this claim and

15:00

find that person to read what they wrote and then

15:02

try to deconstruct it, see where I agree

15:05

or disagree.

15:06

I also enjoyed reading about the

15:08

nuances of the classical gold standard

15:11

because I enjoyed seeing how

15:13

people like economists and logicians of that

15:15

era like Jevons

15:16

would analyze that current system at the time

15:19

and describe the various pros and cons, which are kind of

15:21

like lost to history. We kind of look back

15:23

and we just kind of say, oh, it's this great time of a classical

15:25

gold standard. Whereas when you actually go back

15:27

to when it was operating, this guy's like, hey, this

15:29

thing's levered 20 to one. It's

15:31

working really efficiently, but we got to be careful

15:34

with how we're running this thing. And it's like that kind of nuance

15:37

is really... When you go back

15:39

to the initial source material, it's really fascinating.

15:42

And so I would say that whole progression

15:44

has been very interesting. Also, I was fortunate to have Joachim

15:47

Book serve as a research provider

15:50

and editor of the book. And he is

15:52

a professional monetary historian. He

15:54

was going to master's in Oxford from it. And so he

15:57

fact checked everything I looked

15:59

up. And so there's

15:59

be occasionally something where I didn't state

16:02

it the right way or there's a certain historical

16:04

nuance that he knew that I wasn't familiar

16:06

with and I would go and rewrite that paragraph and kind

16:09

of so I learned from working

16:11

with great people.

16:13

Wow, that's really cool.

16:15

Okay, after chapter 20, I

16:17

tried to look at the introduction

16:20

because this is where you give the introduction to Bitcoin and

16:22

you kind of lay it out for a person that's maybe

16:24

never even read about it.

16:26

And I was just trying to think about

16:28

it in terms of that person or

16:30

that reader who's seeing it for the first time.

16:33

And I just suspect they would be really

16:35

skeptical as they're reading through it.

16:37

And I would imagine a lot of it is just they

16:39

just don't have the technical competence on

16:42

how it all works to really have

16:44

any type of faith or trust in

16:46

that type of new protocol or system.

16:49

So like one of the, I'm just trying to think of ideas

16:51

that maybe they would have and they'd look at

16:53

the way that the node system works and

16:56

the way that you have it laid out in the book.

16:58

And I think a beginner would say, well, if I'm

17:00

a government, why don't I just create 50,000

17:02

nodes and then start interjecting those

17:04

nodes into the network to maybe sow discourse

17:07

or confusion amongst the way that

17:10

the nodes coordinate with each other?

17:12

Why wouldn't the government do something like that and

17:14

sow seeds of chaos in the Bitcoin? Or why doesn't

17:17

that work from a technology standpoint?

17:20

Well, they can certainly try. I mean, there's various

17:22

attacks that are possible. The question is how powerful

17:24

they are. As

17:25

people pointed out with this whole recent BlackRock

17:28

spot ETF question, if a ton of

17:30

Bitcoin value gets concentrated, and let's

17:32

say it's also concentrated in the hands of a government

17:35

so they can impose laws on miners

17:37

and stuff like that,

17:38

could you have power over a hard

17:41

fork, for example, or a soft fork?

17:43

And could you, could a sufficiently powerful

17:46

entity shape Bitcoin to their will?

17:48

And the way I would describe it, when we look

17:50

at institutions, so

17:52

one of the things that humans do is we abstract

17:55

things. So back in the day, if a person

17:57

was king, that person is

17:59

king.

17:59

There's no abstraction, that person is the ruler.

18:02

Whereas, for example, in the United States and

18:04

other places like that, the office of the president is abstracted

18:07

from the person holding it at the current time.

18:09

So the president is a powerful

18:11

institution, whereas the person holding it is

18:14

not necessarily so.

18:15

And we build up kind of part of the

18:17

reason why the United States has been successful is because we build

18:20

up these separate institutions, these divisions of

18:22

powers.

18:23

And so you have the Supreme Court, you

18:25

have the Congress, you have the president, you

18:27

have a semi-separate central

18:29

bank that came up later.

18:31

And then at the foundation of the whole thing is

18:33

you have a constitution that

18:35

is purposely very, very hard to change

18:37

and gives you a foundational set of rules to work

18:40

with. And the way I would argue it is that none

18:42

of these institutions are incorruptible,

18:44

none of them are invincible, but they're

18:46

robust. It's very slow

18:48

to corrupt them, it's very hard to be corrupted,

18:51

and

18:51

that's why they've been able to last as long

18:53

as they have. It still requires some

18:55

degree of social maintenance to work

18:57

with these very robust systems. And I would

19:00

describe Bitcoin similarly, which is similar

19:02

to the US constitution, is this like

19:04

open source, robust, highly

19:07

incentivized thing

19:08

that distributes the power as much as possible.

19:11

And while it may not be, it's certainly

19:14

not invincible or impervious to any

19:16

sort of corruption or attack,

19:18

but it is highly robust and resistant

19:20

to such attacks, as long as there

19:23

are a sufficient number of people to

19:24

do their best to try to maintain it. So

19:27

it basically serves as an organizational tool

19:29

that allows people to come together and

19:31

the burden of effort is always on

19:33

those trying to change it.

19:35

And I think that part of the monetization

19:37

process of Bitcoin

19:39

is us testing how good it is,

19:41

right? So we throw every attack we have

19:43

at it

19:44

and see, can it survive this one? Can it survive this

19:46

one? Can it survive this one?

19:48

And what if we copy it and change these variables?

19:51

No, that doesn't work. Okay. So

19:53

we're going to go back to Bitcoin. And so it's like this whole series

19:55

of attacks on it.

19:57

And so to answer your question, I mean, you could spin

19:59

up a lot of no's.

20:00

But what makes a node valuable is that it's

20:02

your node.

20:03

You're playing your part in saying, this is what

20:05

I accept as Bitcoin.

20:07

And this person might control 50,000 fake

20:09

nodes, but it's really just one person or one entity

20:11

behind it. And they're not changing what I'm

20:14

defining as Bitcoin.

20:15

And so then it becomes how many real human

20:17

actors

20:18

and how much real capital is behind the

20:21

ones that are not changing.

20:22

And so again, I would say that Bitcoin is resistant

20:25

to attacks. It's not invulnerable to attacks.

20:27

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24:02

All right, back to the show. Robert

24:04

Leonard

24:04

And if somebody's running these 50,000 nodes with

24:07

a different type of software, or

24:09

there's different consensus rules on those 50,000 nodes,

24:12

I can look at that and say, I'm not connecting to

24:14

any of those 50,000 nodes because it

24:16

looks like they're a bad actor or they're trying

24:18

to do something. And so they're almost immediately

24:21

excluded from the network because it's

24:23

very detectable, it's fully auditable.

24:26

I think the honest participants

24:29

in the network are going to just

24:31

identify it for what it is,

24:33

just to compound on your point.

24:35

When we look at where Bitcoin is today,

24:38

in excess of 10 years of history,

24:42

and it continues to progress,

24:44

the adoption continues to go up, but

24:47

I think people would look at it and say,

24:49

it's quote unquote, better money, but why

24:52

hasn't it, if it's so great, why hasn't

24:54

it really taken over? And they're looking at the

24:56

timeline of this adoption curve, and they're

24:58

saying, yeah,

24:59

I don't think there's any way that the dollar is ever

25:01

going to be overcome or beat

25:04

by this thing called Bitcoin. It's already

25:06

had a decade plus and it still hasn't done it yet.

25:09

When I talk to people and

25:11

they say what they think

25:14

is going to cause that adoption to take

25:16

place, there's really two schools of thought.

25:19

And I know the truth is usually somewhere in the middle of this,

25:21

but I'm curious to hear your opinions

25:23

on these two schools of thought. One is all

25:25

the developing nations around the world, they

25:27

need better money because they're dealing, you gave

25:30

the example of what you're seeing in Egypt.

25:32

They need some type of reliable,

25:34

uncensorable money that doesn't get the

25:37

base to the breakneck pace, and they're going to start

25:39

using it in more and more, and then that's

25:41

going to drive global adoption.

25:43

The other side of the argument would

25:45

be global credit markets are so

25:47

broke. You're having this breakdown

25:50

in global cooperation and inflation

25:53

is far outpacing the yields that you're getting

25:55

in these really large multi-trillion dollar

25:57

credit markets. And because of that, I think that's a

25:59

big part of the world. they're not going to be able to get that under

26:01

control, they're going to have to turn

26:03

to something that isn't getting debased

26:05

because credit markets go to zero

26:08

in a scenario where a new

26:10

money emerges

26:11

and it's a better form of money, that

26:14

that's going to be the thing that drives

26:16

global adoption.

26:18

When you look at these two arguments,

26:20

how do you shore it up as to

26:22

what you think is actually going to potentially

26:25

drive this new form of money to take

26:27

hold around the world? Robert

26:28

Leonard

26:29

So it's a great question. And I'll be the first to admit I don't know

26:32

the future. And so instead, I try

26:34

to use whatever economic or technical knowledge

26:36

I have to kind of shape or reason kind

26:38

of the general direction of the path I see.

