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Productive Money: The Most Bullish Case for Ethereum ($250K) | Michael McGuiness & Vivek Raman
01:24:22
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- [00:00]
A
This is the productive money meme, is that Ethereum is a productive asset, which is kind of like the first time you've had a productive monetary good in history. And this was kind of Warren Buffett's whole critique against gold, because like people would ask him, he's like, gold is superior store of value and all these dimensions. Why don't you store your wealth in gold? And Warren Buffett's response was, it doesn't compound, Right? And it's unproductive.
- [00:25]
B
Welcome to Bankless, where today we explore the frontier of, of ether productive money. This is how to get started, how to get better, and how to front run the opportunity. This is Ryan, Sean Adams. I'm here with David Hoffman, and we're here to help you become more Bankless. Guys. A good old fashioned Eth is money episode, bullish Eth episode. And it all comes from the content put out by one of our guests, Mike McGinness. So we have Mike McGinness on the podcast, also Vivek from Etherealize, who's been a previous podcast guest. Mike put out this banger essay. It's just been published this morning. It's called ETH as productive money. Productivemoney.org, both David and I read this. We thought it was special because it was a fantastic compilation of all of the things we've been saying about ETH over the years. And Mike just puts it together in a simple narrative and he charts how ETH can go from its current price all the way to $250,000 per eth if, if the market were to understand ether the asset, as productive money.
- [01:28]
C
As we're making our way through this bear market as an industry, there's one part of crypto that's growing incredibly, and that is the institutional side, the Wall street side, the banks, the people doing the tokenization. And this is where I think really Vivek shines in this conversation where we talk to Mike about his article and then we go to Vivek and ask Vivek about the growth of education and understanding and awareness of Ethereum. I mean, that's what his job is at Etherealize. So that's what Ethereal is here to do. And so first we present the thesis, and then we check in with Vivek about the progress of the understanding of the thesis. And that's the episode that you're going
- [02:09]
D
to hear right now.
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C
So let's go ahead and get into the episode, but first a moment to talk about some of these fantastic sponsors
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D
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- [02:15]
C
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- [04:45]
B
Mike, you start the essay like this. The combined monetary premium of gold and Bitcoin is approximately 36 trillion. If Ethereum captured that premium distributed across roughly 120 million ETH in circulation, the implied price of 1 ETH would be approximately 250,000. Today it trades around 202,000. This essay argues that the repricing is not only possible, but logically consistent given the monetary properties of eth2k to 250k per eth. How does that happen?
- [05:21]
A
Mike, right now if you look at the price of eth, it's kind of being valued mostly by transaction fees, right? Like if you Fidelity put out a report a while ago, basically doing a DCF on their transaction fees and they're kind of assuming no monetary premium. It's kind of priced into the market that Bitcoin has already won store value and that's the only competitor to gold in the blockchain space. And the core argument of this is that ETH is actually better money than Bitcoin. And if you are trying to calculate an expected value of Ethereum, you should factor that monetary premium into the upside case. So this is that upside case of what the price of eth would be if it captured the monetary premium that currently exists in Bitcoin and gold.
- [06:04]
B
Let's start to define some of these terms because I know many bankless listeners from years back will be very familiar with terms like monetary premium and dcf. But I also want this episode to be very accessible for someone who's kind of new ish to crypto and hearing about eth, maybe in this context for the first time, ETH is money. So you said many models price ETH on a DCF model. What is dcf and why is that the wrong way to price eth?
- [06:30]
A
Yeah, so a DCF is a discounted cash flow model. So basically you predict all of the fees that the network will generate and distribute to holders of the token and then you discount them back at to arrive at some type of present value. And that. And that discount rate is. You're testing my CFA knowledge here. But like the discount rate is just people prefer money now more than money in the future.
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B
It's time value of money stuff.
- [06:58]
A
Exactly. So if people require a 10% return, you would just discount, Right? So something that'd be worth a hundred dollars a year from now would be discounted, is worth maybe $90 to me today. So if you sum all those cash flows into the future and then you discount them back at whatever discount rate you assume for something like ETH, it's probably higher than 10% because it's a pretty risky asset. You arrive at something closer to a $2,000 price target. And that's how I think a lot of people are valuing ETH today. Whereas if you compare that to something like Bitcoin, what Bitcoin is being valued at is kind of like demand for a bearer instrument with zero counterparty risk, which is what gold is. Right? Like gold is. You'll hear the term store of value. So gold has kind of like been the store of value humanity has used for the last 3,000 years. It's very time tested. Fiat is a rel. Fiat money of like the government paper money is a relatively new experiment that's only been going on for about like 50 years. But before that, most, most of the world was on a gold standard. And then kind of like when Satoshi invented Bitcoin, the thought was, what if we had gold, but you could send it over the Internet instantly to anybody, right? And that was like a 10x breakthrough. And then the thought is that bitcoin is digital gold and digital gold will be more valuable than actual gold.
- [08:15]
B
So. And when you say DCF model, I mean the part of the reason that some investors cling to a DCF model is because that's what they're used to for most capital assets out there, right? So capital assets, an asset that generates some level of returns. You know, Buffett quite famously is a fan of capital assets. And Buffett is one of the main characters of the essay that we'll talk about throughout this episode, this Productive Money essay that you wrote. Now, because investors are so used to valuing capital assets like equities or, you know, rental properties or those sorts of things by DCF model, and they also see Ethereum and ETH asset and generating some form of yield, the knee jerk reaction seems to be that they just apply the same DCF model to eth. And what you're saying is that is not the full story here. In fact, the bigger part of the story is that ether, the asset should have what you've called a monetary premium. It's a money. And by that I think you mean a store of value asset like Bitcoin and like gold. How close to the mark am I in that exactly?
- [09:26]
A
That's exactly it. And most assets, pretty much every asset that's not a monetary good should be valued based on like the present value of those cash flows. And then there's kind of like one good that all of human, humans, all of humanity kind of like decides to hold that they're going to use as money, which is like the most liquid thing in terms of can I sell this today at a fair price or in the future at a fair price, and people will hold that. And because there's so much demand to hold this right now, it's like dollars have a lot of monetary premium. Gold has a monetary premium because it's been tested for 3,000 years there. Because people demand that for liquidity or a way to store their wealth into the future. Those assets, those monetary good store value assets, will carry a premium to the intrinsic value. So gold, for example, like maybe 10, I've seen various estimates, maybe like 10% of gold's value is in like jewelry or industrial demand. And then the remaining 90% of gold's $30 trillion market cap is its monetary premium.
- [10:25]
C
Mike Monetary premium, I think, kind of is one of the highest orders of valuation that exists in the financial world. It's something that's borderline otherworldly, magical, like holy. Something almost like unexplainable. It's this unexplainable force, like, why did gold win? And what gives the dollar its value? It's just a piece of paper. Why? Why is it valuable? And so monetary premium is kind of just like this higher order thing that very few assets have ever really been able to achieve. What gives eth the audacity, the right, the. The accessibility of that higher order level of valuation? Because it's so few assets in history have ever gotten anywhere close to it. And we're saying that Eth. Eth is there. Not only is it there, but it's better than any other asset that's come before it. What gives us the right to be
- [11:18]
A
able to say this? This honestly, like, doesn't happen very often, right? It happens maybe once every 3,000 years. So that's kind of like how I got into this space, right? I was working at a hedge fund for four years, a distressed debt credit hedge fund. I had my CFA and I kind of came across bitcoin. And I'm like a huge fan of like monetary history and like that. I like history and like the evolution of money is pretty interesting of why Humans converge on certain types of money, and for most of history, it's been gold. And like, the primary thing that's special about gold is what bitcoiners will call like its stock to flow or which is basically its inflation rate. Like, how easily can the supply be increased relative to the total stock outstanding? And most things that have served as monetary goods throughout history have failed this test, right? So people have used like, cattle or stones or beads throughout history, and they all have failed this test because as technology gets good enough, you learn how to create more beads more cheaply, and then that people have to move to what's a harder form of money, right? A form of money where the supply is harder to increase. And that's one thing that's been special about gold, is because people have been mining gold for 3,000 years. There's so much gold outstanding in stock that the total amount to mine it, the inflation rate of gold, the supply increases by about 1 1/2 percent per year. And that's what makes gold special versus other metals, right? So, for example, silver has like an inflation rate of around like 10 to 20%. So the supply of silver will increase by like 10 to 20%. It's easier to increase when. When the price of silver goes up, more people will be mining that, mining it, and increase the supply, which will bring the price down of silver, which makes it a bad store of value asset comparative to gold. And the same thing happens to an extent with gold. Like, if the price of gold goes up, there will be more people trying to mine it because there's more of a profit incentive to do that. But gold has been the best we could do in terms of money for all of human history. And then what bitcoin did was it's this distributed ledger and it says we're going to agree that only 21 million will ever be able to be created. And that's independent of demand, right? So if demand for bitcoin increases, supply can't be increased because that's programmed into the protocol. So that's kind of like why bitcoin wasn't right? Like, gold was an order of magnitude against every other form of money because of this scarcity dynamic. And then bitcoin improved on that by like 10x by having a total hard cap. And then also you could send it over the Internet too, which is this pretty magical property.
