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The Bitcoin Standard Podcast
324. Apolar Money: Lecture at the Global Economy & Finance Conference in Seoul
01:24:24
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Foreign.
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Principles of Economics. My complete guide to Understanding Economics is now available in hardcover, audiobook and ebook from seifeddin.com, amazon and many more booksellers worldwide. And now I am also teaching a course based on this book on my website seyfeddin.com Principles of Economics will run the whole academic year from September to June and will have a new lecture every two weeks as well as weekly live online discussion seminars open to learners from all over the world and from all walks of life. Whether you're a student, a professional, or a retiree, you are making economic decisions every day and this course will arm you with the wisdom of centuries of economists to improve your economic decision making. You'll also get a free book of Principles of Economics. If you sign up for the course, go to seifeden.com and sign up now. Thank you very much everybody for being here. Thank you so much for the organizers for the invitation. It's a pleasure to be in Seoul. It's only my second time, but I love it more every single time that I visit here and I look forward to coming here more in the future. So in today's talk, I'm going to be discussing Bitcoin and I think I want to thank Professor Reinhart for her talk, which really leads up to my talk in a very nice way. I titled my talk Apolar Money, which I think is a good way of emphasizing the value proposition of Bitcoin, which is that we live in a unipolar world order where the US has the dollar, and when we discuss alternatives, it's either another unipolar world order or a multipolar world order. But Bitcoin offers us something truly new, which is an apolar world order, a monetary world order that is not built around one government having an exorbitant privilege. So I'm going to first begin by identifying some of the main problems with government money, both domestically and internationally. The biggest problem, which I talk about extensively in my books, is inflation. If you look at the last 60 years, the average fiat currency has increased in supply by about 14% per year. The best better fiat currencies like the dollar, the yen and the euro have increased at about 6, 7, 8% per year on average, and the worst ones have gone up by 20, 30, 40, 50% on average. So this is devastating. And of course, the other problem with government money is hyperinflation. Only government money does hyperinflation. As the great Ludwig von Mises used to say, only government can take a perfectly good commodity like paper, sprinkle, some ink on it and make it worthless. That has only happened with government money. It's not happened with any kind of other money in history. So, so what is the implication of high inflation and hyperinflation for the world? Well, the most devastating implication, I would say, is that it has destroyed the ability of people to save, destroyed capital accumulation, and it's also destroyed family formation. Under the gold standard, you just saved in gold. Gold was money and you just held it and it appreciated over time and it held its value. Under fiat, you need to be a part time hedge fund manager in order to be able to just simply keep the wealth that you've already earned by working your job. You can't just be a dentist or an engineer and save. You have to go out there and figure out what stocks and bonds to buy. And that makes you a part time hedge fund manager. And that's of course very difficult because most people can't pick stocks to save for their future. Another way in which people save is that they turn their houses into bank accounts. People use their house as a bank account. And the result of this is that houses keep continuing to become more and more expensive. Everything should be getting cheaper because we're getting better at producing houses. Houses should become more affordable. Instead they're becoming less affordable because houses are not consumer goods today. Houses are saving accounts. And so when a 25 year old couple are looking to buy their first house, they're not just competing with other 25 year old couples looking to buy a new house, they're competing against 65 year old retirees looking for a saving account because their money is broken. Because their money is optimized for financing their government, not for them saving for their own future. So, and then the third thing, of course, we also get massive stock bond and asset bubbles arising from people using those things as savings. Very few people look at balance sheets when they invest in companies anymore. They don't value companies. They just think everything is going to go up. Ultimately they're right because everything's going up because the dollar is going down. And you need to have hard assets that are harder to make than the dollar. And that's what drives all of these bubbles in these assets. They're not valued based on fundamentals because they're valued as money. They're a replacement for money that is broken because of inflation. So other problems of fiat money, it finances war, endless war. It's no coincidence that the century of central banking and fiat money was the century of total war. Under the gold standard, governments fought until they ran out of their own gold. Under the fiat standard, governments fight until their citizens money runs out of value. And that means a much longer Runway for wars. And that's why wars in the 20th century drag on and on and on and on. Look around. Today, nobody in America, or almost nobody in America, thinks about the cost of Iran, of the war in Iran. They just don't think of it as being real because the government just prints money, borrows money and then pays it off with printing money. And citizens don't understand this and they just see their prices rise and they think it's because their local supermarket is being greedy. They don't understand that it is the central bank financing the mass murder of foreigners that is making your groceries more expensive. And of course, fiat money has led to the rise of the omnipotent state government spending and control of the economy exploded in the 20th century because fiat teaches governments that there's no opportunity cost. They have infinite money for meeting whatever needs they want and they don't have to think about the costs. And the most relevant problem with fiat money for today's talk, for today's talk is that fiat money necessarily results in a unipolar world order. Money is a network good, it wants to be one. And network goods tend towards centralization and one network because there are so much more benefits from joining the