26:40

The first thing I'd point out is that

26:42

Bitcoin went from zero to a trillion dollar market

26:45

cap faster than any other asset. And

26:47

so it's already doing quite well. It's

26:49

gone very far in 14 years. Satoshi

26:52

wrote 20 years, either Bitcoin's going to have a

26:54

ton of volume or no volume. It's

26:56

kind of a bullying outcome whether or not this thing works.

26:59

And I would say so far, 14 years into his 20 years,

27:02

we're on the path of a ton of volume. I mean,

27:05

the amount of value settled per years in

27:07

the trillions.

27:08

And so I would say it's on the path of being successful.

27:11

Now, one of the challenges with Bitcoin

27:13

adoption is the volatility. When

27:15

you look at most technological adoptions,

27:18

whether it's electricity or

27:21

radio or the internet or

27:23

smartphones, when people transition

27:25

to that technology, they rarely ever

27:28

transition back. Most people don't

27:30

get electricity and decide they don't want it and they go back to not

27:32

having electricity. They don't get a smartphone and

27:34

then decide, you know what, I want to live in a flip phone

27:36

world.

27:37

And so you tend to see very

27:39

smooth adoption curves with most technologies.

27:42

And

27:43

that allows it to be very quick. The problem

27:45

with an inherently monetary technology, specifically

27:48

the unit of account itself,

27:49

is that as it gets adopted,

27:52

people naturally lever it and naturally

27:54

re-hypothecate it and play games with it. And

27:57

human euphoria takes over,

27:58

just like the stock market.

28:00

And so you get these boom, bust cycles and

28:03

that discourages a lot of people. So you actually, unlike

28:06

people that adopt electricity and never go back, there are people

28:08

that adopt Bitcoin and then decide, no,

28:10

it's too volatile, it's dead now.

28:12

I made a mistake and they get out of it.

28:14

And then it takes years to rebuild the next base,

28:17

the next larger bull market. So I think that a

28:20

monetary technology inherently takes longer

28:22

to... It's not really...

28:25

If we were to go back and look at the initial gold adoption,

28:27

how long do you think that took? It's

28:29

like monetary network effects just

28:31

take a long time to build.

28:33

We're going against an incumbent 10

28:36

to $1 trillion system

28:37

with a very small starting

28:40

point.

28:41

And so I think it's inherently understood to be a

28:43

multi-decade process with this level of change.

28:46

I mean, you don't rip out the base layer of money and put

28:48

in another base layer of money globally

28:50

in 14 years. It's not realistic.

28:53

The disruption from that is immense. And

28:56

the accounting systems, the legal systems,

28:59

the human conceptions of what money is, all

29:01

of that takes time and arguably generations.

29:04

Just newer people grow up with it,

29:06

it's more natural to them. And it just

29:09

slowly puts itself in society over

29:11

time as long as the incentives make sense, which

29:13

Bitcoin's fixed supply and decentralization

29:16

helps it be robust through that process. So that's my

29:18

first answer to the question. The second answer to the question

29:20

is that people often assume that the dollar

29:23

is a steady state. As

29:25

it looks now, it's roughly going to look at the dollar in 50 years,

29:27

except of course, it would have gradual inflation along

29:29

the way, but that it's essentially going to look the

29:31

same as it does now. One of

29:33

the problems you see is that if you look at developing

29:36

countries in particular,

29:37

Bitcoin is often too volatile for them to accept,

29:39

even though they have a major debasement

29:41

problem with their local currency.

29:43

And so a lot of them jump to stablecoins. If you

29:46

look in Argentina,

29:47

you'll see someone, okay, says, well, I understand

29:49

Bitcoin and I hold some of it long-term, but

29:52

if I want to hold money for six months, I don't

29:54

want to hold in Bitcoin because I could lose value.

29:56

So I'll hold it in tether.

29:58

And from their perspective.

30:00

It's, you know, a dollar is way better than the Argentine

30:02

peso. And even though Tether is centralized,

30:05

the central hub is not an Argentina, which

30:07

is for them the key thing.

30:09

And they say, well, sure, I'm not going to put my life savings

30:11

in Tether, but it's like a really good six month

30:13

option. And they might, that's why

30:15

a lot of them will actually hold more value in Tether

30:18

than Bitcoin. So it's,

30:19

as long as the dollar itself is

30:21

robust enough to work and is less

30:24

volatile, a lot of people gravitate

30:26

still towards the dollar, rather than

30:28

going directly to Bitcoin and becoming like instant

30:30

Bitcoin, you know, maxis and just only

30:32

focusing on Bitcoin.

30:33

And that's just a reality on the ground in

30:35

a lot of these countries.

30:37

Now I think what can eventually interrupt that system.

30:39

So one is that Bitcoin is going to keep, I would argue,

30:41

keep getting larger and more adopted and eventually less

30:44

volatile. That's one variable that's happening.

30:46

It just takes a long time. And

30:48

the other variable is that the dollar is increasingly

30:50

becoming less stable.

30:52

As debt as a percentage of GDP

30:54

keeps building up, you eventually get to a point

30:57

where you get sort of reset.

30:58

And that sounds like, that's like a conspiracy

31:00

theory. That's like a heterodox way of

31:02

thinking of it. But when you look at this monetary system

31:05

throughout history,

31:06

every two or three generations, you tend to have

31:08

some big D peg or devaluation

31:11

or reset. It's just how, it's how things work,

31:13

especially when you have such layers of abstraction

31:16

and centralization.

31:17

And historically, when you get developed countries

31:20

with this much debt to GDP, eventually

31:22

the system just breaks down. It's

31:24

just the interest expense becomes too immense.

31:26

It becomes too exponentially comical.

31:29

And people, even something as robust

31:32

as the dollar,

31:33

eventually becomes quite

31:35

inflationary. It's just very hard for

31:37

it to use it relative to other assets. The

31:39

amount of new currency creation becomes so

31:41

significant.

31:43

And so I would say the combination of over

31:45

the long arc of time, the

31:47

eventual breakdown of the dollar in

31:48

the ascension of Bitcoin through

31:51

multiple, multiple cycles

31:52

is what can allow it to gradually compete

31:55

with something as large as the dollar.

31:57

And I think the variable that ties into the second one

31:59

is that when the dollar system was born,

32:02

so Bretton Woods, the United States was like over 40%

32:05

of global GDP. We had the biggest

32:07

industrial base, we had the most gold, we

32:09

had the biggest military. Basically, we were

32:11

just completely dominant.

32:13

And as the world has recovered

32:15

from World War II, and as it's kind of

32:17

rebuilt aspects of itself, we

32:19

see China and India reasserting themselves as

32:22

major global powers, like they actually were,

32:24

prior to this past 200 years or so,

32:27

they were always major economic powers, those

32:29

regions at least, and they're reasserting

32:31

themselves as being very dominant. And so

32:34

we see more decentralization across

32:36

the world in terms of where's

32:38

the percentage of GDP, where's the industrial base,

32:40

where's the gold?

32:41

And it becomes increasingly untenable for

32:44

the entire world to use a dollar ledger

32:46

system

32:47

when the United States is diminishing

32:49

from 40% of global GDP to 25%.

32:52

And right now, when you look at it, depending on how you measure

32:54

it, whether perching power parity or nominal,

32:57

we're somewhere between 15 and 25% of global GDP.

33:00

And as we keep slipping,

33:01

it just becomes increasingly untenable for that.

33:03

That one currency has such a big lock on the world.

33:06

So I think we're gradually moving toward decentralization,

33:09

and I think developed market currencies are becoming increasingly

33:11

unstable

33:12

compared to how they've averaged in the past 50 years.

33:14

In your book, you get

33:17

into a little bit of Gresham's law and

33:19

Thur's law, and you talk

33:21

about how, when you're looking

33:24

at Gresham's law and this money

33:26

that is less desirable,

33:28

the velocity of it keeps picking up

33:30

as you approach almost like a terminal

33:33

velocity and then a flipping into

33:35

Thur's law.

33:36

When we look at stablecoins and

33:39

we look at how they're immediately saleable,

33:42

and the desire for more,

33:44

I mean, when we look at the amount of stablecoins

33:46

that just keep popping up in the size,

33:48

these assets that are contained

33:50

inside of these stablecoin markets,

33:53

and how large and how substantial

33:55

they are in such a short amount of time, and we look

33:57

at that velocity as part of the overall.

33:59

like global equation. Is

34:02

this something that you think could

34:04

help us understand whether that

34:07

flippening over to Thur's law

34:09

is taking place is by contrasting

34:12

the stable coin velocity to

34:15

Bitcoin's lightning network?

34:17

Is that how we should maybe look at that flippening

34:20

happening

34:21

and maybe where we're at in space and time by

34:23

comparing and contrasting the speed

34:26

of money between those two markets?

34:28

Or is there some other way that you

34:30

could think through understanding that

34:33

potentially happening, that flippening part?

34:36

So I think like monitoring both relative

34:39

market capitalizations and monitoring velocity

34:41

are both very useful metrics.