- [13:54]
B
Just to be clear on the 250k, I know this is not a price prediction, let's say, but this is a natural implication that falls out of your essay if you're right about ETH being this monetary unit, this productive money as you talk about it. Right, because so where do we get that 250k per eth number? Can you drill in on that?
- [14:17]
A
This isn't necessarily a price target. This is more of just like what would happen to the price of ETH if it captured the monetary premium that currently exists in Bitcoin and gold.
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B
Right.
- [14:26]
A
And that's where I stopped. Gold is like a $30 trillion asset. The monetary premium in gold is about $30 trillion. And then the monetary Bitcoin, which is 100% monetary premium, there's kind of no intrinsic value to Bitcoin is about one and a half trillion. So you add those two numbers together and then you just divide them by the total supply of ETH, which is currently about 121 million. And then that gets you to your 200. And I think it's like it varies based on the price of gold, but it's about $260,000 today, which would be that. And then that doesn't include the monetary premium that's currently in some other assets. There's about 22 trillion. The M2 money supply is about $22 trillion. Right. That's dollars in circulation as well as certain real estate. Right. Like people will buy an apartment in New York City as a store of value asset. Um, even though you rent, you could rent it out and earn like a 2% return on that real estate. They're not really buying that for a cap rate. They just, they're just buying that because that's a good place to store their wealth. And they have a high degree of certainty that that will be, that an apartment in New York City will be valuable 10 years in the future.
- [15:36]
B
Okay, so you're saying, you know, if you just take Bitcoin and gold alone, which are clearly store value assets, you get $30 trillion, let's say. And if you divide that by the supply of ETH, you get to a unit price per ETH of 250k. If ETH were to go take all of that market share. But you're also saying there's more than that 30 trillion in terms of store of value type assets. Because there's some store of valueness, some monetary premium in, let's say, collectibles or art or the S&P 500 or other ways that we essentially teleport our wealth into the future, and those have some monetary premium associated with it. It all depends what you think, how much you think of the total monetary premium. That's available. How much you think ETH can capture with respect to market share? Is that the right way to think about it?
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A
Exactly.
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B
Let's bring Carl Menger in the picture here. So the title of your essay is ETH is Productive Money. Let's focus on the. On the money part. And this is what Carl Menger, I think, was quite obsessed with. So he is the founder of the Austrian school of economics, 1918, late 1800s, early 1900s. And he had a definition of money from the Austrian school that. That seems to have. Seems to be quite accurate and seems to persist across time. He's got a number of different dimensions. Can you walk us through those dimensions and how do they apply to eth?
- [17:12]
A
So the number one property that he looks for in a monetary good is what he calls saleability, right? So my ability to sell this asset, if I need to, at a fair price at any time, including today or like 10 or 20 years from now. So that's the number one thing. And then he kind of identified a few other properties that determine that saleability. So the number one one is that scarcity dynamic, because that's been what most assets or monetary goods or monetary commodities haven't been able to beat, right? Like you, if you choose beads, as your monetary good technology will allow, eventually there will be incentive for people to create more beads and inflate the supply away. And gold has withstood that. So scarcity is kind of like the number one one that most monetary goods haven't been able to beat. But on top of that, there's these other categories too, and we could just go through them one by one because it's easier, it might be easier to go through it. So, like, fungibility, right? So this is kind of like, is each thing in this, each monetary good indistinguishable from another, right? So like, if you stored your wealth in a house, right? Like, it's not very fungible with another house, right? It's in a different location, different sizes, different quality. Whereas $1 is equal to $1, right? So dollars are very fungible. Gold is very fungible, right? Because you can melt it down and you could do an ounce of gold, you could do a ton of gold, right? And they're all interchangeable, roughly interchangeable. And kind of like, same thing with Bitcoin. But like, bitcoin and eth are for the most part fungible. Like one eth is one eth and one bitcoin is one Bitcoin. But there is this element of privacy that makes them not Quite as good as gold yet, just because, like, if your coins are tainted, right? So if you get bitcoin, that's on some type of blacklist that's not necessarily fungible, right? Like, it's that your coin is a little different from everybody else's. But Ethereum is kind of like working on privacy, which might make it more fungible in the future. I don't really want to comment on that. It's more like speculative right now. But. So that's the fungibility one. And then we could go to divisibility, right? Going back to the house example, like, how would you. If you kind of wanted to buy your lunch for the day, like, how would you. And you're using your house as a store of value, how would you break it down into a smaller piece that lets you buy lunch? Whereas, like gold, you could shave it off, right? And then bitcoin and ETH are divisible to many decimal places, right? So you could send people like 0.0001 ETH to do micropayments and stuff like that. So bitcoin and ethereum are superior to gold on that dimension. And then there's like portability, which was like the huge breakthrough of bitcoin over gold is you could send it anywhere in the world, right? If you. And that's like a fundamental limitation of gold is it's not very portable. So if you are trying to. If you are in like Venezuela and you need to flee the country with your life savings in gold, that's very hard to do, right? You can't go through an airport with your life savings in gold, but you could go through it with bitcoin, right? So that was kind of like Satoshi's like. Imagine like a metal with like no cent just as scarce as gold, but you could send it over a communications channel. So that was bitcoin's breakthrough eth, obviously you can do the exact same thing there. So it's just as portable as bitcoin and better than gold, I guess just
- [20:21]
B
to kind of summarize where we've gone so far. So according to Karl Menger, the primary property of money was saleability, right? Which I mean, this concept, salability, it took me a while to understand, but one way to think about it is liquidity. I think how deep the order book is almost can you sell a whole lot and not move the market at all? So saleability, liquidity are somewhat in the same ballpark. And the most saleable good turns out to be the most money good and have the highest monetary premium. And Menger goes through these attributes where he's trying to say, okay, these are the attributes throughout history that have made a particular asset rise to the top in terms of its saleability. And you've just gone through four scarcity, fungibility, divisibility, and portability. And on scarcity you said, and by the way, your paper has this fantastic chart where it compares, you know, gold versus Bitcoin versus ETH on all of these points. On scarcity, you just said that bitcoin and ETH are actually more scarce than gold, which maybe people don't realize that, but that is the case. Are we mining about like 1.5% to 2% of all gold supply annualized every year? And Bitcoin is what? I mean, that's a 0.8% issuance rate right now. I mean, it'll happen soon and it'll be less than that. And ETH is around the same. Is that why you rank it more scarce than gold, these two assets?
- [22:03]
A
I think you could view it on like a near term basis and then a longer term basis. So right now it is both ETH and bitcoin, their inflation rates are at 0.8%, right, which is more scarce than gold, which is roughly one and a half percent. And then there's also like this tail risk too, right? So like ethereum and Bitcoin are ledgers, right? So the supply is hard coded into the protocol. So you kind of know exactly what the supply is going to be. You don't necessarily know what the supply of gold will be like 100 or 200 years from now as well. Because most of these things are very speculative right now. But like, people are talking about, like, you'll be able to mine gold on like the ocean floor. Um, there's asteroid mining, right? And I don't want to give a lot of credence to those, but I do think it is a good point that it's. You don't know exactly how much the supply of gold is out there. Like, if there's a breakthrough in like robotics that like greatly increases the productivity of mining, I think you can make it. You could see a scenario and that's
- [22:54]
B
really interesting, right, because that's not unprecedented. I mean, we've actually seen that happen with gold in the past and even silver. I was learning the monetary history of like silver pieces of eight. And at one time Spain's, you know, Spanish empire's pieces of eight, they kind of like dominated the, the monetary system. They were the first global currency, the first global Money. And a whole bunch of that was unlocked because they found real cheap mining in the New World and all of these silver deposits. And so the issuance rate just of silver just flooded the market and really caused all sorts of different effects to silver. In this case, it allowed silver to kind of like dominate the global. It allowed Spain to kind of export their currency internationally. But that kind of onslaught of supply can happen when new territory is discovered. Some new technology unlock kind of makes that possible. And that could happen at any time for an asset like gold.
