Rob’s comments below are in italics.Derek’s comments below are in normal font.

You were just about to launch into a long spiel about Bitcoin and some reservations about it before we started recording. This has stemmed from some revelations about the Epstein files. Shall we start there?

Yeah. There was a very interesting interview released today by James Corbett with Aaron Day. It’s an hour-long conversation that goes into great detail. Anyone who wants that level of detail, I thoroughly recommend it. It also provides quite a lot of clarity about the whole principle of Bitcoin — what it was originally set up to do and what it has evolved into.

Aaron Day has dredged up a whole lot of material from the released Epstein files. It’s really interesting, the range of different things revealed in those files. With three million pages published, even with the redactions, it’s a huge amount of material. There’s a massive open-source collaboration of people going through it to tease out the information, because it’s not at all well organised or indexed.

The area he was focusing on was Epstein’s involvement with Bitcoin — essentially the attack to derail it from its original intention as a fully transparent, peer-to-peer payment method that enabled people to sidestep banks.

Yeah, something you could actually use to buy coffee with.

Yeah, in the early days, it really was possible to do that. There were many traders taking it in various places. It was very strong in Canada, for example, probably in the States as well. It was fast, and there were low transaction fees.

Personally, I had misgivings for reasons of the indirect experience I’d had. My son Leo had the idea of becoming a Bitcoin miner. He was fairly early into it, but not early enough to make it viable.

Originally, the generation and verification of transactions could be done by anybody with a laptop in the early days. If you were the one who verified the latest tranche of transactions, you were rewarded initially with 50 bitcoins, which would of course be worth millions now.

Every so often, the number of coins the miners received as a reward for completing a block decreased. This was touted as a virtue in that the number of bitcoins would eventually be capped. The argument was that this gave it a guaranteed rarity value, unlike pounds, dollars or euros, which can be created by banks and central banks on a whim.

After a while, the amount of computation required grew. Although it was, in principle, possible to do it on any general-purpose computer, it moved to specialised hardware. My son Leo bought one of these pieces of equipment with a view to becoming a Bitcoin miner.

Unfortunately, it took about a year or 18 months to arrive. In the interval between when he bought it and when he received it, the computation needed to stand any chance of verifying a block had escalated greatly. He ran it out in the shed, 24 hours a day. It used so much electricity that it heated the entire shed. As I recall, he attempted this for a few months, during which time he never verified a single block. So he used up a lot of electricity without any benefit.

This is why you get mining pools, isn’t it — where pools of miners share the rewards between everyone in the pool.

Yeah. Now, of course, it’s got to the point where you only receive a fraction of a Bitcoin if you do succeed. Miners can no longer support themselves from the Bitcoin they earn, so they have to charge transaction fees to people using it for purchases.

This has made it extremely expensive. Rather than being much cheaper than using a credit or bank card, it’s become enormously more expensive and therefore impractical for small transactions. Then in 2017, there was a distinct shift towards promoting it not as a regular means of payment, but as a speculation. As we’ve said before, it’s essentially like any other currency exchange speculation — some winners and some losers.

Two things might have evolved Bitcoin into a viable operation. One is if there was such substantial use of it in normal trade that it didn’t get swamped by the wild swings that occur when most transactions are purely speculative. Another thing that might have validated it would be if someone had set up a solid arbitrage system between Bitcoin and gold, which could also have stabilised it.

But to cut to the chase, this interview explained in great detail how Epstein was involved in funding the MIT group of developers, which solidified it in a way that it was no longer going to be what had originally been hoped for. This is definitely something to bear in mind.

Once you’ve separated it from the likelihood of becoming a replacement for fiat currencies — which is what early enthusiasts claimed — it becomes purely a speculative bubble. Just like any other bubble, it’s fuelled by people buying in the hope of selling later at a higher price. This works until people no longer believe the price will continue to rise, at which point it’s likely to plummet.

What I’ve always said is that it may well be worth having a speculative flutter with an amount that is small relative to your overall wealth, which you actually own and haven’t gone into debt to fund. As with any other speculation, it should be smaller than the amount that would cause real pain in the event of a total loss. That remains my position, subject to our usual disclaimers — I’m not making financial advice.

No financial advice here, yes.

So, having said that, that remains the position, even more so having discovered this. My own view of its viability was coloured by observing my son attempting to mine it — this was probably ten years ago, before the shift in emphasis towards purely speculative or store-of-value usage.

The interview with Stephen Keen, the Australian economist, was essentially stating the same thing. He said there was no real solidity to it. The amount of energy used to run the computers was enormous and only going to get larger. That is why the analogy with mining breaks down.

After all, if you sink a gold mine, it takes a lot of energy to dig the hole, excavate it, carry the material out and sort the slag from the gold.

The energy in true mining is front-loaded, isn’t it?

Yeah, but once you’ve done that, if the mine is successful, you have the gold and don’t have to keep piling energy into it. With Bitcoin, energy is indefinitely required to maintain the integrity of the chain. That, in itself, summarises the essential weakness of the whole system.

So once again — if you want a flutter, feel free, but don’t expect to retire on it.

We’ve talked in earlier episodes about the need for money that actually works, money that isn’t just created out of nowhere by a central bank that doesn’t have your interests at heart. So Bitcoin does tick some of those boxes. I also wonder whether Bitcoin has let a genie out of the bottle and got a bunch of people interested in making something work that will actually function as money. It might not be Bitcoin in its current form.

The idea is correct, though: anyone should be able to trade with anyone anywhere in the world using the same unit of measure, whether you’re in the UK or Kenya. You should be able to transact easily and quickly without intermediaries. So there are elements of it that are right.

Yeah.

When the dust settles — assuming society hasn’t destroyed itself in the meantime — before the end of this century, we will have a single global currency. In my opinion, that currency will very likely be calibrated in gold.

That’s what’s been used for thousands of years. There’s a principle called the Lindy Effect, which holds that something that’s been used for a long time is likely to be used for a long time in the future. Whereas something fairly new is unlikely to last far into the future.

The reasons why gold has been a perennial form of money are very sound. There’s a finite amount of it. The rate at which the world’s gold stock changes is small and fairly predictable. It’s universally attractive, durable, divisible and easily verifiable in terms of quality.

The downsides are that it’s hard to take self-custody, and it doesn’t scale well — you can’t go to a shop and hand over a gold bar. So you end up creating derivatives of value, a tokenisation of it. That system is then open to abuse, which is what happens with every single currency ever. They all end up worthless.

Yeah.

So what’s the solution? If we end up back on a global gold-backed system, how do we avoid this tokenisation making it worthless?

It obviously requires somebody to hold the gold securely, with that holding linked to the transactions conducted. For this to work, there needs to be some form of real-time, transparent auditing of the ledger. This is possible in principle. I’m not going to sit here and design a definitive global trading system, but those are the features it would need.

Also covered in that interview was an indication of Epstein’s involvement in setting up the Tether cryptocurrency. Tether is a form of cryptocurrency guaranteed to be backed by dollars. This means the Tether company is required to hold dollars, which they hold in the form of short-dated United States Treasury bonds.

The forces within the US Treasury and the Federal Reserve see this as a way to sell short-dated Treasuries to the Tether Company to back its cryptocurrency. They’re talking about raising two or three trillion through bond sales. They’re hoping this will rake their chestnuts out of the fire as countries around the world, which have been holding Treasury bonds fo...