34:43

In some ways it's apples and oranges because Bitcoin

34:46

and dollars not quite use the same way,

34:48

especially at their current level of adoption.

34:51

The larger and more liquid

34:53

money is generally gonna be the one that's the unit of

34:55

account. And so until Bitcoin

34:57

say rivals the dollar, most

35:00

people are gonna sink in dollars, things

35:02

are priced in dollars. And so Bitcoin

35:04

is the thing that's volatile relative to the dollar rather

35:07

than the way around. And we like to say everything

35:09

priced in Bitcoin, it's not Bitcoin that's volatile, it's everything

35:11

else that's volatile. But really you're building to

35:13

buy say apples or copper.

35:16

When you hold Bitcoin, those things are more volatile

35:18

for you, not for the dollar holder. So

35:20

really, even as a big

35:23

Bitcoin enthusiast,

35:24

it's not that the dollar is volatile to Bitcoin,

35:27

it genuinely is that Bitcoin's volatile relative

35:29

to the dollar. That's the larger, more

35:31

liquid, saleable unit. Now

35:34

it's a worse unit, it's controlled, it's centralized,

35:36

it devalues.

35:37

But for unit of account purposes,

35:39

that's still the one that has the power.

35:41

And I think over time, as

35:43

I just discussed, that degrades with

35:46

Bitcoin hopefully strengthens and has been

35:48

strengthening.

35:49

And when we look at Gresham's law and Tear's

35:51

law, so the originally way to think

35:53

of Gresham is to say that a golden silver ratio.

35:56

So let's say United States pays

35:58

it at 15 to one, but the global.

35:59

exchange rate is 15.5 to one.

36:02

And so you'll get this like mismatch. And so

36:04

whatever metal ends up kind of being

36:06

pegged at like an undervalued rate,

36:09

that's the one that's going to circulate.

36:11

Actually,

36:12

no, the undervalued one's going to be hoarded and

36:14

the overvalued one's going to circulate. You're going to spend the weaker

36:17

money into the economy and you're

36:19

going to hoard or you're going to move offshore

36:21

the stronger money that's

36:23

not being valued appropriately.

36:25

The second way that I agree this can apply

36:27

is when you have a tax on the

36:30

better money.

36:31

So if every Bitcoin transaction

36:33

is a taxable event

36:34

and every dollar transaction is not a taxable

36:36

event,

36:37

well, then unless you specifically need

36:39

the properties of Bitcoin

36:41

or unless you're so into the space that you're kind of

36:43

just doing it on purpose, you want to pay with more things in Bitcoin

36:45

because you want to support Bitcoin,

36:48

most people will generally pay in

36:50

the units that are not taxable.

36:52

And so now if

36:55

it gets to a point where there's so many Bitcoin

36:57

holders that are all talking to the politicians

37:00

and saying, hey,

37:01

take away these taxes. That's what I want. So

37:04

you have to chip away at that over time.

37:07

And so I would say the combination of existing network

37:09

effects,

37:10

existing size and stability,

37:12

existing understanding and brand of how it works.

37:15

The dollar is like

37:17

Coca-Cola is not that special, but it has a brand.

37:19

Everybody in the world knows what Coca-Cola is. Similarly,

37:22

everybody knows the brand of the dollar. And

37:24

that's a combination of the network effects, the liquidity, the brand.

37:27

These take time. It's a gigantic ship that has to

37:29

turn slowly. When you add onto

37:31

that tax authority and things like that,

37:34

I think either until Bitcoin gets

37:36

large and stable enough or

37:38

the dollar breaks down

37:39

or the

37:40

United States decides to cut off stablecoins,

37:44

Argentina can't do anything to tether, but the

37:46

United States could if they decided they didn't want

37:49

these digital Euro dollars to exist anymore.

37:51

And so I think there's multiple paths

37:53

where it can happen, but I think it's inevitably

37:56

going to be a long one. Doesn't

37:58

the Treasury need stablecoins,

38:01

like as we go further down this road,

38:03

five, ten years from now, you need a buyer for

38:05

all of this stuff.

38:07

And I find so miraculous.

38:09

The buyer really kind of emerges as

38:12

these stablecoin entities

38:15

that are going to be willing to buy

38:17

short duration

38:19

debt, not long duration, because there's

38:21

just too much inflation risk there

38:23

for them to squat on long duration.

38:26

But I think that you have this natural

38:28

relationship that the treasury

38:31

here, at least in the United States, and I would argue any

38:33

G7 country needs

38:34

stablecoins.

38:37

Do you agree with that idea?

38:39

And if not, I'm curious to hear why.

38:41

We

38:43

often think of governments as monolithic entities,

38:45

but in reality, most governments have multiple

38:47

different factions or people that understand things

38:49

differently. And as an example,

38:51

when it comes to Bitcoin mining,

38:53

there are some government officials that say, hey, for

38:55

environmental reasons, we want to kick out Bitcoin miners.

38:58

And there are other ones in the government that say, no, no, we

39:00

want to encourage all the mining to come here so we can censor

39:02

the network with our laws. And

39:04

just different priorities or different levels

39:07

of understanding of what they're trying to accomplish.

39:09

Those two factions do exist.

39:11

When it comes to stablecoins, on one

39:13

hand, there's groups that say, we don't like the fact that there's

39:16

this unregulated or not

39:18

unregulated, but there's an offshore digital

39:21

euro dollar that we don't have full control over. On

39:23

the other hand, there are people that say, well, this is

39:25

a huge new buyer of treasuries.

39:28

And also, it helps extend the dollar's

39:31

reach globally.

39:32

And it's a useful new technology that we shouldn't interfere

39:34

with.

39:35

That's kind of the different factions. And when you look at the

39:37

concept of de-dollarization, that's

39:39

in the news a lot because of the whole BRICS thing

39:42

and sanctioning or rushing reserves

39:44

and all this stuff. There's all these attempts at the

39:46

sovereign level of various powerful countries

39:49

to try to distance themselves from the dollar. What's

39:51

interesting is that there's two levels here. So

39:53

there's a sovereign level, and then there's the

39:56

people themselves. So are people themselves

39:58

in developing countries de-dollarize?

39:59

No. You don't see Argentinians

40:02

deciding, you know what, I want to hold Chinese Yuan now.

40:05

You don't see Egyptians saying, I want to hold physical

40:07

Chinese Yuan

40:09

in my apartment as my monetary savings.

40:11

You don't see that.

40:13

It's not an accident that like over 99% of

40:16

stablecoins are dollars. That's just where the demand

40:18

is. When you have kind of the ability to

40:20

make dollars globally, people want

40:22

them. You could have stablecoins

40:24

with other currencies and around the margins

40:27

they exist, but there's no demand or liquidity

40:29

or scalability for them.

40:31

Yeah. I think basically like, I think the smarter

40:33

faction in the United States would basically say, okay, support

40:35

stablecoins through a major buyer of our

40:37

treasuries, even as sovereign nations

40:39

try to de-dollarize, this

40:41

is the way for us to keep the dollars among all

40:44

those foreign people at the people level.

40:46

And it keeps the dollars reach going for a longer

40:49

period of time.

40:50

So yeah, I think it depends on how many

40:52

orders of thought they think through this and how

40:54

well they understand the technology and the dynamics involved.

40:57

In one section of your book, you get into

41:00

what a Bitcoinized world would

41:02

look like and how it's different than what

41:04

we're accustomed to today.

41:06

One of the things you mentioned is no unit abstraction,

41:09

no financial middleman, better

41:11

global connections without the friction

41:13

in between the currency exchange.

41:16

But the one I want to hear that

41:18

you cover in depth here is the

41:20

idea of credit and how what

41:23

we view as credit and being

41:26

so abundant in our society today

41:29

really kind of whittles itself

41:31

down to just the pittance of the overall

41:33

broader economy. People who are

41:35

not Bitcoiners that would maybe hear that would be like,

41:37

what in the world are you talking about? The credit will

41:40

always be around. So help explain to

41:42

them

41:42

why you have this opinion, Lyn.

41:45

And I would agree that credit's always going to be around

41:47

and some degree, just a matter of how much formal

41:50

credit exists relative to, say, the monetary

41:52

base, for example, or how much do

41:54

businesses or individuals finance themselves with equity

41:57

versus credit

41:58

and how long duration is that credit. that

42:00

are impacted by the type of money.

42:02

And generally what we see when we look in history

42:04

is monetary hardness and debt is

42:06

almost like a bell curve,

42:08

where if money is very strong,

42:11

like let's say a gold standard or a Bitcoin,

42:13

credit exists, but it tends

42:15

to be used judiciously. Because if you're a borrower,

42:18

how much long duration debt you want to

42:20

borrow in a hard unit of money that

42:22

appreciates relative to most things? You want to be obviously

42:24

pretty careful with that.

42:26

So there's less borrower demand

42:28

for a very robust solid money. When

42:31

you look at the other side of the spectrum, if you have a very weak

42:33

money, let's say Argentina, for example,

42:36

nobody wants to lend in that unit of account

42:38

because it's very hard for them to determine what

42:41

value they're going to get back in five, 10 years. So

42:43

there might be people want... If someone wants

42:46

to give me a loan in Argentine pesos, I'll take

42:48

it, but no

42:48

one's going to give me that loan.