- [23:53]
A
Exactly. And I think technology is the big one. Right. Like that's throughout monetary history. Usually there's enough of incentive because the monetary premium is so high to develop new technology that helps you produce more of that good. Right. So like the southern colonies used tobacco as money at one point and people just found better methods to make more tobacco.
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B
Right.
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A
And same thing with trading with the native Americans was they were using beads and then eventually they kind of like created like a bead factory and then inflated away the savings of the indigenous population. So usually there's technology and I don't know, I could probably argue a couple of different. Like if you're creative enough, a couple different technology advances that could make greatly increase the supply of gold. And like I think the most realistic one is probably something like robotics. Like if you greatly increase the productivity of mining because you didn't have humans going in there and you had like a humanoid robots and if the world is like what Elon says it's going to be in 10 years, you have more humanoid robots than humans. Like I could see. I feel like you can make a case that maybe the inflation rate of gold will increase in a scenario like that.
- [24:58]
B
Okay, so that's, that's scarcity and you know, points to Bitcoin and ether on that over gold. On fungibility, you actually rate gold higher, as you said. And part of the reason for that is because there's on chain, you know, like Bitcoin and Ethereum are public ledgers right now. They don't have max privacy. So in the tainting scenario you're imagining, well, let's say some eth supply or bitcoin supply gets on an OFAC sanction list because you know, a rogue government has had that supply in the books and it's kind of tainted. It's put in this other category and centralized exchanges don't want to interact with it that much. That's where the fungibility breaks down a little bit in comparison to gold. Is that the argument that you're Making and why you give gold a higher score.
- [25:47]
A
Yeah, exactly. And then like, right, like Silk Road might be like another example. Right. If you've received coins from the Silk Road for like a drug purchase, those coins are probably at risk of getting you in a lot of trouble. So because it's not private. So it's the privacy dynamic that makes it a little less fungible. But for the most part, if you're kind of like acting within the rule of law, your coins are totally fungible. Like one eth, I send you one eth. And it's kind of like the same as any other ethics.
- [26:14]
B
But if Ethereum was fully private, then maybe it would score more points on fungibility over Bitcoin, or if it at least had the privacy option on its base layer on chain. And also because of decentralized finance and the less reliance on centralized exchanges, maybe ETH gets higher points on fungibility relative to Bitcoin. But I suppose it's kind of a close race there.
- [26:37]
A
Yeah. The privacy developments within Ethereum definitely give it a leg up on Bitcoin in
- [26:42]
B
terms of fungibility divisibility. Bitcoin and ETH clearly win that. I mean, divisible up to 18 decimal points. Gold is very hard to divide up. And this in fact is why silver has been a common component to. We used to have bimetallism in the US just because silver was more plentiful and it was easier, more convenient for typical transactions of a normal size that one would make. But Bitcoin and eth, I mean you can divide that into any kind of unit or increment. So quite a bit better than gold on that score.
- [27:20]
A
Yeah. So I think silver's a perfect example for divisibility. That's why silver captured a monetary premium at all, is like gold was the currency of kings, but most people didn't have gold. It was too high of a value relative to weight. And then silver allowed more common people to kind of transact in day to day life. So the common people kind of like use silver for day to day money. So that's why silver even accrued a monetary premium at all, because it was superior in that divisibility, property and portability.
- [27:47]
B
Gold is much lower than Bitcoin and eth. Yet again, this is just because we can transmit Bitcoin and ETH kind of over the Internet, money over ip essentially. Whereas gold, I mean, yeah, very difficult to transport, brings trucks and 747s protected by an air force in order to move it from one destination to another. Is that the reason why.
- [28:11]
A
Yeah, And I haven't checked in on it recently, but there was kind of this story a couple years ago of Germany trying to repatriate their gold from Fort Knox. And I think it took years and billions of dollars to transport it. Right. Whereas with Bitcoin or Ethereum it kind of would have been done in a few minutes in Bitcoin's case or seconds in Ethereum's case.
- [28:29]
B
Okay, there are still some more Menger criteria.
- [28:32]
A
Let's talk about. It's an exhaustive list.
- [28:34]
C
Yeah.
- [28:34]
B
Durability, verifiability, censorship, resistance and carrying costs. So what is durability?
- [28:40]
A
Durability is I think the most important one for the ETH relative to Bitcoin. Durability is like, can you count on this to be available in the future? Right. So like gold has a 3,000 year track record of being valuable throughout history. And it kind of, if you like have read Nassim Talev's books of like, he talks about a Lindy effect, right, where the longer something's been around, the more likely it is to be around further along and further in the future. So gold kind of has this 3,000 year history. Bitcoin, what is it now? It's like almost 20 years old. It's coming up on and eats a little newer than that. Right. So that's kind of like why gold is so much higher. But like this is I think the main reason why I, this is actually so I used to be a bitcoiner. I used to like, I, I thought, right, the transition to a new store value only happens every 3,000 years. That's like the main prize. Just focus on that. And this is the criteria that ultimately convinced me to flip from bitcoin to ETH is I just have a higher degree of certainty that Ethereum will be around longer in the future. And the reason for that is because bitcoin relies on proof of work, which is less efficient than proof of stake. And it doesn't scale with the value of the network. And as the block subsidy of bitcoin halves every four years, they will be eventually. They're increasingly becoming more and more reliant on transaction fees to fund their security budget to miners. And if you look at the security budget right now, it's about like 0.6% of revenue to miners is transaction fees. So you're betting that transaction fees are going to increase a lot like several orders of magnitude over the next few decades to believe that Bitcoin will be more secure. And the problem with that is like if Bitcoin, it becomes like, if bitcoin is digital gold and flips gold and it's a $30 trillion asset, but it only costs like 10 or $20 billion to attack it. That's extremely asymmetric. You kind of want the security budget to scale with the market cap. It's similar to how countries spend a certain percentage of their GDP on defense. Right? Like, the more valuable something is, the more you need to spend to protect it. So I think Justin Drake on your podcast has argued this very. This very well. And then Ethereum, right, With the merge, they migrated to proof of stake. And I fundamentally, proof of stake is it's more secure because it's less reliant on transaction fees. And then it also scales with the value of the network, right? So if 30% of eth are staked, and then you need a third of those ETH to censor the network, you're kind of like looking at roughly 10% of the cost of the total market cap to attack the network. So if Ethereum flips bitcoin gold and becomes a $30 trillion asset, it'll cost $3 trillion to attack the Ethereum network versus Bitcoin at, like, $10 billion.
- [31:41]
B
Okay.
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A
And like, the other aspect here, too is as, like, these AI hyperscalers invest more and more in AI, proof of work becomes increasingly vulnerable because the cost to attack the network is kind of like looking at, like, the quarterly capex that these hyperscalers are spending on their data centers. So a lot of points there. I'll step back for questions.
- [32:04]
B
No, it sounds like there's a lot in this durability category to you. I guess in the gold context, part of what gold was competing against was other assets, in particular other metals, and it was the more durable metal. I mean, it didn't rust, it didn't degrade over time. It preserved its kind of shininess, I suppose. And then it does have that track record, I guess in the Bitcoin and Ethereum context, durability would mean something similar. That it doesn't degrade over time, that it doesn't rust, I suppose. And, you know, gold has its security budget, I guess, set by, you know, the. The elements in the periodic table. Right. I mean, it was, you know, gold is produced in a supernova explosion, you know, however many billions of years ago, and that's its economic security. It doesn't have to pay that cost again, whereas for crypto networks like a Bitcoin or Ethereum, they do have to continually pay that security budget cost. And what you're saying is you rank Ethereum higher than Bitcoin on the durability side of things, just because it has a more sustainable economic security policy, let's say into the future, as a, as a portion of its market cap, as a portion of the assets on top of the chain. Whereas Bitcoins is going to have an every four years. With Ethereum, it's kind of that, you know, 1.5%, 1 to 1.5% every year. I think though, gold probably hands down does win this category versus those other two assets, both because of its longevity and also because it's already paid its economic security costs. And it's also non digital, so it's not susceptible to any type of a hack, let's say. Whereas Bitcoin and Ethereum, they're software. I know when I hear monetary economist and investor Ray Dalio talk about cryptocurrencies, he always brings that up. He's like, I like gold because it can't be hacked. There's no quantum threat in the future. Whereas with the Bitcoin or other cryptocurrencies, I'm not, I'm not so certain of that they have that risk factor because they're software. So I do think gold. You're right in saying that gold does win the durability case here in Manger's attributes. How about verifiability?