bigger network than joining the second one. So internationally, the world wants to have one money. So in a world of national currencies, one of these national currencies is going to have to become the global money. And without gold as the neutral basis for global trade, it has to be a national currency that is issued by fiat who supplies completely under the control of the central bank. And this magnifies and adds to the problems of government money, the unipolar money problems separately from the rest of the problems. The first one is what is called the exorbitant privilege the US has where it gets to print money and export it abroad. And I use print figuratively, of course. Most money is digital today, but they export their inflation abroad. People around the world have to buy dollars and dollar based assets and that props up the value of the dollar, allowing the US government to inflate more. There's no nice way of putting it, but effectively the dollar is a way for the US to rob the world. It's not said so blatantly, but that's ultimately what it comes down to. And you know, some of us have problems with that because theft is bad and we believe in quaint things like Morality and so on. And it creates massive problems for the world. It makes the US monetary policy global. Jerome Powell is the world's central banker. He's not just the US's central bankers. Everybody from Korea to Japan to Africa to Latin America has to follow what happens with the Fed in order to just save money. If you're a dentist in Brazil, you need to care about what the US Federal Reserve is doing just to save money. And the US fiscal problem is the world's problem. Everybody is saving in dollar based assets. And dollar based assets are endangered by the insanity of the fiscal spending that the US government has. And that is a problem for the whole world. Now everybody's saving account is linked to the insane policies followed by the people who are in charge of the US government and the US central bank. And of course the other problem is the problem of external imbalances. One government gets to print money. Everybody else needs to use that money. And so therefore that government that prints the money, we witness it deindustrialize and decapitalize. Why would you invest in actual productive business in the us? We? Why would undergraduate students study something like engineering in the US and to try and go and build an actual factory that makes things when you can just do financial engineering and just sit behind the keyboard and move fake money around and get to print more money and benefit from the money printer? That's essentially what most of the US economy fundamentally does these days is just inflation arbitrage is how do we find a way to get ourselves closer to the money printer so that I can benefit myself? Why would you work? You know, if you look at the American universities today, undergraduates want to go into all of these fake fields of basically living off of printed money. And it forces the rest of the world to work hard and produce in order to pay the dollar inflation tax to the us. It also finances US hegemony. Essentially we live in a world order where the US has bound by no rules because it has a money printer. If you had a money printer in your basement and you could print Korean wands in your basement, you're going to live differently from people who don't have a money printer. You have the ability to do whatever you want that face no consequences. And that really is the best way to understand U.S. behavior in the world today. Under Trump, it's taken to extreme lengths, but it's always been the case. This notion that we live in a rules based world order is obviously ridiculous. It's not rules based, it's fiat based. It's based entirely on the will of the U.S. government. And it allows the U.S. government to have enormous control over the rest of the world's payments and money. And that allows them to impose sanctions, and that allows them to impose the unipolar world order in everything, because they're the only military that can print money, whereas everybody else needs to earn their dollar. The unipolar world order has been a problem since the 1970s. Now, you could say it is falling apart now, and the war in Iran might be a tipping point. I think it is really significant. I mean, you know, people have been saying this for a while, and Professor Reinhart said, you know, this is. A lot of people have cried wolf about the end of the dollar and the end of global US hegemony. But, you know, if there were a lot of wolves showing up, a lot of people would be crying wolves as well. It takes time for the wolves to get to your home. So I think we could see that the Iran war was a major turning point in this, because the idea had always been marketed that the US Is out there providing stability and safety and security and protecting you from enemies. And that's just becoming more and more untenable, because for more and more countries, the real enemy that they really need to be worrying about at this point is the US Whether it's their trade tariffs and all of the crazy policies that get imposed capriciously by Trump whenever he grabs his phone and starts tweeting, or if it's the war. I think the war was just an enormous, big problem for the majority of the world's countries because their economies are heavily dependent on oil that comes from the Gulf. And that was just completely ignored by Trump, who went along with the war without any concern for his allies, without any consultation for what they would expect, and without any strategy for dealing with the Strait of Hormuz. Netanyahu suckered him into the war because of Israel. And now the world has to contend with the fact that the US Government is not a sane government that is even looking out for its own interest. It's essentially a puppet government for the Israelis that's sacrificing all of the US allies, sacrificing the global world economy, sacrificing the US Dollar system in order to allow Benjamin Netanyahu and his fundamentalists to steal more land from Palestinians and Lebanese and Syrians. This is essentially what it comes down to. And I think Korea here is a very interesting example. Because the USA withdrew the Thaad batteries from Korea, and Korea had gone through a major diplomatic crisis. With China in order to install those defenses here in the us. And then the US just ran out of batteries in the Middle east because they had thought, because Netanyahu had convinced them that the war was going to be over in three days. And then, oops, it wasn't over. Now we need more defenses. So they just let Korea lose the Thaad missiles and they took it. And now Korea is in a problem because it's losing its security guarantee from the us. And its economy's biggest threat is US foreign policy. So this puts