42:50

Whereas ironically, the middle of the bell curve, we

42:52

have a gradually devaluing unit of account, like

42:55

a developed market fee of currency,

42:57

that tends to accumulate the most debt because

42:59

it works for borrowers

43:01

and it works for lenders reasonably well.

43:04

And it's stable enough that it kind of builds up this

43:06

more and more and more debt to GDP. But

43:08

then ironically, that becomes the source of

43:10

instability.

43:11

So its own stability is in what part... That's

43:15

like the fine tune point for debt maximization,

43:18

which inherently is its own undoing.

43:20

And so what I would argue is that in a world

43:22

with an even scarcer

43:25

unit of account than gold, so Bitcoin in this

43:27

case,

43:28

the incentive to borrow large

43:30

amounts of it for long duration is very

43:33

limited. There's

43:33

still going to be various types of credit.

43:36

Anytime someone owes someone else money

43:38

to say, hey, I need some money, can I lend

43:41

some?

43:41

It's an emergent phenomenon in credit. It just happens.

43:44

And there's still high rate of return

43:47

impacts where you might want to borrow Bitcoin.

43:49

But the idea of just

43:51

having constant debt on your balance sheet would make

43:53

less sense. So we can kind of separate money debt into two

43:55

types. So

43:58

there's very highly productive debt.

43:59

debt, right? Let's say you want

44:02

to expand your business, you don't want to give up equity,

44:04

so you borrow a one-year loan that's pretty

44:06

small relative to your total business value.

44:08

Someone might make that loan rather

44:10

than equity because they'd rather have a defined

44:13

and lower risk outcome that's higher in the capital

44:15

stack.

44:16

Maybe you want to get education, so you're

44:18

willing to take on some debt to get a

44:21

STEM degree, for example, whatever the case may be,

44:23

because you know it's going to increase your earning potential.

44:26

There's various ways where credit can make sense. Now,

44:28

the less productive types of credit or

44:30

debt are ones that are just kind of permanent

44:32

parts and what you're primarily doing is shorting

44:35

it. So for example, Coca-Cola has debt.

44:37

Now, this is like a century-old corporation. Why do

44:39

they have debt?

44:40

And the reason is because they choose to have debt

44:43

as a permanent part of their capital structure

44:45

because that debt devalues. They're

44:47

basically using their economic

44:49

strengths, their high credit rating,

44:52

to borrow plenty of dollars

44:54

at low-industry rates for long duration to

44:57

basically short it.

44:58

And that doesn't make sense in gold or Bitcoin.

45:00

Whether it's governments running these massive, gigantic

45:03

debt-to-GDP ratios, whether it's people with

45:05

30-year mortgages, whether it's corporations

45:07

with debt as a permanent part of their capital structure,

45:10

that's the type of debt that makes a lot less sense

45:13

when the unit of account is very hard. And

45:15

I'm not the first to make this argument that basically in

45:18

a Bitcoin world,

45:19

you would have much less debt relative

45:21

to equity

45:22

because the types of debt where you're practically

45:24

only shorting the currency go away and

45:26

it just becomes highly, highly accretive

45:29

types of debt.

45:30

And then also, when you think of fractional as our banking,

45:33

one of the reasons that fractionals or banking works

45:35

moderately well in the current era, we have

45:38

all these booms and busts and things like

45:40

that, but

45:41

the reason it works well enough is because

45:43

if your interest rate you're earning

45:46

on your deposits is lower

45:49

than the monetary growth rate,

45:51

like the growth of money supply, that ends up

45:53

being relatively safe. I mean, you're getting devalued,

45:56

you're getting all sorts of problems, but

45:58

the fact that a central entity just create more

46:00

of it means you're unlikely to lose

46:03

nominally in a default. So people kind of

46:05

put up with this because it works well enough.

46:07

Whereas in a world where it's

46:10

inherently unsafe to have a deposit rate

46:12

that is higher than the supply

46:15

growth rate of money,

46:16

right? It's just inherently the case.

46:18

You're either taking on serious credit

46:20

risk by having that interest rate

46:22

or you're taking on serious liquidity risk,

46:25

one of the two, maybe both, by having that

46:27

rate of return. So in a

46:29

unit where the supply rate of growth

46:31

of money is zero, any interest

46:34

is inherently taking on risk. That

46:36

doesn't mean people won't do it. It's investing. It's

46:39

investing, it's speculating, it's putting capital to

46:41

work, but it's not a passive

46:43

risk-free activity

46:45

in a way that we think of banks today. How

46:48

about taxes in a Bitcoin world?

46:50

One of the... And

46:52

I talked about this in the book. One of the downsides

46:55

of the whole fiat currency system

46:57

is that when the government doesn't

46:59

feel like taxes are going to be popular

47:01

enough to do

47:03

and to fund what they want to spend, they just print the difference.

47:05

So they say, well, we can't

47:08

finance this as transparent

47:10

as you want to. So we're going to finance it

47:12

opaquely. An example I use is

47:14

that during World War I,

47:16

the UK wanted to get involved, even though they

47:18

weren't being attacked. There's conflicts going on

47:21

in Europe

47:23

and they say, well, we want to get involved for geopolitical

47:25

reasons. We don't want Germany to win. And

47:28

so we're going to get involved. And so they try

47:30

to... They know that taxing everyone,

47:32

they're not going to tax a UK steel worker and

47:35

say, yeah, we got to go fight the Germans

47:37

in Europe. So we have to raise your taxes. That's going to be very unpopular.

47:39

You're going to get a revolution if you tax too much. Maybe you

47:41

can do a little bit,

47:42

but we try to tax a ton. It's not going to be workable.

47:46

The other option is you've raised debt. You say,

47:48

well, okay, we'll pay you interest, buy

47:50

these bonds, and we'll use it to go do war.

47:53

And those in UK's case, not

47:55

enough people subscribe to those bonds. They were like, no,

47:57

I don't think that's a good investment.

47:59

And so it's...

47:59

Instead, the UK just printed the difference.

48:02

What they did was they devalued everyone's

48:04

savings

48:05

without telling them advance,

48:07

without them being able to even know or measure what's happening.

48:09

It just got taken from them. In

48:12

a Bitcoin world, if more

48:14

people hold their own hard money

48:16

that a government can't print,

48:18

then basically all of government expenditure

48:20

has to be financed by either taxation

48:24

or small amounts of debt to smooth

48:26

things out here and there.

48:27

Basically it forces governments

48:30

to be somewhat more transparent

48:32

and say, OK, if you want to do this expenditure,

48:34

how are we going to finance it? Because we can't

48:36

just print the difference.

48:38

Let's take a quick break and hear from today's sponsors.

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All

52:48

right, back to the show.

52:50

Lyn, I'm going to read a quote that you put here in

52:52

the book, and this all relates

52:54

to trade-offs. As

52:58

any cryptocurrency blockchain

53:00

is created, there's trade-offs that are constantly

53:03

being accounted for in what they're creating.

53:06

And this is the quote that you wrote. Proponents

53:08

of newer cryptocurrencies often

53:10

criticize Bitcoin for being old technology,

53:14

when in reality, it's just strict about

53:16

the trade-offs that it was designed with

53:19

and was built to maximize security and

53:21

decentralization over all

53:23

other attributes.

53:25

Why are those two attributes, security

53:28

and decentralization? I think

53:30

the decentralization part we've covered

53:32

pretty extensively, but more on the security

53:35

side,

53:36

maybe talk to that and any other comments

53:38

or thoughts that you have about this idea that

53:41

a newcomer that's coming to this is

53:43

going to look at this and say, Yeah, Bitcoin's

53:46

like really old. There's Solana.

53:48

There's all these other things that have come out in the

53:50

last couple of years. How in the world are they not

53:52

better? It's really kind of the argument that I think a

53:54

newbie that would be showing up to this discussion

53:57

and looking at it would be saying, because

53:59

technology is old.

53:59

technology is always better now than it was 10

54:02

years ago, or you go back historically

54:05

in time. How are the new ones not better?

54:07

Yeah, and I think when we put ourselves in their shoes, it's

54:10

very rational for them to assume that's the case. Like

54:12

you said, most technologies

54:14

are better over time and therefore

54:16

they're like, well, Bitcoin was the concept,

54:18

but it's, you know, that's clearly not going to be the

54:20

end. That's the thing. They'll say, okay, what's the newer

54:23

one? What's the better one? You know, it's been 14

54:25

years, of course, who's better technology.

54:27

One point of contrast is that when we look at protocols,

54:30

they tend to stick around for a very long period of

54:32

time. When

54:33

you make things purposely simple and

54:35

robust, the design space

54:37

is very limited

54:38

and the technological growth

54:40

and upgrades tend to happen in layers

54:43

on and around that very simple foundation.

54:46

So for example, Ethernet is

54:48

like 50 years old, right? And it's

54:50

nowhere near being out of date. You know,

54:52

they upgraded the speeds over time in backward

54:54

compatible ways

54:56

and it's this evolving protocol that

54:59

ultimately is very slow to change.