- [34:33]
A
Yeah, so verifiability is, it's pretty simple. It's just like, can you be sure that this is that what you received is one bitcoin or one piece of gold or one eth? Like wallet software kind of does this today. It checks the network. It makes sure that it got that what you have in your Wallet is like 1 ETH or 1 Bitcoin. With gold, you can kind of have like counterfeit gold too, right? So, so if you have to verify it. I actually don't even know how you verify gold. Is it like chemically or something like that? But it's like the cost of verifying. So if you have a transaction and somebody gives me some gold, can I be sure that this is real gold? Right. So I'm sure humans used to be a lot better at determining if something was real gold a thousand years ago than they are today. But today, like wallet software kind of does that for you for free for Bitcoin and eth. So I think Bitcoin and ETH are superior to gold on this dynamic just because it's easier to make sure that it's real or legitimate, fully auditable on Chain.
- [35:29]
B
I don't know if this next attribute was part of Menger's attributes, which is censorship resistance. It is in your table, though. Does. Does he mention censorsh resistance?
- [35:38]
A
So Manger does not do this, but it kind of falls into, like, the portability. But I wanted to break it out because bitcoiners break it out. So. And they talk about this property a lot because that's one of bitcoin's key advantages over gold. And, like, a lot of people will point to kind of like FDR confiscating gold in the 1930s. And Bitcoin is a lot harder to confiscate. Right. If you could keep it in, like, a brain wallet and you just have to memorize your seed phrase, nobody can really take it from you, so it's harder to take from you, which kind of makes it a better store of value in. In some respects. And then so I kind of broke it out, and then, like. And then I scored bitcoin less than ETH on this category just because I believe that the network. With the declining security budget, bitcoin will be easier to censor than ETH will be.
- [36:35]
B
Okay, so all this to say, it seems that ETH does fit the core attributes for what Menger would think of as a good money, the way bitcoin partially does and the way gold certainly does. I think your argument is that ETH has all of these attributes as well, and that's. That's the money side of the argument.
- [37:00]
A
Yes, exactly.
- [37:01]
C
So checking all of the boxes that Manger establishes for money, I think what that does for ether is that it gets it into the race. It doesn't mean that it's going to win the race. And, you know, gold. Gold has been there. Bitcoin has got there. Eth is now, you know, in the race. It's in the race as a new model of money. But in order for it to meaningfully, I think, differentiate itself from all of its predecessors, it needs to have something else. It needs to have something net new beyond all of the properties that we kind of just went through. Mike, what is that net new thing, that new X factor that only ether has, that gold doesn't have? Bitcoin doesn't have. What's ether's thing?
- [37:43]
A
Yeah, so this is the productive money meme, is that ethereum is a productive asset, which is kind of like the first time you've had a productive monetary good in history. Like, except for maybe, like, cattle, right. When cattle was used as money. Like, it would have, like, offspring that, like, Reproduced. And this was kind of Warren Buffett's whole critique against gold because like people would ask him, he's like, gold is superior, store of value and all these dimensions. Why don't you store your wealth in gold? And Warren Buffett's response was, it doesn't compound, right? And it's unproductive. So if I hold like one ounce of gold today, 100 years from now, I'll still have one ounce of gold, right? Whereas if he. The examples he uses is like, If I bought 10 ExxonMobils or if I bought a bunch of farmland, right? Like those assets would be worth way more 100 years from now because they're productive assets, right? So on a. His argument was that on a long enough time horizon, a productive asset will usually outperform an unproductive asset because it compounds. And that's kind of like compounding is a miracle in a ways. And Ethereum does do that. So it's superior on all these other monetary attributes. And then it compounds on top of that, which we've never seen before. And it's kind of like this new exciting dynamic. And the other thing that I really like about this is I feel like this can be a shelling point for the Ethereum community. It feels like the Ethereum community has kind of been divided between. You have like the ultrasound money camp, which is like, we're more scarce than Bitcoin because we have the burn and we could go deflationary. But on that, you're kind of like trying to compete against Bitcoin on like something it already does really, really well. And I don't know how much of a marginal improvement a deflationary monetary asset would be over something with a fixed cap. And then you, on the other side of things, you have like Dinkrad Feist, who's been arguing that like, no, like scarcity alone doesn't make something valuable. You need demand for that asset and you need to build something valuable and something productive. And he points to the fact that like The S&P 500 has like outperformed gold over the, like the last 50 years, which is also a good argument. And he wants us to focus on kind of like defi and real economic activity. And the hope is that this can unify both camps by. And they're also symbiotic too, because the monetary premium that you would accrue from being superior money allows you to secure more, more assets on the network and provide even more economic value to society. So that's kind of the productive money.
- [40:05]
C
Meme you would have never thought two years ago that you could soon be trading tokenized oil on Metamask, but here we are. I've been using MetaMask since 2017 and we all remember buying NFTs with it in 2021 and now in 2026. If you haven't checked in on Metamask recently, let me tell you, you can trade tokenized stocks, funds and commodities along with leveraged perpetuals, prediction markets and even yes you can gaseously swap between crypto tokens across networks too. There's advanced security features like MEV and front run protection and even a debit card so you can actually spend your crypto directly at merchants all world and it's all self custodial. Everything you want to trade in one place. This is the open money future we've all been waiting for. Check out the new Metamask is already on your phone or in the link below. Quick shout out to OkX. They are live in the States building the new Money app and Wall street is taking notice. The parent company of the NYSE just invested at a 25 billion valuation and took a board seat. That's the New York Stock Exchange coming to crypto, not the other way around. And why OkX? It's the only app combining a full centralized exchange and self custody wallet in one place. Sex trading, dex access on chain activity all in a single interface nor bouncing between five apps, copying pasting addresses or bridging tokens in separate tabs. They support Bitcoin, Ethereum, Solana Base and more. Millions of tokens, just a few clicks and an infrastructure that processes trillions in transactions and keeps assets fully backed. OKX users are set to get tokenized New York Stock Exchange stocks and derivatives later this year. Traffi and Defi finally in the same app. Head to the link in the show notes, download OK X and see why it's the NYSE go to for going bankless in the United States, not investment advice services not available in New York and Texas. It's worth just really doubling down on the statement that you've never we've never seen this before ever. There's like silver didn't do this. Gold didn't do this. You did say like well cattle does this. But I'm sorry if we are a society who uses cattle as money, it's because we're a primitive society. Like once we hit gold we have never seen a money that was ever able to do both hold its value over time. All the properties that we went through the durability the, the divisibility, all the stuff that makes the money a money. Yet it is also productive. Maybe just for the listeners who just need a refresher on how ether is actually productive. How is ether productive? So I own one ether on year one. If it's productive, that means I'm going to own more ether in the future. Let's unpack actually the productivity of ether.
- [42:31]
A
Yeah, so the basic way it works is that you take your ether and then you stake it and you operate a validator that secures the network and you process the transaction fees. And if your attestations are correct, the network will pay you a reward which is a mixture of like issuance from the network and transaction fees that are earned. So, right, there's gas on Ethereum. So if you want to swap a token on Uniswap or send your friend a stablecoin payment, each of those transactions requires a little bit of gas and then that gets paid to a portion of it gets burned and which reduces the total supply. It makes it scarce. And then another portion of that goes to the stakers who are securing the network. So you're getting paid for providing secure economic security to the network. What makes this unique is like prior, prior to Ethereum, if you wanted your money to grow, you kind of had to accept counterparty risk, right? So if you put your dollars in Treasuries, you're trusting the government not to debase your currency or not to default on their debt. Same thing with kind of like a stock. You're trusting like the counterparty who operates that company to pay you your dividend or to not run the company into the ground. Whereas Ethereum, all you have to do is trust the protocol and there is like some technical risk there, but it's not really counterparty risk.