Korea in a very interesting position when now the Korean government is considering negotiating with Iran directly and going behind the US's back to secure its oil. And if you think about it, it really makes a lot of sense. So this really puts the entire US sanctions regime against Iran in question. Countries now have a lot of incentive to deal with Iran, which they didn't have before the war, which is just another example of the enormous geopolitical impotence of this current US regime. And this, I think the real key thing here is that this just makes holding dollars and Treasuries less attractive. As Professor Reinhart explained, the things that make the dollar the global reserve currency. I think perhaps the most important is the fact that the global Treasuries market is the world's largest and most liquid market. And therefore that's where real money wants to go. That's where sovereign wealth funds and that's where central banks want to have their liquidity because they want to come in and out of large markets with a large liquidity. But now we have the political case for trying to diversify away from the US dollar Treasuries. And also we have the economic case which is the US dollar Treasuries are a terrible financial asset. If you've invested in US dollar Treasuries over the last five years, congratulations, you've donated half of your wealth roughly to financing the US government's operations. It's a terrible, terrible thing. And the idea that it is risk free is a joke at this point. So the world needs an alternative. What can it be? I think Professor Reinhardt did a great job by explaining why none of the other alternatives in offered by governments can do the job. The yuan, I think quite simply, China clearly doesn't want this, which is why they don't have capital markets that are open and they don't have convertibility. So China doesn't want to replace the dollar. The Euro you could say is just a dollar proxy. As long as European countries are so dependent on the US and they're essentially the puppet states of the US and the idea that the Euro is going to challenge the dollar, I think is very far fetched. But more importantly, the real issue is that if you replace the dollar with another national currency, you don't solve the problem, you just replace the problem with an identical problem. If we have a yuan, then all of the problems that we have with the dollar as a reserve currency will be repeated with the yuan as a global reserve currency. So the only workable solution is a neutral asset controlled by no government or central bank. Gold provided this in the 19th century, which is essentially why goods and gold flowed across borders at the discretion of their owners. There was no trade imbalance in the 19th century. People didn't worry about trade imbalances. Goods went from France to Germany when French people wanted to sell things to Germans, and money went from Germany to France when German people wanted to do that. And nobody needed to keep track of how much gold and how much money was going there. It's just another good that's moving around. And there was no fundamental problem of imbalance. You didn't have to balance trade and money because money was a fixed commodity just like all the other commodities. Whereas now when money is just a fake loyalty scheme for the government, its value is fluctuating with trade. And so the monetary policy has to try and balance the trade policies. And that's essentially the internal, the, the function of the IMF and the World bank and the World Trade Organization who are all there to do what the gold standard did spontaneously. It achieved it without central banks or without international financial institutions who are failing at achieving what the gold standard did. But why did gold fail? Why do we no longer use gold? Well, it wasn't gold that failed, it was us who failed. It was us because we essentially governments. I shouldn't say we, I wasn't around. But governments wouldn't let people use a form of money that they can't inflate because they wanted to finance war. And the reason that they could stop gold is because they could stop gold. They had the ability to stop people from using gold because gold is physical and it needs to be centralized. And a modern economy where trade keeps moving at a faster pace across the world and at a faster speed, it becomes difficult to move physical gold every time you want to transact with people. So people started using secondary instruments instead of gold. And that led to the centralization of gold in central banks, which then made it easy for governments to just one day say, okay, your paper is no Longer redeemable for gold because of war or whatever. And it's only temporary, but, you know, it's been going on for 120 years now, almost. So a gold standard, because of its centralization, devolves into a government credit standard. Gold is too slow for a modern economy. Goods move faster than gold. Well, bitcoin is the solution to this. Bitcoin automates and improves on the functions of a central bank and can function as a neutral global money. The two key properties of bitcoin that make it really important as far as I'm concerned, is its scarcity and its digital settlement scarcity. Bitcoin supply is fixed, making its monetary policy essentially perfect and apolitical. It's the best monetary policy in the world. We're just dealing with another few decades or about a century of a little bit more inflation. But bitcoin's monetary policy is to take inflation to zero. And by inflation, I mean supply growth. And that's the best monetary policy imaginable. You don't need to create more money in order for the economy to grow. The value of money can just go up. And that's what bitcoin does. And that is an enormously important point which I think most economists miss, because they haven't really thought through the implications, which is what we're going to do now. Now, the second important property of bitcoin is that it offers digital final settlement. Bitcoin settlement network is global in its operations, independent of any national authority. You can send money from Korea to Brazil using bitcoin without having to go through central banks, or without your government or the Brazilian government even finding out that this is happening or taking place. So the fact that it is essentially a digital form of final settlement makes it similar to cash, makes it similar to gold, but its scarcity makes it even better than gold. So the fact that it can't be inflated, there's no central bank, it can't finance war in governments with inflation. That's a feature, not a bug. A lot of the economists, when they complain about bitcoin, they say, oh, no, but if we have bitcoin as money, how are we going to finance the government? Exactly. You can't finance the government with