55:01

And we think of why are we still using Ethernet

55:03

to 50 year old technology? Because it's literally

55:05

still the best we have is why. And it has that dominant

55:08

network effect

55:09

that even if you make something marginally better, well,

55:11

you're competing with the fact that every computer

55:14

has an Ethernet port and not this other protocol.

55:16

And then too, any changes you might make,

55:19

future Ethernet versions could maybe incorporate.

55:21

And so they just get absorbed into

55:23

that dominant protocol. The same is true for TCPIP,

55:26

the same is true for USB.

55:28

These protocols tend to be very long lasting

55:30

technologies. And ultimately,

55:33

when we look at Bitcoin and block

55:35

size wars and crypto and stuff like that,

55:37

a lot of it comes down to trying to figure out what problem

55:40

we are trying to solve.

55:42

And so some of the initial assumptions

55:44

were, I want to make transactions easier.

55:46

So I want to use base layer money to buy coffee,

55:49

for example.

55:50

But it turns out for a lot of people, that's not the problem

55:52

that they have. I mean, in the United States, I don't have

55:54

a problem buying coffee.

55:56

My visa card works well enough. My

55:58

cash works well enough.

55:59

go out every day and think like, man, my money is so

56:02

bad at transactions. Now, in certain countries,

56:04

that might be the case, but even then, it's often not.

56:07

What a lot of us have instead is,

56:10

I want a bit of store of liquid value and

56:12

move it around globally, have

56:14

nobody be able to stop me, or at least it's very hard

56:16

to stop me. And

56:17

that I know that the rules,

56:19

I'm not going to get rug pulled the next 20 years.

56:22

That I'm not going to just... I don't have to watch it

56:24

too closely,

56:25

because it's not just going to get changed. There's no central

56:27

entity that can just double the number of units or

56:29

a centum or something.

56:31

In that sense, the problem we're trying to solve is

56:33

an immutable

56:35

foundation of money. Basically,

56:37

a decentralized central bank, a decentralized

56:39

ledger

56:40

that is robust and backed by energy and

56:42

distributed so that it's very hard to corrupt.

56:44

To the extent that it'd be corrupted, it'd

56:47

be a very long and slow process. And

56:49

the burden of proof is always on the corruptor.

56:51

But the whole block size wars, I think people erred

56:53

in the wrong direction for trying to sacrifice

56:56

that decentralization to make it faster, but

56:58

you're solving the wrong problem. And

57:00

when it comes to crypto, a lot of it is about trying

57:02

to make them more expressive and complicated.

57:05

But again, that often, that generally comes with the cost of

57:07

decentralization and security.

57:09

So when we think of decentralization and security, we want

57:11

something that, one, the code base

57:13

is as simple as possible to minimize bugs

57:15

and hacks and problems and incentive

57:18

breakdowns. And then two, we want

57:20

it to be sufficiently decentralized so that any entity

57:23

that wants to either change the rules of the network or

57:25

to sense the network as a massive uphill

57:28

battle, even if you think out 10, 20,

57:32

50, 100 years.

57:33

Because you can't transmit value

57:35

into the future and it's still be worth

57:38

the same amount because the units are just

57:40

constantly getting to base.

57:42

So if it's $100 worth of buying

57:44

power today or one Bitcoin's worth

57:46

of buying power today, you want to be

57:48

able to transmute

57:50

that 20 years into the future and it still can

57:52

go out and buy me the same amount of buying

57:54

power as what I've got right now.

57:57

And yeah, let me read something

57:59

here. This is a little long, but I think this

58:02

is such a great quote and from such

58:04

an important figure in this movement.

58:06

Adam Back, you put this in your book,

58:08

Lyn.

58:09

He said this, there's

58:11

something unusual about Bitcoin. So

58:13

in 2013, I spent about four months

58:15

of my spare time trying to find any way

58:17

to appreciably improve Bitcoin, you

58:19

know, across scalability, decentralization,

58:22

privacy, fungibility, making it

58:24

easier for people to mine

58:26

on small devices, a bunch of metrics

58:28

that I considered to be metrics of improvement.

58:30

And so I looked at a lot of different changing

58:33

parameters, changing designs, changing networks,

58:35

changing cryptography. And you know, I came up with

58:38

lots of different ideas,

58:39

some of which have been proposed by other people

58:41

since. But basically, to

58:44

my surprise, it seemed that almost

58:46

anything you did that arguably

58:48

improved it in one way made

58:51

it worse in multiple other ways.

58:53

It made it more complicated, use more

58:55

bandwidth, made some other aspect of

58:57

the system objectively worse.

58:59

And so I came to think about it that Bitcoin

59:01

kind of exists in a narrow pocket of design

59:04

space. You know, the design space

59:06

of all possible designs is an

59:08

enormous search space, right? And

59:11

counterintuitively, it seems you can't

59:13

significantly improve it. And bear in mind,

59:15

I come with a background where I have

59:17

a PhD in distributed systems and spent

59:19

most of my career working on large scale internet

59:21

systems for startups and big companies and security

59:24

protocols and that sort of thing.

59:26

So I feel like I have a reasonable chance, if

59:28

anybody does, of incrementally

59:31

improving something of this nature. And

59:33

basically, I gave it a shot

59:35

and concluded, wow, there's

59:37

literally basically nothing, literally

59:40

everything you do makes it worse, which

59:43

was not what I was expecting to find out.

59:45

I find that and for people that don't

59:47

know who Adam Backett is, I mean, he's literally referenced

59:50

in the Satoshi white paper and

59:52

for him to say that he spent

59:54

this time really contemplating

59:56

on all the trade offs and trying to improve

59:59

it and saying there was nothing.

59:59

nothing I could do to really objectively improve

1:00:02

this, I think is just a really

1:00:05

important highlight that you put in the book.

1:00:07

And I don't know if you have anything else that you want to

1:00:09

add, but I just think it's important to kind of read that out

1:00:11

for people.

1:00:13

I'll add two things. One is that, like I said about

1:00:15

protocols, if you analyze Ethernet

1:00:17

and think, how can I make this better?

1:00:19

The design space compared to what Ethernet

1:00:21

already does is very tight. So

1:00:23

basically the answer is that as Moore's law gives

1:00:26

us better speed, we can speed it up gradually over

1:00:28

time, and that's about it, right? I mean, there's little

1:00:30

marginal things you can do. Same thing for TCPIP.

1:00:33

When you have something that's simple and at the foundation,

1:00:36

you want that to be simple and robust,

1:00:38

and you want complexity to be on the edges. That's

1:00:41

generally a good design principle, and

1:00:43

that's historically the way that the Bitcoin ecosystem

1:00:45

has developed. And I think that's what he touches on there.

1:00:48

And then two, I would point to the, I

1:00:50

made the analogy on the oster yesterday about Bitcoin

1:00:52

and the US Constitution. I'm not the first one

1:00:54

that's made this,

1:00:56

which is to say, is

1:00:57

the US Constitution a perfect document?

1:00:59

No. In fact, and we might disagree

1:01:01

what we think a perfect US Constitution looks like.

1:01:04

I could probably write down 10, like a new

1:01:06

bill of rights that are added to the Constitution.

1:01:09

I want additional rights for citizens that

1:01:12

I wish in my perfect world would be

1:01:14

in the Constitution. Let's say

1:01:15

I want the next amendment to say,

1:01:18

you

1:01:18

have the right to use whatever money that

1:01:20

you deem appropriate, right? The citizens have

1:01:22

this right. And I can picture nine other

1:01:24

additional rights that I want

1:01:26

included in the document.

1:01:27

But at the end of the day, what makes the Constitution

1:01:30

valuable

1:01:31

is that it's very, very, very hard to change.

1:01:33

You need a super majority in Congress and a super

1:01:35

majority among states to change it.

1:01:37

And so a document that is good and

1:01:40

nearly immutable is better than a document

1:01:42

that's great, but that five years from

1:01:44

now we have no clue what it's gonna look like because it's easy

1:01:46

to change. And so that

1:01:49

I would argue that Bitcoin is in its design

1:01:51

space similar to ethernet or similar to TCPIP

1:01:54

where it solves a certain problem

1:01:56

in as simple as a way as possible.

1:01:58

And then much like the US Constitution.

1:01:59

institution

1:02:00

is what it tries to maximize is

1:02:03

difficulty of change. So it's not impossible

1:02:05

to change because that would also be a design flaw,

1:02:08

but it's very, very, very hard to change.

1:02:11

One of the trade offs that you talk about in the book is

1:02:13

privacy. And

1:02:15

I know from participating in this community for

1:02:17

a long time, privacy is something that a lot

1:02:19

of people are really passionate about. They look

1:02:21

at projects like Monero and they're saying this

1:02:24

is a better form of money because it's more private

1:02:26

than Bitcoin. But

1:02:27

I think you do a really good job talking

1:02:29

about that trade off and why Bitcoin

1:02:32

is a better solution for people

1:02:34

and where you can maybe push the privacy into

1:02:37

a second layer. So can you explain

1:02:39

some of that for folks?