- [43:48]
C
And also it's worth noting that, you know, if you're, if you're Warren Buffett, right, And you just really love compound interest. You really love just like the yield and the growth. You want to, you want to outperform the economy. You'll never buy gold because you always want more. You want to lean into the, to the compound growth. Well, if you worry, if we are trying to do what we're trying to do in this, in this episode, which is be a hybrid of both Menger and Buffett, we're looking for something that compounds, that doesn't have a risk profile of an equity, right. You can buy Apple stock, and I don't really think anyone will ever tell you that that's a bad idea. But I bet in a couple hundred years iPhones might not be what we have. You know, Apple stock as an opinionated store of value.
- [44:33]
A
It has risk.
- [44:34]
C
It has risk to it in a way that gold and Bitcoin does not. And so there's like no equity or a tre. Even a Treasury, a government run fiat currency that has this level of counterparty risk in a sense where like if you are buying Nvidia, our GPU is going to be irrelevant in, in a hundred years. Uncertain. Will gold be relevant in a hundred years? Far more certain than that.
- [45:01]
A
Talk about the, the.
- [45:02]
C
If we're trying to appease both Menger and Buffett here. Talk about the importance of the hybrid of these two things.
- [45:10]
A
Yeah, I mean maybe like an easy, a simple example to show the power of this is kind of like the rule of 72. So like the rule of 72 is you divide the number 72 by your annualized return and that's how many years it'll take you to double, right? So if you're earning like 2% staking your ETH right now, it'll take you 36 years for your all of your ETH to double, assuming that 2% is held constant for the next 36 years. So 36 years from now, if you have 100 ETH, you'll have 200 ETH, right? And that's kind of like the power of compounding. And then 36 years after that you'll have 400 ETH, right? Whereas if you own Bitcoin and you have 100 Bitcoin, you'll still have 100 Bitcoin in the future. And I also think this is hugely important for debts, right? So the only way Michael Saylor and strategy can kind of buy more Bitcoin is just by issuing debt. And they basically have to hope that the price of Bitcoin goes up to deleverage over time where, whereas with Ethereum, because it's productive and because your money is increasing, if you have 100 ETH today and you, you'll have 102 ETH next year, right. Your position will deleverage over time which will kind of like allow you to pay back debt or issue more debt, which is again something that like bitcoin can't really do without accepting counterparty risk. Right? Like you would have to like lend out your bitcoin to people who want to short it or whatever. So I think that's an underrated dynamic that I haven't really heard anybody talk about.
- [46:41]
C
In your article you talk about a Buffett quote where he talks about just loving toll booths as business models. You know, archetypical like company that basically has a monopoly on something or can has like is gatekeeping access to something. He says a toll bridge would be a great thing to own because you've laid out the capital costs, you've built it in old dollars and you don't have to keep replacing it. And also in your article, you talk about the way that blackrock calls, you know, Ethereum or illustrates Ethereum's business model, its tollbooth. Maybe you can go into that a little bit more because there's for Ether's productivity, there's the compounding rewards for you get for validating. But that's not, that's not the only source of ether productivity. What's Ethereum's tollbooth?
- [47:27]
A
Yeah, so this analogy comes from. So Joseph Schlom, who's like the CEO of Sharplink, has talked about, he heard at Davos that Larry Fink was presenting Ethereum. And on one of the slides he called Ethereum the toll road to tokenization. And what he meant by that is assets are going to be tokenized and then people will transact and then each of those transactions will pay a fee token to the Ethereum network and part of that fee will be burned and decrease the supply and then the other part will be paid to stakers. So it's kind of like a toll road on anybody who wants to transact with tokenized assets. And like the first example of product market fit with tokenization was stablecoins, right? So you had a tokenized dollar. There's a lot of reasons why a tokenized better dollar is better to then want on like Fiat Rails. But the big things are like accessibility is like, it gives people around the world who don't have access to the US Financial system, they get access to dollars through these tokenized assets. So you're increasing the accessibility and then you're also like reducing all the friction of like settling those transactions. Right. Rather than if you had to send a wire or an ACH transfer. Right. It takes days. Stablecoins are instant. So it's way more efficient. And you've even heard Jamie Dimon kind of come around to like the advantages of stablecoins. So stablecoins are really just tokenized dollars. And then that's going to happen with kind of like every single asset class. Right. So you start with dollars, like stocks will be next. There's you'll tokenize art. People are talking about tokenizing real estate, the kind of like theme Is that tokenization of everything. And as all of these assets move on chain because more people can access them, and then the transaction fees and the friction of transacting with them are much, much cheaper, you'll see all these, right, like trillions of dollars of assets move on chain and have trillions of dollars of settlement costs. And then Ethereum, like Vitalik's trying to coin change from the world computer to the world ledger will be kind of like the global sediment layer for all those transactions. And then all those transactions will generate a fee to ETH holders, which is why your ETH will compound, I guess.
- [49:36]
B
It's important to note that the toll fees are a source of exogenous demand or exogenous utility, let's say. So some people will point at kind of the productive yield part of ETH and they'll just say, oh, that's just ETH being passed from non staked eth, just regular ETH to ETH that's staked essentially. And so you're sort of taking from one side of the Ethereum ledger, one side of the network and you're giving to just holders at stake. Except that all of the other third party assets, the stablecoins, the applications using Defi Ethereum for settlement, all of the third party non ETH assets, those tolls and those fees and the block ordering fees for mev, that's a source of, I guess, utility fees that are paid to ETH holders. And that's external from the Ethereum network. It's something that doesn't happen on the Bitcoin network to the degree that it does on Ethereum. So we're talking about some external fee sources as well as, as the internal yield source that ETH has.
- [50:49]
A
Exactly. So like when BlackRock tokenized their Biddle fund, right. Their money market fund, right. They paid to tokenize it. Right. So to kind of mint that on the network, they had to pay some Ethereum fees. And then anybody who wants to buy that or sell that, they also have to pay fees to do that. And kind of like the same thing with Stablecoins, anytime like Circle wants to issue some USDC or mint it, that's requires a transaction fee. And then if I want to send you some USDC that also requires some ETH gas for that transaction. So exactly this demand is exogenous, it's not. Right. Like people are just using eth, Ethereum the product and it generates these transaction fees for ETH holders.
- [51:30]
B
Want to compare some of this on the Ethereum network to gold as well. So you write this ETH has three independent sources of structural demand that remove it from free circulation. You got staking demand, which is 30% of all ETH is locked and staked to secure the network. So that's a supply sync. You have collateral demand, which is the decentralized financial system that uses ETH as a found a foundational collateral given it's the only asset native to the network, doesn't have any counterparty risk on Ethereum. And then you also have gas demand, which is every transaction on Ethereum requires eth. And so these are all three independent, independent sources of structural demand that remove ETH from circulation. Gold can also serve as a collateral, as can Bitcoin. But to your point that you made earlier in this essay and in this episode, oftentimes that all comes with counterparty risk, doesn't it? And in the case of gold,
- [52:29]
A
you
- [52:29]
B
can't programmatically liquidate gold in 12 seconds, a 12 second block time, right? So because it's not programmable, because it's not digital, it has massive limitations in kind of the future of the economy as the economy moves more and more digital. Can you talk about those elements of structural demand for ETH as well?
- [52:52]
A
Yeah. So Ethereum is the only asset on the Ethereum network without counterparty risk, right? It's native to the network. Whereas like gold, if I wanted to kind of like use gold as collateral on something like aave, right? Like I have to trust the person who tokenized it and said that they're custodying it, right? Which is like a huge trust assumption. You don't know where that gold is. You can't like kind of, you're kind of like trusting the PEG or the ability to redeem from that. But it's different from the way Ethereum works because you're trusting that custodian. And the same thing happens with Bitcoin, right? If you want to use wrapped BTC in a DEFI protocol, you're trusting whoever's custodian custodying that bitcoin on the bitcoin network. And they say that you could swap it back with them, but you're trusting that assumption. Whereas with eth it's native to the network and you don't have to trust anybody to do that. And that's a huge difference, especially as like the sums of money get larger and larger.