inflation. You need to learn to be a responsible adult and try and find, try and spend less than you earn and try and find a way to earn that doesn't involve you devaluing the money of everybody else. It's going to. Is that going to harm governments? Absolutely. It's going to limit their ability to control their citizens. And that's a good thing. But another thing as an economic asset is that Bitcoin can be used as a saving asset, freeing houses to go back to being a consumer good than a saving account. Going back to the original problem that I mentioned. So people can just save in bitcoin rather than saving in stocks and bonds and things that they don't understand and saving in houses. That makes it more and more expensive. But most significantly to the topic of this presentation is that Bitcoin is apolar money. It's independent of all monetary policy. It doesn't provide any country with benefits at the expense of another. Nobody has a bitcoin printer that they can use to devalue the wealth of others. It can be used by everyone and it can be banned by no one. Nobody can stop you from using Bitcoin. It's completely transparent and apolitical. And it allows everybody in the world the freedom to engage in trade and capitalism regardless of their politics. If your government does something that pisses off the Trump administration, you can still trade with the rest of the world. You don't have to be held hostage by all of these governments controlling your banks and central banks. Essentially Bitcoin separates money from politics. And I think this is a hugely important development. It's important here to note, you know, we have Stablecoins, we have CBDCs, we have other fintechs and they remain dependent on state currencies and regulated intermediaries. They may be able to modernize consumer payments, but Bitcoin is completely different. Bitcoin is not here to replace Western union or bank transfers or or PayPal or Venmo or credit cards. Bitcoin is replacing the base layer of the monetary system. It's replacing the system of settlement between central banks and large financial institutions. And it's replacing the monetary policy that is conducted by central banks and instead replacing it with an algorithm that is predictable and transparent and everybody in the world can use it. So we are essentially removing a manual, political, partial, common, corrupt, unjust, unipolar system with an electronically automatic, apolitical, impartial, just a polar system. Bitcoin essentially would replace the aggression based, fiat world order with a rules based Bitcoin global order. Now I'm sure most of you are thinking here, who is this guy and what military he thinks is going to impose on the world the use of Bitcoin? And the answer is I'm not here to tell you what to do. I'm not here to force you to do it. I don't Have a military. I'm not going to shoot anybody and you can shoot me and it won't make a difference. I'm here to explain economic reality. Bitcoin will win not because it's a political choice. Bitcoin will win not because politicians are going to be convinced. There will be no grand treaties, there will be no negotiations, there will be no voting on these things. This will be imposed through the force of economic incentives. Bitcoin will win in the same way that computers replaced typewriters. It's just a better technology. We didn't need to ban typewriters. We didn't need to fight typewriter factories. We just made typewriters obsolete. And bitcoin has made central banks obsolete because it is infinitely better money. And the reason for that is that is quite simple. Bitcoin holds value. Other monies lose it. When Professor Reinhardt concluded her remarks, he said, well, you know, we've heard this before in the past, the dollar has depreciated. Other currencies appreciate against the dollar, but it didn't really work out in the long run. Yes, true. However, before bitcoin, all of the alternatives were government monies and they were all essentially backed by the dollar. They're all essentially, as I like to call, fiat currencies that are not the dollar I essentially call them. It's the dollar plus country risk. It's really no value added to the dollar. So the dollar is not going to lose to an inferior version of itself because all of these fiat currencies are constantly being developed, valued and losing their value. Whereas with bitcoin, it's a very different story because bitcoin holds its value, appreciates over time, and there's no mechanism for it to become more inflationary. If the German deutsche mark was going to become a replacement and threat to the dollar, the US Government can saddle the Germans with a bunch of incompetent European governments that place fiscal strains on it and then make the mark unusable. Nobody can do that with bitcoin. Nobody can find a way to make more bitcoin. We're always going to be stuck with 21 million bitcoin. And that just means that bitcoin is going to hold its value and increase in value, whereas all the other forms of money are just going to decline. And this is what's been going on for 17 years of Bitcoin's existence. And really all that bitcoin needs to do over the next 17 years is have 1% of the growth rate that it has had over the past 17 years. And it will become larger in terms of capitalization than all of the world's fiat currencies combined. Roughly. Bitcoin is already at about $1.8 trillion as an asset. Now, if you keep adding another 20, 30% per year, which is, you know, Bitcoin's done 70% a year over the last 10 years. Let's just say 10% per year over the last. Over the next 15, 20 years, Bitcoin becomes larger than the Treasury's market. It becomes the most liquid market in the world. It becomes the best asset in the world. And everybody will want to hold bitcoin in that world. And bitcoin is just going to appreciate more and more and it's going to become the real economy. Whereas fiat governments and fiat currencies are going to increasingly lose and lose and lose value until they become an economically insignificant part of the world economy. In a sense, bitcoin is a technological solution to a political and economic problem. Human ingenuity has finally found a way to free itself from inflation. Thank you very much. Now we are honored to have Professor Kang and Dr. Saipad Amos.
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Professor Amos, thank you very much for the exciting and thought broken presentation. Okay, I have a question. Okay. You are one of the foundational thinkers of the bitcoin, and you view bitcoin not just as a financial asset or technology, but also an institution or like system on which we can build a new global financial order. Right? So, okay, so because you are in Korea, so in order to institutionalizing, institutionalize bitcoin in South Korea, what do you suggest and why?