1:02:40

So when you look at cryptocurrencies, you know, a lot

1:02:43

of them are just outright scams,

1:02:44

but there are a handful of areas where intelligent

1:02:47

people

1:02:47

truly propose things. Say, Hey, what if you

1:02:50

make a more private currency or what if you make a more expressive

1:02:52

currency? And these are, you know,

1:02:53

I think if we were to rerun this multiple times,

1:02:56

it's natural that people are going to test

1:02:58

all these different answers to see what works and what doesn't.

1:03:00

There's no world where only Bitcoin exists. No one tries

1:03:03

any other crypto networks and you know, it's

1:03:05

Bitcoin wins, right? There's always going to be these tests

1:03:07

and these market challenges and these iterations

1:03:10

to see what works in practice rather than just

1:03:12

theory crafting.

1:03:13

And one of the downsides of Bitcoin

1:03:15

is that it's not super private,

1:03:17

you know, it's private enough that no one formally knows

1:03:19

who Satoshi is. You

1:03:20

know, if you use it very skillfully, it's

1:03:22

private, but it's hard to use it privately. And

1:03:25

so there's these privacy coins that makes it easier to use

1:03:28

the coins privately. And the

1:03:31

downside is that they sacrifice some degree

1:03:33

of auditability.

1:03:34

So it's easier for undetected inflation

1:03:36

bugs and things like that to occur. There's a little bit more

1:03:38

layers of trust in the code and the encryption

1:03:41

and

1:03:41

the proofs

1:03:42

compared to Bitcoin that is more inherently auditable.

1:03:45

And so if you're trying to build

1:03:47

a foundation of money, you know,

1:03:49

if you're trying to, if you want a network that's worth $10

1:03:52

trillion, or more that

1:03:54

robustness, that audibility, that

1:03:56

decentralization is arguably a

1:03:58

more important component.

1:03:59

than privacy or Turing

1:04:02

completeness, or whatever the case may be.

1:04:04

And so to the extent that you can build those

1:04:06

things on layers on top of it,

1:04:08

I think it makes a much better engineering

1:04:10

model than trying to incorporate those things

1:04:12

right into the base layer,

1:04:13

where you sacrifice some degree of decentralization

1:04:16

or robustness or auditability in

1:04:18

order to achieve something that sure might be useful,

1:04:21

privacy and Turing completeness can be

1:04:23

useful things.

1:04:24

But if we're kind of getting down to the very base

1:04:26

layer,

1:04:27

down to ethernet, down to TCPIP,

1:04:29

down to the constitution,

1:04:31

we want something that's easy for us to all

1:04:33

agree on. And then when we build these

1:04:35

little silos or complexities on top of it, we can

1:04:37

kind of pick our own paths that all tie

1:04:40

into this very simple and audible and robust

1:04:42

base layer.

1:04:43

And so the problem with Monero is that it generally degrades

1:04:46

in value versus Bitcoin.

1:04:47

It's hard for it to establish the same level of trust

1:04:50

and adoption.

1:04:51

And so you might get more privacy, but you don't want

1:04:53

to hold your value there long-term. And then

1:04:55

when you get in and out of Monero,

1:04:58

that's where the privacy breaks down because

1:05:00

there's not a lot of liquidity there. Privacy is limited

1:05:02

by liquidity, especially the entry and exit points.

1:05:05

And so you're still somewhat stuck.

1:05:07

Whereas I think there's a lot of good tools on the

1:05:09

horizon that can make Bitcoin more private.

1:05:12

We already have coin joins that are significant.

1:05:15

Lightning Network is relatively private

1:05:17

for the sender. And over time gets generally

1:05:19

more private. There's more proposals to further

1:05:22

fix some of its privacy issues.

1:05:24

We have Fettements.

1:05:26

We use 40-year-old trauma

1:05:28

and mint technology

1:05:29

that works quite well

1:05:30

to make it hard to, it's

1:05:33

near complete privacy

1:05:34

as long as you have sufficient liquidity.

1:05:36

And so in general, I think that while privacy is a very

1:05:38

important tool,

1:05:40

I think so far the market and

1:05:43

just engineering design observations have

1:05:45

shown that it's not the best for the base layer.

1:05:48

You get into a thorough

1:05:50

discussion between proof of work

1:05:52

and proof of stake protocols and

1:05:55

the advantages, the disadvantages. I mean,

1:05:57

you just do a really fair job kind

1:05:59

of laying

1:05:59

them out.

1:06:01

But with that in mind, Lynn,

1:06:03

I just want to emphasize your discussion

1:06:05

points around with proof

1:06:08

of work that you lay out in the book,

1:06:10

how there's this, you

1:06:12

can leave the network, you can come back and you can

1:06:14

get basically back up to date, but in proof

1:06:17

of stake, that's not necessarily

1:06:19

the case. I think this is really important

1:06:21

when you have a newcomer that

1:06:23

comes to the space and they come

1:06:26

with this pretty common question

1:06:28

or concern when they come into Bitcoin.

1:06:31

They say, I see Target

1:06:33

and I see these large companies that you would

1:06:35

think would have really superior cybersecurity

1:06:39

in place and they all, every one

1:06:41

of them always get hacked

1:06:43

and the information is compromised.

1:06:45

How in the world do I know

1:06:47

that something like that will not happen with Bitcoin

1:06:50

and how can I place trust that

1:06:53

this thing could literally be the global

1:06:55

settlement layer for the whole planet when the

1:06:57

targets of the world are getting hacked all

1:07:00

the time?

1:07:01

Yeah. So that goes back down to keeping it as simple

1:07:03

and audible as possible. And then

1:07:05

the other available is why that

1:07:07

proof of work, that energy component is so important

1:07:10

because you're tethering it to real world resources.

1:07:12

And I use the comparison between

1:07:14

volatile and non-volatile memory. So with

1:07:17

volatile memory, it's faster, but if you

1:07:19

lose power and turn it back on, you've lost

1:07:21

all your data. Whereas

1:07:22

non-volatile memory, it has limitations,

1:07:25

but if you depower it and turn it back on, the

1:07:27

data is still there.

1:07:28

And so with proof of state, the complication

1:07:30

is that there's no immutable,

1:07:32

the

1:07:33

network itself does not prove that it's

1:07:35

the original.

1:07:36

No, Satoshi originally pointed out the reason he picked

1:07:38

proof of work is because you

1:07:40

don't have to trust who sent the information to you. The

1:07:43

information itself is self identifiable,

1:07:45

at least once you've gotten past the bootstrapping

1:07:47

phase.

1:07:48

So the proof of work speaks for itself. You don't

1:07:50

have to trust whoever sent it to you.

1:07:52

The problem with proof of state is that there is no

1:07:55

inherently, there's no foundation that speaks

1:07:57

for itself.

1:07:58

So the person we're in

1:07:59

entity that sent that information to you is an

1:08:02

important variable to consider.

1:08:03

There's no immutable history there.

1:08:05

And so if you're a node that leaves

1:08:07

and joins the network and a proof of work system,

1:08:10

you can pick up where you left off. Whereas

1:08:12

as long as there's been no hard fork, so

1:08:14

anytime there's an inception or hard fork

1:08:16

is a little bit of a bootstrapping phase, but

1:08:18

other than those it's self-evident.

1:08:21

Whereas in a proof of stake system, if you're a node that leaves

1:08:23

and comes back,

1:08:24

there's no immutable proof of what happened while you were

1:08:26

gone. All you can do is look around at the current

1:08:29

validators that are saying this was the

1:08:31

objective history and

1:08:32

you have to trust them.

1:08:33

There's no proof that that's actually what happened.

1:08:36

That's just proof of what the majority is saying now,

1:08:38

because they can go back and they can create alternative

1:08:40

histories nearly costlessly for what

1:08:43

transactions were signed and where.

1:08:45

Another way of putting it is that the coin holders

1:08:47

determine the state of the ledger

1:08:48

and the state of ledger determines who the coin

1:08:50

holders are. So you have this circular logic system.

1:08:53

And the problem with the circular logic system

1:08:56

is that if there's a critical issue,

1:08:58

a governance problem, or imagine something

1:09:01

crazy, imagine a solar flare shuts off most

1:09:03

of the global internet for a period of time, and

1:09:05

it takes us a week to get back online.

1:09:07

The problem with proof of stake system is that the network shuts

1:09:09

down, Solana shut down, Binance

1:09:12

change shut down.

1:09:13

If these systems shut down, either because of

1:09:15

an internal bug or because of loss

1:09:18

of internet and power,

1:09:19

when they restart, there's no node that's

1:09:21

always been online. There's no objective

1:09:23

immutable history of this network. Whereas

1:09:26

it literally, if you somehow shut down the Bitcoin network,

1:09:28

like with a bug or the entire

1:09:30

internet just goes off for a week and

1:09:32

comes back on, we

1:09:34

can reconstruct what the

1:09:36

objective history of the network was because

1:09:38

all that proof of work is still distributed

1:09:40

among the nodes. So as the nodes come back

1:09:42

online and start trying to communicate with each other,

1:09:45

there is an objective source of truth they can

1:09:47

find for what is the longest chain that meets

1:09:49

the rules of the network.