- [53:50]
B
Okay, so the points you've made so far are, as far as I can see, ETH is better because it compounds gold and Bitcoin don't compound. So therefore ETH is a Better money. ETH is the first monetary asset that does this compounding without any counterparty risk, which is notable. ETH is a better money than gold and Bitcoin by other measures. So it has greater scarcity. Maybe we need to delve into that in a little bit. And then you've got the combined monetary premium of gold and bitcoin. It's 30 trillion. If eth was the same price, then it would be 250k then also, I think the point you make in the essay is that productive money like Ethereum will outcompete debt capital over a long enough time horizon. Can you dive into that point? Because I'm not sure that that's clear to listeners. In fact, bitcoiners have said in the past that because Ethereum generates yield, that kind of disqualifies it from the monetary, the money race because it has too much utility. And if an asset has too much utility, it can't be a money. Right. You know, a notable thing about gold is it doesn't have that much utility. Maybe it's used in jewelry, ornamentation, that sort of thing. But the primary use case is as a store of value, as a money is what Bitcoiners will say about Bitcoin. They'll say the fact that Bitcoin isn't useful for anything other than a money, it doesn't generate any yield, it's not productive at all. That actually makes it a better money. Mike, can you talk about that? Why is productive money actually going to outcompete something that is just like singular in use case?
- [55:32]
A
Yeah. So the core thesis of this essay is that Ethereum has equal or superior monetary properties to Bitcoin and gold, particularly on the durability aspect of proof of stake versus proof of work versus Bitcoin. And then on top of that, the word Carl Manger uses is carrying cost. Right. It's your cost to hold this in the future. And Ethereum has negative carrying costs because you're getting paid to hold it into the future. Whereas with like gold or Bitcoin, you have to pay somebody to like custody your assets for you. So that's right. So the carrying cost is pretty expensive for those assets. And then I actually think productive, the productivity of Ethereum accelerates the time that you can converge on it because it creates this intrinsic value floor of the asset. So kind of like back to the beginning of the conversation, the way people are valuing it today is they're looking at how many fees, the total amount of fees that the network is generating and they're valuing it based on that. But I personally just view that as a floor. And what that does with the floor is because the way people value these things is they do an expected value calculation. So if there's a 50% chance that ETH is going to 2000 and a 50% chance that it's going to 4000, then the fair price is $3000, right? So what the intrinsic value floor does is it gives you a very high bear case which allows you to speculate on the monetary premium more freely. Whereas Bitcoin doesn't really have this. And gold is like 10% of the total value. So you have to really believe in the monetary premium. But because it's cheaper to speculate on Ethereum's monetary premium, that actually accelerates it because people can bet more freely on like the, like. Most people that hold it right now are probably only valuing it based on fees, right? So if now all of a sudden the monetary premium starts being incorporated into the expected value calculation of the bull price, more and more people will speculate on that. And like that's how it's kind of worked throughout history is like when people speculate on what's going to be like the new money kind of like all the time or not all the time, but like it accelerate. There's an advantage to like more of like in the origins of kind of money is like if like beads versus tobacco, right? Like if you think tobacco is going to be debased and you switch to gold, the earlier you are to that trend, the more purchasing power you will maintain, right? And that actually accelerates speculation, accelerates the convergence and basically the intrinsic value floor lowers the cost of speculation.
- [58:04]
B
Vivek, you've been very patient. As Mike has explained his thesis and this essay so far, Productive money. And I think he's done a great job doing that. This is one of the best pieces I've, I've ever read about ether, the asset, I think. And so we'll include a link in the show notes, encourage everyone to go read it, go check it out. There's also a website that's going to be up, it's called productive money. Is it.org, guys? Yeah, productivemoney. Yeah, productivemoney.org okay, so, and that's where you could see the thesis laid out in even more simple form. But Vivek, this idea of ether as productive money, I know you have conversations all the time with Wall street folks with large institutions. How close are they to seeing ETH as productive money? What dots do they still need to connect?
- [58:54]
D
So I, I think it's time. I think everyone is not only ready, but they're eager for the endgame narrative, for ETH to finally be consensus. And that has always been money. Like, I got into ETH because I saw it early on, you guys on bank was called a triple point asset. And how. And always said ETH is money. It was a meandering path for a while because we had to build that intrinsic value. We had to make Ethereum the default network, the public blockchain that the world will use and the world will coordinate around. And that's now starting to happen. And so I think we can actually skip to the end game and say that what is ETH in this ecosystem where Ethereum is the global network and ETH is productive money. And we're seeing more and more people, whether it's asset allocators, whether it's the ETF issuers like BlackRock just launched the state ETF and they call it Eth productive. More and more people are starting to understand that and be excited by it at the same time that there's new upside in digital assets like AI adoption and quantum resistance being a feature and not a bug. Um, as all that comes together, I think we're actually pulling forward the, the narrative and, and ethos. Productive money is the final answer, and it's getting a lot of traction.
- [60:10]
B
Okay, so Bitcoin right now is $1.4 trillion, and that's all store value, that's all monetary premium. Ether right now is $250 billion, let's say, and a large chunk of that is monetary premium, but it's still not as large as Bitcoin. And certainly both assets are, you know, quite far away from gold. So there's a lot of work to be done here. But whenever, oftentimes, let's say not all of the time, but oftentimes, when I see Bitcoin talked about, they always talk about Bitcoin as a store of value, as an asset. These are mainly institutions. So outside, maybe like Bankless and Etherealize and Mike's excellent work here with this essay. People talk about Bitcoin as if it's a store of value and as if it's a network. And they talk about Ethereum the network, they often ignore Ether the asset, and they think about Ethereum as a technology. And it seems like it's difficult to break the, I guess, the foothold that there's only one crypto money, and that is Bitcoin. That's the store of value. And that's the shelling point. So if Ether the asset don't even try, you guys are just like on the margins here. And the battle's already been won. In fact, some crypto native investors have already declared Bitcoin the winner for this use case. I know, I don't think that. I know you don't think that, and clearly, Mike, you don't. And you've given a fantastic rationale. But in order for a money to actually become a monetary unit, we gotta go convince a whole bunch of other people. And I guess what's stopping that from happening? Or why hasn't that happened? Why is Ethereum grouped as a, as a technology and why is the asset under. Talked about, under explained, underappreciated so much and how do we change that?
- [62:02]
D
So I'll start off and it's as simple as saying that Ethereum needed to be understood. And to understand Ethereum overall, you need to understand the network, you need to understand the asset. The route that we took with Etherealize was let's work on bringing the world on chain, let's work on bringing institutional assets on chain. Let's build such, let's help build such a robust economy on Ethereum that that intrinsic value becomes inevitable. And once that's there, then people will step back and say, what is the one asset in this whole economy without counterparty risk that's neutral and that's eth. And so it was always a path towards getting to ETH as money. That's being accelerated now. The conversation isn't just Bitcoin anymore. Now it's starting to become Bitcoin and ETH. And I think ETH's real catalyst to being understood was genius last year. And it's, it's clarity as it comes up and regulatory, regulatory adoption, which means institutional adoption of public blockchains like Ethereum, which ultimately leads to people looking at ETH again with new eyes. And so what are some data points? I mean, the Harvard Endowment actually swapped out some Bitcoin for eth. That means that they're starting to say there's, there's two assets in, in the digital economy, not just one. Charles Schwab is opening up trading to its entire retail network for crypto assets. There's exactly two. There's Bitcoin and eth. So as we start to, as we started to see Bitcoin and ETH becoming the conversation, the window is now opening for ETH to be money. And at the same exact time, Bitcoin has a couple chinks in this armor that are starting to surface, which we're all starting to notice again, Quantum is coming up. As all technology gets accelerated, money needs to be not only productive, but future proofed. And so Ethereum has the best roadmap towards quantum resistance. AI agents are going to be undisputably a large user of blockchain ecosystems. And what is the one neutral money that AI agents themselves will choose? If you ask any of them, because you can, it's Eth the asset. So there is an opportunity now finally for ETH to have its repricing. And we've all been waiting for a long time. But if there's any thing that needed to happen, it was for Ethereum and ETH to be understood. And that's happening at an accelerated pace.