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Yeah, that's a great question. I think the, you know, the reality of bitcoin's rise can be a little counterintuitive in that if you try and impose policies against bitcoin, if you try and put restrictions on bitcoin, then you may be promoting it, and that might actually increase the need for people to want to use it. So generally, if you find yourself in a country where the government is talking about banning bitcoin, that's the biggest signal that you should be buying bitcoin. That's just the general answer in general. But I think here in Korea, Korea has maybe one of the most favorable regulatory frameworks for digital assets, which I think has helped make them quite popular in this country. I think the most important regulatory thing that can be done to help the advancement of bitcoin would be to just stop putting capital gains tax on it. If you let people use it freely without capital gains tax, I believe it will naturally Rise into the role of money. And even if you put capital gains tax, I don't think you can stop this fundamental process. It's just going to slow it down a little bit because people are making less gains from buying bitcoin. But over time, bitcoin is just going to continue to appreciate. And I think it's ultimately, you know, money is a good of liquidity. You want the money that has the largest liquidity. And the reason that gold became money in the first place is not because the central bank made it gold. It's not because the government decreed it. Gold has been money before all of the world's governments existed. And it has outlived all of the world's governments that have died. And it continues whether they accept it or not. The reason gold became money is that it developed the largest cash balances in the world. And the reason it developed the largest cash balances in the world is because its supply is very, very conservative in its increase. It increases at about 1 1/2 to 2% per year. So it's the least inflationary commodity and that makes it naturally money. And I believe that same thing is going to happen with Bitcoin. And so the, I think any government that wants to win the future and wants to have a long term perspective on things will not focus on the short term impact of whatever disruptive issues can happen from Bitcoin. You're not going to want to protect the typewriter industry by destroying the computer industry. I think this is the dangerous thing that governments fall into right now. You need to understand that the potential of the computer is so enormous that it makes it better even for the typewriter owners to have typewriters replace computers. And I think this is, this is the lesson that the government should think about when thinking of bitcoin.
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Okay, in the long run maybe bitcoin would win. But in the short term or mid term future, okay, There are many possibilities. As you know, the dollar currently dollar center the system is in many terror. People believe there are some challenges to dala center the system. So what is your prediction for the short or mid term future? And then depending on scenario, what could Korea can do?
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Now.
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Okay, Professor Amos, you are from the birthplace of human civilization and that the bond contract is. Is a tale as all this time.
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I'm sorry, I didn't hear that.
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A
As a Bond contract, the debt, that bond contract is a tale as old as time, like a human civilization. So it is possibly older than the FIA money itself. Actually, let me focus on the financing world with the fiat money. That is very refreshing perspective basically. But thing is that about 300 years ago, maybe first Venice issued a bond to build a naval force to fight against Byzantine Empire. And then England, like England also they used government debt to finance war against France. So that was before Fiamon and very old. So even if we take bitcoin standard, the bitcoin standard still, we may not solve the kind of problem. Okay, how do you think?
- [35:49]
B
Yeah, so I think, you know, as an economist, I like to think marginally, I'd like to think not in terms of absolutes. It's not as if, you know, we're going to press a button and then all war will end. I think there's a clear difference. If you look at wars before the 20th century on the gold standard and you compare them to wars on the 20th century under the fiat standard, there is a clear difference in financing war. Yes, governments could issue bonds before, but how did they pay back those bonds? Taxation. They had to collect taxes and taxes had to be collected in gold because they couldn't print gold. And so that meant a much higher degree of fiscal responsibility was required in that world than is required today. You know, and at no point in the discussion of the war in Iraq or the war in Iran has anyone in the US ever brought the question of the cost of the war into serious discussion. Only years into the war in Iraq, after it became clear that the initial estimate by neocons of oh, maybe $0 or $1 billion or this is going to pay for itself, when that became clearly fake and then it turned out that the war cost 8, $3 trillion, only then did people start to talk about it. So only after the bill comes, it's, you know, you order the war and you're lied to and told that it's going to cost you anything because it's okay, because we have a money printer, it doesn't matter. And then the bill arrives years later through financial crises and inflation. You know, not many people draw the connection between the Iraq war and the US financial crisis in 2008. But it is a very obvious connection because the inflation that led to that financial crisis, a big part of it was to finance the massacre of Iraqis by the Israel, by the American government. So these, these are highly related. And I think under a gold standard you'd get a lot of this. Now it's It's a more complicated argument that I make in more detail in my second book, the Fiat Standard, and in Principles of Economics, my third book. But I would say that. So if we go back to gold, we would have less. Go, less war, less war financing, and war would be a lot more. Or governments would be a lot more responsible about how they fought wars and they'd be a lot more careful about their resources. But I would even go further and say that a bitcoin standard would be a lot more conservative than even a gold standard. And the reason for that ultimately comes down to the fact that under a gold standard, because gold was centralized still, governments could get away with a significant amount of inflation. In 1914, when World War I started, the amount of gold that was held at the bank of England was only sufficient to cover 31% of the value of British pounds outstanding. So already in 1914, we were already effectively on a fiat standard. Yes, gold was redeemable at the bank of England. Sorry, the pound was redeemable for gold at the bank of England, but the majority of pounds were spread out all over the world, and they weren't going to all go back and ask for redemption at the same date. That's because it's very expensive. If you were an Indian bank and you had a bunch of British pounds, it was good that you had them. But if you wanted to withdraw them and take gold custody, well, it's months to send the paper to London and then send the gold back. And so it's extremely expensive and it's extremely unlikely to happen. And therefore, that allows the central bank to engage in a lot of inflation. And that's why World War I effectively started on the gold standard, because central banks had that ability. I think bitcoin takes that away because it makes the transaction that you need to redeem your money for the hard asset, which is gold or Bitcoin, it makes it a lot cheaper. So currently, if you're in India and you want to redeem Bitcoin from your bank in Britain, it costs maybe 10 cents and about a couple of hours. If you wanted to redeem gold, it costs thousands and thousands of dollars and several days to be able to, or maybe weeks or months. You know, when, when France recently asked or Germany to repatriate some of their gold from New York, it took months to move it to Germany. And when France tried to do the same thing, they just decided, okay, we're not going to move it, we're going to sell it in the US and we're going to buy new gold in France or London. So I think the key thing is the saleability across space. As I describe it in fiat, it's the ability of the money to be sold quickly so that people can move, move in and out of the money before their government can impose inflation on them. And that's why I believe that a bitcoin standard will be even more crippling of government finances, which is a blessing for humanity. It's really going to be the solution to the major problem that humanity has had for the past century or so.