1:09:51

Yeah, I would generally argue that proof of work is a more

1:09:53

robust system.

1:09:54

It's less corruptible and it's something

1:09:57

that I think is very important, you know, despite

1:09:59

any costs.

1:09:59

or benefits it might have in terms of its energy

1:10:02

usage, it's totally worth it because

1:10:04

what you're trying to replicate here is a system

1:10:07

that relies on something, it's not

1:10:09

circular logic. At the end of the day, transaction

1:10:12

ordering is not based on the amount of coins

1:10:14

you hold, which is determined by the ledger. Transaction

1:10:17

ordering is determined by your ability to put

1:10:19

external energy into the system.

1:10:22

Wow. So well put.

1:10:24

Let's talk about, you have another section

1:10:26

in the book where you're talking about how proof of stake

1:10:29

is inherently a centralizing force

1:10:31

with enough time. Talk to us why that's

1:10:33

the case.

1:10:35

If you look at Bitcoin miners, even

1:10:37

though mining pools can get pretty big, individual

1:10:40

miners generally don't.

1:10:41

And of course, miners can always redirect

1:10:43

their hash rates to another pool, should a pool be getting

1:10:45

a problem. So what we really care about is miner

1:10:48

centralization.

1:10:49

And mining is inherently a,

1:10:51

and this is true for physical mining. Like if you're a copper

1:10:53

miner or a gold miner, there's

1:10:55

never really like a copper monopoly

1:10:57

or gold monopoly because you're

1:11:00

spending almost as much resources to get

1:11:02

the commodity as you're earning

1:11:04

revenue from the commodity.

1:11:06

You don't really control your expenses.

1:11:07

You don't really control what your commodity sells for.

1:11:10

And

1:11:10

so other than trying to make sure you execute

1:11:12

well and make good kind

1:11:15

of countercyclical decisions,

1:11:17

it's very hard to run a commodity miner.

1:11:19

And the same is generally true for Bitcoin mining.

1:11:21

It's inherently distributive.

1:11:23

Coins tend to distribute over time. And

1:11:25

the

1:11:26

initial proof of work, the whole point is it's a bootstrapping

1:11:29

mechanism.

1:11:30

Whereas if you start a proof of stake system

1:11:33

and you say, well, okay, the existing coin holders

1:11:35

get to determine what new transactions

1:11:38

get added in,

1:11:39

the question is who are the initial coin holders?

1:11:41

So then basically, you have to

1:11:43

do some sort of ICO. Basically,

1:11:45

you're making your project into a security,

1:11:48

a capital race. So you're starting out with

1:11:50

that.

1:11:50

And then two, validators,

1:11:53

they earn revenue over time by validating,

1:11:56

but they're not really spending almost any resources.

1:11:59

So as you...

1:11:59

have more money, you now

1:12:02

exponentially grow your money.

1:12:03

And there's no cost to maintain this.

1:12:06

Over time, that's a system that's likely

1:12:08

going to centralize the validating

1:12:11

power, whereas

1:12:11

Bitcoin tends to inherently stay more

1:12:14

distributed.

1:12:15

Now, we still have to monitor

1:12:17

incentives of the network to make sure there's nothing that changes

1:12:19

about Bitcoin that might make miners more centralized.

1:12:22

That's at the heart of somebody's discussion around possible

1:12:25

soft forks and stuff like that. But

1:12:26

basically, as the systems are laid out fundamentally,

1:12:29

proof of work is inherently a more distributive type

1:12:31

of system, whereas

1:12:32

proof of stake inherently tends to

1:12:35

exponentially accumulate coins in

1:12:37

basically a more and more powerful set of validator

1:12:39

hands.

1:12:41

Preston Pysh

1:12:49

stable

1:12:58

coins like Tether and all these others.

1:13:00

And the fact that they're all being

1:13:03

stood up on top of Ethereum and

1:13:05

Ethereum like protocols that are proof

1:13:07

of stake protocols, which are what

1:13:09

we just talked about as far as centralizing forces

1:13:12

and how

1:13:13

the people with the most amount of coins

1:13:15

on these networks are the ones that are validating.

1:13:17

And it's this self-reinforcing

1:13:19

or circular loop type system.

1:13:23

When we look at that and we look at

1:13:25

the sheer velocity of

1:13:27

fiat that seems

1:13:29

to be accelerating and the use,

1:13:32

is Ethereum and these other protocols

1:13:35

that are proof of stake a necessity

1:13:38

for this legacy system to

1:13:41

meet Bitcoin where it's at as

1:13:43

the proof of work, energy backed

1:13:46

system that it is and that the world

1:13:49

is, and this is just through proof of

1:13:52

the adoption curve, more and more

1:13:54

demanded of the global population,

1:13:56

is something like that

1:13:58

needed because government

1:14:00

bureaucrats aren't able to keep up

1:14:02

with the speed of technology that's happening

1:14:05

with the legacy financial system.

1:14:07

Do you understand where I'm going with that? I don't know that I phrased

1:14:09

the question all that well.

1:14:11

I'll try to see if I answer the question, if I

1:14:13

go in a different direction. Let me know.

1:14:15

So I think, again, stablecoins serve

1:14:18

a demand. There's a demand for stablecoins and therefore

1:14:21

supply is made to meet that demand.

1:14:23

It's a market demand that exists. We talk to people in Argentina.

1:14:26

They say, here's why I want stablecoins

1:14:29

and there are people that are happy to issue those stablecoins

1:14:31

to them.

1:14:32

Now, in general, because the stablecoin is centralized,

1:14:35

we're talking about traditional fiat collateralized

1:14:37

stablecoins, the issuer is centralized.

1:14:40

The issuer can freeze certain addresses,

1:14:42

for example.

1:14:43

They tend to not care too much

1:14:45

whether the blockchain that those stablecoins are issued on

1:14:48

is centralized because the stablecoin is self-essentialized.

1:14:51

So stablecoins started out on Bitcoin.

1:14:53

A turn complete blockchain like Ethereum

1:14:56

was naturally a little bit easier to do them on

1:14:58

and so they gravitated over there. When Ethereum

1:15:00

got kind of expensive, in terms of transaction

1:15:03

fees, they would gravitate towards an even more centralized

1:15:05

system like Tron where

1:15:06

the purpose is to keep minimizing

1:15:08

fees

1:15:09

and people are sitting around these stablecoins

1:15:12

and you have multiple layers of centralization that you have

1:15:14

to worry about, which is why no one should

1:15:16

put money in a stablecoin and expect that it's going

1:15:18

to be fine for 10 years. That's too risky

1:15:20

of an assumption. There's too many points of centralized

1:15:23

attacks and rug pulls compared

1:15:25

to Bitcoin that's much more likely to be robust 10

1:15:27

years from now than any of these other systems,

1:15:30

but it's serving kind of that intermediate demand.

1:15:32

If you're a government or an enterprise,

1:15:35

a banking enterprise of some sort, one

1:15:38

option is they can develop their own in-house systems,

1:15:40

so like closed central bank digital

1:15:42

currency type of things.

1:15:44

And another option is they can look at these open

1:15:47

networks that they have all these centralization

1:15:49

problems, but there's a workable enough medium

1:15:52

there that

1:15:52

they can issue their money on top of it. Like

1:15:55

we just saw, for example, PayPal is interested in using Ethereum

1:15:58

to launch the stablecoins.

1:15:59

this is a substrate that they're finding

1:16:02

useful this

1:16:03

period of time. Yeah,

1:16:04

I wouldn't be surprised if that becomes a

1:16:06

tool that governments and banks use

1:16:08

or these different types of tools. It's

1:16:11

hard to say where it ends up because it's like, do they want

1:16:13

Ethereum? Do they want Solana? Do they want

1:16:15

Tron? We'll

1:16:17

see where it goes.

1:16:19

But in general, I think that as long as

1:16:21

the dollar network is as big and robust

1:16:23

as it is, it's going to enter all these

1:16:25

different technological areas. Whatever technology

1:16:28

is available,

1:16:29

dollars are going to leak into that technology.

1:16:31

That's just how it's going to go. These are just

1:16:33

new ways to deliver dollars.

1:16:35

And so it should be expected that that's going to be

1:16:37

a thing.

1:16:38

Ultimately, I would say that Bitcoin

1:16:40

is competing against fiat

1:16:42

currencies and ultimately the dollar.

1:16:45

And that all these other technological layers

1:16:47

are just extensions, really,

1:16:49

of those fiat currencies, especially when it

1:16:51

comes to stablecoins.

1:16:53

And so

1:16:54

I think Bitcoin, long-term is the most

1:16:56

robust thing, but it does have that volatility.

1:16:59

People have to absorb the volatility to be able to hold

1:17:01

it. And you have a bank

1:17:03

account in dollars, I have a bank account in dollars.