- [64:20]
C
Vivek there's just a broad trend in technology and markets and finance and just capitalism of there's been. Things are kind of aggregating into their most logically conclusive form. And what I mean by that is like there are, you know, everything is becoming a super app. Coinbase is a financial super app. Robinhood's a financial super app. And this trend has been lagging things we've already seen in, in China, a lot of things that were previously disparate are being aggregated together. And that's kind of what I see in Ether. The asset, you know, you have the store of value hard moneyness of gold and Bitcoin, you have the productivity of a tech platform and it's being synthesized together in this one unified asset that is Eth. I'm kind of reminded of that one scene from Back to the Future where he's playing Johnny B. Goode and then everyone's like staring at him and he's like, oh, I'm not sure if you guys are ready for that one yet. And that's kind of my fear about the typical archetype of investor and, and Ether, where we have the gold bugs like Peter Schiff and then you have the productivity people like Warren Buffett and we have this asset that sits perfectly in the middle of this Venn diagram for both of them. But actually the, the synthesis of that Venn diagram as an investor base is smaller than either of the two groups by themselves. And so that's my one fear about just like, you know, maybe people just aren't ready for ETH yet. Like, maybe it's just like a little bit too futuristic. So when you, when you go to like Wall street and you have these conversations with investors who, who do buy in to this thesis who are they? What's their archetype? Who are the people who are on board yet? And like talk to us about like that class of investor and maybe where that trend of that investor type is going.
- [66:14]
D
There's always a time and a place and as you said, there are super apps forming. But the other big mega trend is technology is accelerating faster than people's ability to comprehend what's going on. And so all paradigms are being broken. So everything that says that it might take an extra 5, 10 years to understand eth, people are throwing those assumptions out the window because AI is going so fast, Quantum's going so fast. Everything's getting accelerated. And eth's adoption is also getting accelerated to the point where the most forward thing players, namely the family office type capital, the capital that really looks for alpha to deploy into, they're looking at ETH first. People say ETH is the productive asset. Bitcoin really doesn't do much. They all say that behind closed doors. Now they're starting to put money behind it. If you look again at the ETF issuers, the stake Deep ETF by BlackRock's been quite a success during a bear market. It's gotten a lot of inflows during a bear market. And they've made the case, as blackrock led, led the space in general on, on digital asset narratives and, and on adoption, that they've made the case that ETH is productive. And then endowments, people with longer term capital are starting to think about that durability. And we'll just start to question like is Bitcoin mining really that defensible? Is the fact that AI is taking up so much of, and it's such a better business model running an AI data center than a bitcoin miner, is that really going to allow Bitcoin to be as fortified as possible? And as you start to see this creep in, ETH is the only logical answer to what's going to be the productive money, the durable asset in the future. And so all this is coming together at the same time. I agree with you. We've all been waiting for a very long time. Both Mike and I wrote our respective essays while we were on Wall street five years ago about ETH winning store value, ETH being a store value with cash flow. I think the time is right now that all of this can inflect and we're, we're seeing it, we're seeing that finally it's catching hold. And so productive money should be the final form of what ETH can Become
- [68:15]
A
and one more point there on. Because I think it's worth like steel manning the bitcoin argument of like why ETH isn't money and why that's changed. Right. So like the core thing that bitcoiners will argue is that like money, if you're storing your entire wealth in it like an asset, like gold, it shouldn't change. Right. So bitcoiners have always kind of like prioritized near term stability and not changing the protocol for. For at the expense of long term viability. And I think Ethereum has done the opposite. Right. So ETH really couldn't have been money for like a while just because. Right. You change the issuance. We didn't have the 1.5% issuance cap until after the merge. We are probably going to rip out like 80% of the code when we do like the post quantum and merge to kind of like the ZK ebm. Right. So we're kind of like making these trade offs of like sacrifice. Ethereum is making these trade offs of sacrificing that short term stability of like we are changing the protocol a lot and there is risk in that and I don't think we should. One of the things I admire about Justin Drake is I feel like he doesn't sugarcoat the risks. He's like, these are real risks, we should be transparent about them. But over time if you believe that the right, like the excellent researchers at the Ethereum foundation will kind of like execute these upgrades just like they did the merge. And over time the protocol will have to change less, less and less as it. Right. We've migrated from proof of work to proof of stake. We've migrated to post quantum, we've migrated to the ZK evm. As those changes go through like eth, Ethereum should become more stable over time and then it won't have the same vulnerabilities that bitcoin has in the long run. So I think that's one huge aspect. I think another huge aspect is Bitcoin has just had a very simple narrative. It like decided probably since like the block size war. This is when this culture really got established within the bitcoin community of like that we're never going to change protocol and that we're just going to be a store value and we're not going to be peer to peer electronic cash. Like we're just going to be digital gold. And that's really easy for people to like wrap their head around. Whereas Ethereum has like all these other use cases which is Harder. And then the last thing is kind of like competition, like, like 20, 20, 20, 21. Like, Ethereum just didn't scale. Like, the gas limit didn't change for three years. And that led a huge opening for other competitors, like the Solanas of the world. But it seems like starting really last year, Ethereum kind of got the act together with. Now we see we're gonna scale through, like, mainnet is scaling right through the. We're tripling throughput. Like, every. Every year we have L2s being adopted. So Robinhood and Coinbase are building their L2s on Ethereum. And Ethereum has like 60% market share in defi. In total value locked and which is 10x, like the nearest competitor now. And it's really. It's become clear to people that the core characteristic of a blockchain, the most important property, is sovereignty, right? Like, can people change the protocol? And Wall street is kind of like, understanding this through the lens of counterparty risk. Like, how easy is it for somebody to change the protocol? And like, if you look at something like Solana, which has 800 validators, versus Ethereum, which has, like, almost a million validators, more people are kind of like, realizing that, like, sovereignty is really the most important property and not kind of like transaction speed or some of those things that are just kind of like slower databases.
- [71:30]
B
This is a question, though. Or maybe a critic might say, okay, so if Bitcoin is kind of got some store value, moneyness, monetary premium, right? And then. And then Ether does as well. Well, then you're opening the door to every single crypto asset, you know, down the. The stack to also become a monetary asset. You know, is. Is. Is the door open for a Solana to do this, for a Cardano to do this, for an XRP to do this as well? Any other L1, like, is this just the trajectory that all L1s take? Or is there something different about a Bitcoin and Ethereum?
- [72:08]
D
I think the market's spoken for itself, that there are exactly two crypto assets that are actually credibly neutral, that are actually candidates for store value. Bitcoin was the first, Eth is the second. Others, like Solana have decided to value themselves only on rev or on revenue or on fees. And other L1 blockchains, again, not all blockchains are created equal. Others are. They look a lot like companies. And so coming back to when do you use a DCF? Use a DCF when you're evaluating a company and a lot of L1 blockchains operate as companies, they're centralized, they have a lot of counterparty risk. Ethereum doesn't. And that's quite indisputable across, across the board. Now it is a neutral blockchain that's as global as the Internet. When you look at what people what the most institutional, the most desirable quality for institution is minimal counterparty risk, inability to capture and ability to have high value assets in one ecosystem. It has to be on something like the Internet. No. 1, we always say J.P. morgan won't use Citigroup's blockchain, Bank of America won't use Goldman's blockchain. You need one neutral shelling point. And Ethereum has proven its neutrality. And that's why even during this bear market eth, Bitcoin ratios held up quite spectacularly actually. Where, where ETH is the asset that is rising during, as cream of the crop eth against other altcoins are, is dropping off quite, quite sharply. And I think that when we get into this next wave of bull, people are also going to say when we're going to deploy assets, part are going to be in Bitcoin, part are going to be the eth. And even the recommendations that again coming back to Charles Schwab's recommended portfolio, their recommendation is a two to one ratio of bitcoin to eat. That's a, that's a vast, vast difference than what it used to be. So at some point I think that's going to flip to 50, 50 and then some will start to say, okay, if we want more alpha, maybe this should all be. And that's where this productive money narrative really could start to see legs. And we want to plant the seed right now.
- [74:07]
B
And so for investors who've maybe gotten to this point in the podcast and they hear the point about productive asset a lot and they're still asking themselves, but if you guys like productive assets so much, why not just do the Buffett strategy and buy the S and P? What would you say to them? Why not just buy the S and P?