- [40:30]
A
Okay, I, I like your argument. Very interesting. One thing is that Korea is a bit special. It is in geopolitically tension or geopolitically sensitive place in South Korea. So just in case, just thinking we may issue war bond. We may have to issue bond or use fiat system to finance war or very extreme situations in the case, maybe because we have to prepare that kind of situation always because we are Korean. So we have a challenge to offsetting the bitcoin standard, per your recommendation. How do you think?
- [41:14]
B
Yeah, well, I think the, the idea that inflation helps a government finance national defense is a complete fallacy. And it's built on the ultimate Keynesian fallacy, which is that a money printer can create actual resources. But that's not true. If you print more money, you're not creating more resources, you're not making more weapons, you're not making more capital goods. The amount of capital goods that exist in Korea today right now is not going to change if the central bank goes and prints a trillion won in this minute. Right. We still have the same exact amount of machines. And all that happens when you create more money is that you reallocate the resources. The people who get those trillion wons now can go up and buy a lot of capital. Is that creating new capital? No, it's redistributing the capital. So I think this is really one of the fundamental economic fallacies of the entire fiat century, which is that once we get the money into the hands of the government, then we can have a free lunch. Oh, you want to fight a war? Then it doesn't matter. We just print a bunch of money. Nothing happens. We go, we fight the war. Five years later, there's inflation and a financial crisis. Oh, well, that's because of reasons. There has not been to do with us printing all of the money. So if you recognize that this is a fallacy, if you recognize that you can't actually create resources from nothing, if you recognize that a money printer making more Money is just devaluing the money. It's not increasing the value of capital goods or increasing the productivity of capital goods, then you realize that inflation is not a way to finance war. If you have a war and you want to move resources, the resources are already there. Printing money is not going to increase the resources. It's a question of mobilizing the resources. And you can mobilize resources by physically capturing them. If you were a government, you just go and take a factory and use it to produce weapons. Or you can mobilize resources by taxing people, take money from people directly. We need $1,000 from each household to fight the war. And if people feel like this is a serious threat, they will do it. And if they don't feel like it's a serious threat and they don't want to pay the $1,000, good, maybe that isn't a war that they need to be fighting. Maybe Americans don't need to pay $8 trillion to bring democracy to Iraq or whatever it is that Bibi Netanyahu is telling them. Maybe they shouldn't. Maybe the fact that the government can't finance these wars is a good thing. And that's it. That's the answer. The answer is if it was a real war and South Korea really needed resources to fight a real war, then South Korea will be able to get its people to mobilize their resources without a problem. But if it's a war of aggression that is going to cost South Koreans money that brings them no benefit, but only helps maybe the government or some people connected to the government, then, yeah, it's good that the government can't print money and send people to war. I think governments, I think war should be something that is extremely difficult to engage in. It has to really win the approval of people. And that can only be expressed not through voting. Because you saw, you know, the majority of Americans opposed Iran and they voted for the con artist Trump, because he said that he was going to fight, not fight, the war on Iran. And then look how that worked out. So it needs to be financial. It needs to. If the American government had to present, had to pay for its war up front, it would have had to tell people how much the war would cost. And that would be the kind of honest accounting that Bitcoin would bring. And if that cripples governments from fighting, fighting wars, that's a good thing. That's not a bad thing. Now for a quick word from our sponsors. The Bitcoin Standard podcast is brought to you by the safehouse.com, my independent publisher and bookshop selling the best bitcoin books and high quality cloth hardcovers built to last for generations. Most books these days are pretty fiat. They're flimsy and they fall apart quickly and I did not want that for my books. So I set up the Safe House especially to provide provide you with beautiful, long lasting classic cloth hardcovers you can proudly pass down for generations. You can get copies of my three books, the Bitcoin Standard, the Fiat Standard and Principles of Economics. And you can also get copies of Lyn Alden's Broken Money, Parker Lewis Gradually Then Suddenly and Matthew Lishiak's Fiat Food, to which I contributed a few chapters. 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- [46:41]
A
Fascinating. Okay, about 20 years ago I was at Lehman Brothers. It didn't end well, of course. Okay, just in case, let's assume we are in the financial crisis again because of the bubble burst which may result from fiat currency possibly. Okay, suppose we are in another financial crisis and then asset prices go down. Then many financial institutions should deleverage. There are two ways of deleveraging sell asset. But if we sell asset that you create vicious cycle it would be a fire sale and in macroeconomic term it will deepen the crisis. Another one is to increase equity. But you know, increasing equity is quite sticky. It is not always easy then because at the time, 20 years ago, because we have fiat money. So fiat money. Well, it is, we can create fiat money and then we can inject the fiat money to the equity side so we can do deleveraging and we can get over financial crisis. So in some sense, well, elastic fiance, money system is elastic. So which can be useful in financial crisis. On the other end, bitcoin, as you mentioned there is mechanically determined. Total supply is mechanically determined. So it is not elastic, which can be broaden or liability in the financial crisis. So we need a risk management system. If we take the Bitcoin standard, how do you think?