1:17:06

There are people in Argentina that can't have a bank

1:17:08

account in dollars. And so their bank account

1:17:10

in dollars can be tethered. And there's

1:17:13

pros and cons with that. It's kind of like

1:17:15

how our dollar accounts have risk. Their

1:17:17

tethered exposure has risk,

1:17:20

and that's the trade-off that they're making. I

1:17:22

think it's important to educate people on the risks,

1:17:24

the very centralization risks that exist in these

1:17:27

other networks and that exist in stablecoins.

1:17:29

And I also think, like I said before, eventually the

1:17:31

dollar itself becomes unstable.

1:17:34

That's a long-term outcome. It's

1:17:36

something that's a process rather

1:17:38

than an event, but it's something that I also

1:17:41

think is a long-term option to consider that,

1:17:43

sure, right now, from many economic

1:17:46

perspectives in various countries, the dollar is attractive

1:17:48

to them, at least as an intermediate term instrument.

1:17:51

The Egyptian doctor might say, well, maybe

1:17:54

it makes sense to hold stablecoins instead of

1:17:56

physical bank notes in my apartment,

1:17:59

like subject is theft.

1:17:59

stuff. So there's various, and

1:18:02

maybe they don't, maybe they say, you know what, I like

1:18:04

the fact that I directly hold the bear assets that

1:18:07

only the Fed can devalue. So there's various

1:18:09

trade-offs for how they might want to hold some

1:18:12

of their liquid money. But as long as the dollars,

1:18:14

the unit of account for the world, it's natural

1:18:16

that it's going to leak into various technology protocols

1:18:19

to extend its reach.

1:18:21

And it really de-risks the government

1:18:23

by having these entities stand

1:18:26

up and do this because it really kind of, they

1:18:28

can put their hands in the air and say, well, this wasn't our fault.

1:18:31

We're not controlling those rails. These are

1:18:33

independent companies that like Tether

1:18:36

that are buying Treasuries or

1:18:38

buying dollars and they're cusseting

1:18:40

them. And then they're doing all these swoopy things

1:18:42

with technology on whatever protocol in

1:18:44

order to put it out there. So like that's not on

1:18:47

us. That's on anybody who was trusting

1:18:49

them. And I think they can just kind of wave

1:18:51

their hands and wash their hands of

1:18:54

any type of responsibility as the demand

1:18:56

for dollars and immediate settlement

1:18:58

of dollars continues to pick up because of

1:19:00

the velocity of dollars continues

1:19:03

to pick up around the world. Robert Leonard

1:19:05

Yeah. And it's hard to say what the US government will eventually want

1:19:07

to do. I mean, it's possible that they eventually want to

1:19:09

go after the stablecoins, but like we discussed

1:19:11

before, it seems to be in their best

1:19:13

interest if they're intelligent to let the stablecoins

1:19:15

proliferate because they basically, that's a way

1:19:18

of increasing demand for Treasuries. Because

1:19:20

if you're an Argentinian that holds Tether,

1:19:23

in some ways what you're holding is Treasuries.

1:19:25

You're basically making Treasuries more fungible as

1:19:28

a savings instrument or

1:19:30

more liquid, more spendable. You're kind of

1:19:32

turning Treasuries into

1:19:34

a medium of exchange in a way. And

1:19:36

because money is often an emergent

1:19:39

phenomenon, this demand for dollars

1:19:41

emerges.

1:19:42

Now, the demand for gold exists for

1:19:45

long-term savings. The demand for Bitcoin exists

1:19:47

for long-term savings and they have to deal with

1:19:49

the fluctuations of these assets.

1:19:51

But in the intermediate term, there's a demand

1:19:53

for dollars in many countries. And

1:19:55

it's just one of the ways that that demand

1:19:57

is met. And it's from the government

1:19:59

perspective. they monetize treasuries. Now, people

1:20:02

argue that stablecoins slow down Bitcoin adoption,

1:20:04

and that's probably true, but I would

1:20:06

argue that the existence of the dollar ultimately

1:20:09

is what challenges Bitcoin adoption. That as long as the

1:20:11

dollar is a larger network effect and

1:20:14

less volatile,

1:20:15

that's the 800 pound gorilla in the room.

1:20:17

It doesn't matter if stablecoins are just an

1:20:19

extension of the dollar. The

1:20:22

dollar is going to use whatever technology is available

1:20:24

to it to extend itself.

1:20:26

Stablecoins are just one arm of

1:20:29

the final boss. You're thinking about Bitcoin

1:20:31

adoption, and

1:20:31

ultimately, that is the dollar. Preston

1:20:34

Pysh

1:20:43

for

1:20:51

money. That's just

1:20:53

seeing how it plays out. Now, I always

1:20:55

try to steal, man, I think of what else could this

1:20:57

technology be used for? We see

1:20:59

with Noster that you don't need a blockchain to make

1:21:02

something that's reasonably decentralized. Generally,

1:21:04

when you need a blockchain is two things.

1:21:06

You want it to be decentralized, but also you want

1:21:09

to monitor the entire ledger. You want

1:21:11

it to be a bounded system.

1:21:12

With Bitcoin, we care about that because we want to

1:21:15

monitor the entire supply. Whereas

1:21:17

with something like Noster,

1:21:18

we don't care the fact that we can't

1:21:21

necessarily say how many messages exist

1:21:23

in Noster. We care about the part of the network that

1:21:25

we want to see. So we want decentralization,

1:21:28

but we don't want audibility of the entire

1:21:31

network. That's why we don't need a blockchain

1:21:33

for Noster. Now, Bitcoin makes Noster better

1:21:36

by being the money of Noster

1:21:38

and help trying to finance some of these relays

1:21:40

and keep the system operating.

1:21:42

But it's not like Noster has to

1:21:44

run on a blockchain. So I think that the technology of blockchain

1:21:47

is over applied because you

1:21:49

need a lot of trade-offs to run a blockchain and

1:21:52

most things don't need a blockchain. Therefore,

1:21:54

a blockchain just adds expense to whatever

1:21:56

you're trying to do other than money. I try

1:21:58

to think of things like... like crypto

1:22:01

gaming or digital collectibles.

1:22:03

And I generally, my steelman

1:22:06

argument is that these things are basically just tech layers.

1:22:08

They're competing for a market that I'm just not

1:22:10

as interested in as the market for

1:22:12

money. Because as I talk about in broken

1:22:15

money, one of the biggest problems in the world

1:22:17

is that vast swaths of people around the world don't

1:22:20

have good money,

1:22:21

right? So those of us in the United States and Europe,

1:22:23

we have like, you know, it's decent money. It's not good

1:22:26

money, but it's like decent.

1:22:27

It causes all sorts of problems under the surface that

1:22:29

are subtle.

1:22:30

When you go out to the developing world, those

1:22:32

problems are more obvious,

1:22:33

right? So one of the biggest problems that humanity

1:22:36

faces, like the a hundred trillion dollar problem

1:22:38

is lack of good money, right? So that's

1:22:40

the market that I care about.

1:22:42

And so I don't, I kind of just don't even care

1:22:45

about most crypto

1:22:46

unless they're trying to say that they're better money.

1:22:48

Well, then I'll examine that claim and

1:22:50

say,

1:22:50

well, here's why I don't think that's the case,

1:22:53

right? So other than have to try and compete

1:22:55

for like base layer money,

1:22:57

arguing that they're more robust or something,

1:22:59

I'll explore them as like little technology projects.

1:23:02

But ultimately I think that the, when we think

1:23:04

about this whole space, we're thinking about what

1:23:07

technologies are robust and powerful

1:23:09

enough

1:23:10

to try to fix this problem we found

1:23:12

ourselves in. We have a world with 160 different fiat

1:23:14

currencies. Like clearly this is

1:23:16

a local maximum. It's not the best of

1:23:19

all possible worlds of money. There's this system we've had

1:23:21

in place for the past 50 years. There's

1:23:23

clearly a lot of improvements to make. And I would

1:23:25

argue that, out of all the technologies that

1:23:27

exist, Bitcoin is the most powerful tool

1:23:29

we have to keep building on and

1:23:32

proliferating and adopting in

1:23:34

order to try to solve this problem of bad

1:23:37

money around the world.

1:23:38

I cannot tell the audience enough.

1:23:41

You guys gotta read this book.

1:23:43

Lynn, where can they pick this thing up? I'm

1:23:45

assuming it's on Amazon, anywhere else that

1:23:47

you wanna point people towards.

1:23:50

So broken money is on Amazon and

1:23:52

over time, it'll appear in other stores

1:23:54

as well. It's a process of distribution,

1:23:56

but

1:23:57

yeah, check it out. Awesome.

1:24:00

And we'll have links to, Lynn has

1:24:02

an amazing newsletter that I personally

1:24:04

subscribe to. I'll have links to

1:24:06

that. We'll have links to the book. Lynn,

1:24:09

thank you so much for making time and coming on the

1:24:11

show. This was just an incredible

1:24:13

discussion and just really

1:24:16

appreciate everything you're doing for the Bitcoin space,

1:24:18

for the finance space, and

1:24:21

wow, what a book.

1:24:22

Thank you for having me and I appreciate that.

1:24:24

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1:24:27

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1:24:53

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1:24:55

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1:24:57

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