- [74:24]
A
Yeah, I mean the S and P is a great asset that has performed extremely well over time, but it is not money. Right. Because it's not a bearer instrument. Right. So if you own the S&P 500, you're accepting counterparty risk, right? Your, your stock is stored in your brokerage account, right. And then there's counterparty risk, the company as well there. So it's not really money that you can transact with. So the biggest thing is just that it's not a bearer instrument. So that's what separates like a monetary good where you could take actual possession on it of it without having to rely on a category. So that would be like the big thing. That's different. But yeah, I embollish on the S&P 500 as well.
- [75:02]
B
When you guys think about risk, this thesis that ETH is a store value asset, that's a productive money, what are the core risks to this? What would make this not true?
- [75:13]
A
I think the biggest risk is technical risk probably there's a lot of upgrades in the pipeline over the next three years of the ZKA evm, the post quantum upgrades. I think I'm less concerned that today than I was a couple years ago about competitive risks. I think at this point like Ethereum's network effects are mostly unassailable, right? It's like 60% of DeFi, 60% of stablecoins. That's where the liquidity is, that's where the institutions are. It's becoming consensus for the big institutions, right? You're not going to get fired for picking Ethereum because BlackRock and JP Morgan are there if you're figuring out where to tokenize your assets and like that's where the L2s are building on, right? Like the L2s aren't building on any other chains, right? Like that's where Robinhood, Coinbase are all betting big on Ethereum and they're bringing their user bases there as well. So I think the network effects are pretty much unassailable and I think that's why it's Ethereum's market cap. It's like 10x next nearest competitor.
- [76:09]
D
I think the risk that I would highlight is I always viewed the monetary premium as inevitability once Ethereum's economy is global and universal and the entire global financial system was transacting on it. And I still believe that, I still believe that it becomes very, very apparent that when the whole world's tokenized ETH is the best and most neutral money for that whole ecosystem. So the risk I would see is the first part of that assumption is if the world is not tokenized on Ethereum, if Ethereum is not the backbone for the global financial system and that's, that's what we've been racing for. I, I believe in as encouraged as could be across, I mean global conversation. I mean it was, when we first had our conversation it was hundreds of meetings, now it's thousands of meetings. We are reaching a tipping point where Ethereum becomes inevitable. But the risk is if that doesn't Continue. And something comes and. And usurps ETH as. As the blockchain of choice that would lower that intrinsic value floor. I can sleep at night every night knowing that, okay, the fundamentals are getting so much better. Adoption is becoming so universal, so many assets are coming on chain, that now bringing in the mondair premium is a much easier sell than it was one year ago, two years ago, five years ago.
- [77:21]
B
So in order to get there all the way to 250k, we got a long road ahead. There's a dashboard on productivemoney.org, which actually shows this. Right now, ETH has captured less than 1% of the combined monetary premium of gold and bitcoin because of course, it's $2,200. And in order to get to 250k per ETH, that's a 110x upside. So there's a long way to go to get all the way there. You end the essay like this, Mike. You say the market still treats ETH as a technology bet. But if the arguments in this essay are correct, if ETH is superior in money by the criteria of Menger on saleability and Buffett on productivity, then the logical endpoint is that ETH captures the monetary premium currently held by both gold and bitcoin. And then you lay out that same arithmetic. What has to happen for ETH to capture all of this? Does it just like, is it the economy? Does it just, you know, do. Do the other assets have to fall away? Like, and are we on that path right now?
- [78:29]
A
Yeah. I think the biggest thing is that it just needs to be understood. Right? Like, if you go ask anybody about. Right. Or your average Wall street or about, like, the monetary of eth, they probably wouldn't be able to argue, make a strong argument either way. And that's kind of like why I wrote this report of. I just feel like this isn't really understood and you kind of need. Right. I think people, like, just underestimate the power of ideas and kind of like the written word in, like, I think Sefideen Amos's book, the bitcoin Standard made huge inroads for the. It just laid it out of, like, why bitcoin's better than gold. And then more and more people read it, they spread, they evangelize it to their friends. And then everybody's like, oh, yeah, it's like gold, digital gold. And that narrative took off. And then I view like, price or trends in price as kind of like the spread of an idea. Right. So as a idea that like ETH is worth should capture the monetary premium of Bitcoin and gold spreads to more people. I think you'll see the price reflect that and it kind of makes sense because if you talk to, right. If you talk to 10 people on the street, probably zero would tell you, be able to tell you about the monetary properties of the ethics. Maybe like one or two would be able to tell you about digital gold, right? So it's infinitely more. So I think as this idea spreads to more and more people and people start to call it productive money, I think people underestimate the value of these memes and ideas. I think you'll see the market start to price it.
- [79:51]
B
Vivek, I think Mike is exactly right and I want to leave the last question to you, which is, if all we have to do in order to capture this monetary premium is to have ETH be widely understood by large capital pools, by many billions of people, my question to you is, all right, how do we do that?
- [80:11]
D
That's part of our dual mandate. It's, it's go out and educate and teach. I think coming back to it, there's very few very, very positive sum technologies where a rising tide lifts all boat, where everyone can benefit and it uniquely elevates humanity. And AI is one of them. And we're seeing that network effect hit and everyone can increase productivity and make money and improve their lives from AI. Ethereum is the other one. I mean digitizing assets, giving more access to financial, to financial instruments that typically only banks have access to, creating a whole new economy, creating a whole layer for commerce and creating the infrastructure layer where AI is going to actually transact on. That's all. Ethereum blockchains are the other most positive sum technology ever. ETH right now is the best way to capture that. So when we go out and educate about eth, it's from a place of actually wanting to make the world a better place and to actually spread a new wealth creation tool. And coming back to your question of why not S and P? Again, we're very. S and P is a great, I mean the US economy is great. So the S and P is a great proxy for that. But ETH has a potential 100x in it. If we get the monetary premium and the economy underlying Ethereum starts to keep flourishing and it will. So I don't know, right now it's let's go educate everyone we possibly can. Let's go around the world, talk to institutions as we've been doing, talk to retail, piggyback off Players like Tom Lee and Lubin and Shalom that are all in charge of educating about the narrative. And let's go paint the most positive sum picture we possibly can because everyone can make money on this and own a piece of the next economy. So we're going to be out there doing what we do, knocking on doors with the final form of the narrative for eth. And when it inflects, it's going to be beautiful. And I think it's a long time coming.
- [82:08]
A
And just to quickly add to that point of just like a more tangible example of it was actually your original kind of Ultrasound money podcast with Justin Drake that kind of convinced me because I was like a pretty strong bitcoiner at the time and I didn't own any eth. And I listened to it because I like to hear like different arguments or views that oppose my own. And I was listening to that and I was like, actually that's a really good point. I have no idea how bitcoin is going to solve the declining security budget. Right. Like, there's really two options. It's like you add tail issuance where you remove the 21 million hard cap or you move to proof of stake. And in that scenario you kind of just sacrifice your number one advantage to Ethereum being that you don't change. Right. So once you change it, you might as well just add smart contracts too, right? Which was Satoshi's actual original vision. And then the more. The deeper I went.
- [82:56]
C
So.
- [82:56]
A
Right. Like that's kind of like a good example of I didn't view ETH this money until you. I kind of listened to you guys make very compelling arguments and I was like, oh, the more I thought about it, like ETH actually might be superior to bitcoin on like some like the most important properties. And then as you kind of like learn more, you Right. Like I swapped all my bitcoin to ethics so you kind of see that spread of an idea be reflected in the market price as well.
- [83:19]
B
That's fantastic. You guys are doing this work then right now, Mike with your essay and Vivek and in publishing it. So the website is productivemoney.org Go check that out. Go read Mike's essay. This has been a lot of fun. I think the end message is go forth and educate, go forth and evangelize if we want ETH to grow in prominence as a monetary asset. Vivek, Mike, thank you so much for joining us today.
- [83:44]
C
Thank you guys.
- [83:45]
D
Thanks so much for having us.
- [83:46]
B
Gotta let you know, of course, guys, none of this has been financial advice. Crypto is risky and volatile, including eth. You could lose what you put in. But we are headed west. This is the frontier. It's not for everyone. But we're glad you're with us on the bankless journey. Thanks a lot,
- [84:07]
A
Sam.