- [48:23]
B
Well, I think this is a little bit like saying alcohol. Quitting alcohol is not a good way of fighting a hangover, because if you have a hangover, you need to drink to get over the hangover. It gets over your withdrawal. And so therefore how do you fight hangovers if you don't drink? And the answer is, if you don't drink, you don't get hangovers in the first place. So the problems of finance, the problems of financial crises, I believe, are fundamentally a product of the fact that the money is elastic, the money is broken. Fiat money is fundamentally broken because its supply is constantly being manipulated by central banks and that makes it dysfunctional as money. And that dysfunction manifests in all of these financial crises, which the priests of inflation don't like to link to inflation. So it's always, you know, imbalances and weird abstract nouns that cause crises, animal spirits or global rebalancing or something like that. All of these abstract nouns are the causes of financial crises that are actually caused by inflation. Inflation. And I get into this in more detail in my work and I urge people to look into the Austrian school and their explanations of inflation and the implications of inflation. But the short answer is this. If the government can't increase the money supply and it can't manipulate the money supply, then whatever financial crisis we're going to get are essentially going to be individual and not systemic. So a bank might engage in fraud, a bank might lose its business, a bank might make a very bad investment, the bank might be ruined because an earthquake happened, and then everybody who's dealing with this bank is going to take a haircut. But it's not going to be something systematic because nobody is going to destroy the currency in order to bail out that bank. And that's what the moral hazard at the heart of fiat money Is is that ultimately we. Having a money printer means that banks and people who are connected to centers of power are very, very, very welcome to make extremely disastrous mistakes because those disastrous mistakes are highly lucrative. And generally when you find people repeatedly making the same kind of extremely stupid mistake that happens to be extremely lucrative for them every time they make it, maybe it's time to assume that maybe it's not a mistake, maybe it's a feature, not a bug, because it's great. If you're working in the banking system, the more inflation you engage in, the more you destroy the currency, the more risk you take, the more profit you take. However that takes on more risk, which then can lead to a crisis. But it's okay because you have a central bank whose job is to prevent crisis. It's out there to protect you from the consequences of your actions. And why can't it engage in such reckless behavior? Because it has a money printer. Get rid of the money printer. Central bank can't bail out banks. All the banks that try stupid things and that try fraudulent things and the try inflationary things, they go out of business and nobody can save them. So what does that do? Within a few years we're going to have a very, very, very robust banking system in which people don't take crazy risks, in which people are very careful because they realize if you lose your money, you lose your money. There are no do overs. Bitcoin is money for adults, it's for grownups. Fiat is money for children, it's play doh. Money. It's fake. It's all lines in the sand. Oh, you lost $70 billion because you didn't do right. Risk management, that's okay, you're systemic. Here's another $70 billion. Go and play again. It's children's money. It's not real money. But Bitcoin is real money. And that's why we're going to have fiscal and monetary responsibility on Bitcoin and not on fiat.
- [52:06]
A
I have several interesting questions from the audience. Okay, One of them is the question is from Kim Ja Kyunim. The question is Bitcoin is volatile asset. I'm sorry, Bitcoin is volatile. Bitcoin prices is volatile. It fluctuates a lot. So because of the volatility, is it really feasible to use it as a key currency? Okay, how did.
- [52:30]
B
Not currently. But I think the interesting question here is why is it volatile and how can we imagine that volatility going away? And in fact, if you look historically, the volatility has been declining we have 17 years of data and we see clear trend in the decline in volatility. And I think there's a clear way of understanding why volatility exists. Volatility exists because bitcoin is still a small asset. It's only $1.8 trillion. And so if Elon Musk wakes up tomorrow and says, I want to buy $10 billion worth of Bitcoin, that's going to be a big deal. That's huge compared to the size of the bitcoin market. And it's going to affect a lot of people going in and out of the bitcoin market. If it wakes up the next week and says, you know what? I don't believe in this bitcoin thing anymore, I'm going to sell my bitcoin, that's going to cause volatility in the price. So clearly the volatility is suboptimal. And if anybody has a way of designing a bitcoin that appreciates as quickly as bitcoin appreciates without the volatility making the appreciation perfectly predictable, you know, we just do 20% a year. That's it. And it goes up in a straight line. Please go ahead and do it. But currently we don't have that option. And there is no way of doing it, as far as I can tell. I think there are very good technological and technical reasons for why such an intervention is not feasible in the first place. So then we're left with the real choices. We're not here in an academic setting where we're discussing how we would like our actual choices to be. We have real choices in the world. We have bitcoin, which appreciates enormously in the long term, but is highly volatile in the short term. And then we have fiat, which depreciates in the short, in, sorry, in the long term, but appears to be stable in the short term. So it's really, I think, a question of mentality, a question of time horizon, and a question of intelligence. Which one would you rather have? Would you rather lose all of your money steadily or would you rather gain value with some volatility? I think the answer is very clear. And I think, you know, of course, the volatility right now reduces the amount of exposure that people can have to bitcoin. So if you, if you get into bitcoin today and you learn about bitcoin today, you probably shouldn't go all in to bitcoin because of the volatility. It can work out well because bitcoin can just shoot up afterwards. But most Likely for most people. If you get in today, there's going to be be some volatility, and it can be very dangerous. If Bitcoin drops 50%, which is done before then, you know, you go all in, you lose 50%, you have to sell a few months later because you need to meet some bills. So now you are in a position where you have to sell at a loss. So you want to manage your exposure. I think this is why essentially the process is taking longer because we need to manage the exposure of getting in. But I still believe the process is essentially inevitable because as people get in, the value goes up. And as it goes up, as the size of the bitcoin market and the size of bitcoin liquidity increases, the volatility declines. So right now, Elon Musk can move the price of bitcoin, but in five, ten years, he won't. And even if he announces that he wants to buy or sell, it's not going to make a difference. Bitcoin is going to be much larger. It'll be governments that can move the price then. But then another five, 10 years, governments won't be able to do it. So think of it this way. If bitcoin becomes a $100 trillion market in terms of capitalization, that would make it larger than the US treasury market, larger than all fiat currencies combined. If that were the case, then the volatility will disappear. And the evidence that I would provide for that is look at gold. How did gold lose its volatility? How did gold become so remarkably or un. Or I wouldn't say stable, but not unstable in that it's maintained its value very well over the many decades and centuries and millennia even. And that's not because there was a central bank that was managing the gold supply. Anyone can mine gold. Anyone can sell gold. Anyone can buy gold. Why did it become so stable, relatively to all other assets? Why is it held onto its value so well for centuries and millennia? We look at prices of goods under the Romans in terms of gold, and they haven't changed much since. Today, wheat has barely changed in terms of gold over thousands of years. How did it maintain that stability? It's not because somebody was managing the supply. It's because the supply was growing at the lowest rate, which made its value increase, which made its pool of capital increase, which made it the most liquid good, which made it the money, which made the variation in its prices due to individual transactions become smaller and smaller and smaller, effectively. Think of it as being the bid ask, spread the More liquidity there is in a market. The smaller the bid ask spread and the smaller the bid ask spread for an asset, the more suitable it is as a money. So Bitcoin is still not big enough and suitable enough and stable enough for it to be used as the world's money. It'll need to do another 10, 20, 30, 40, 40x before we get to that. Until then, this is the opportunity. Until then, you're getting to buy Bitcoin, essentially like a startup seed capital. You're investing in Uber when it was five guys in a basement with the idea that one day this is going to replace most of the world's taxis and that that's an enormous market right now. Bitcoin hasn't replaced the globe's central banks, but that's the business idea, that's the startup idea here. By buying into Bitcoin, you're essentially buying into shares of the alternative monetary system that's going to replace central banks. And it's a bet that 50 years from now, or five years from now, or 10 years from now, this monetary system will be larger than what it is now. It's a bet that is panned out for everybody who's taken it so far. And I expect it to continue to pan out. Because unless you can figure out a way to make more, more bitcoin than the 21 million, then this is just inevitable. We're going to be making more dollars, more euros, more yuans, more wands, more everything. Everything's going to be created in larger quantities. Everything is going to be inflated in supply. There will be more treasury bonds, there will be more corporate bonds, there will be more stocks, there will be more of everything. Everything's going to be created in increasing quantities. And the one thing that we can't make more of is Bitcoin. And that makes it necessarily the best money. You may not like it, but eventually you're going to have to accept it.
- [58:55]
A
Okay, another interesting question from the audience. Okay, the question is, okay, I think everyone would agree that whether they agree with you or not, many people think that current financial, global financial system needs serious upgrade. Of course. Okay, but sorry, I didn't quite. Current financial system, global financial system need upgrade. Okay, yeah, serious upgrade. But thing is that in order for Bitcoin or any others to become an alternative, you need trust. Because as you wrote in your first book, where bitcoin is institution and money is also social device, it is basically social coordination mechanism and then network effect should work. I use, then the other people use the other people Use, then I will use. So that kind of network system should work. And for the system to work, we need trust in the system. So some people believe that bitcoin needs to build more trust to become an alternative. So, okay, in order to do that, and what is your recommendation and what is your view?
- [60:08]
B
I think this is similar to when cars arrived at isolated areas. And initially, you know, can you imagine when my great grandfather, your great grandfather, when they first saw a car for the first time in their life, they must have thought, this is crazy. There must be some ghosts inside it. There must be some monsters inside it. How does this thing move? Where are the horses? Who's hiding the horses? And the answer is people need to just see more cars and get into cars and see that there are no magic horses. There are no ghosts. There is no. You just put a bit of fuel and it works. It's a mechanical machine. And eventually people are able to catch on. You see a bike, you figure out how it works. You start riding a bike. You see a car, you figure it out. You see a computer, you figure it out. And bitcoin is like that. And that's really. When people say trust, it's just, it's. It's not about trusting it, it's about understanding it. You don't trust a bicycle. You just understand that if this thing is constructed properly, then if I press my foot here, then the thing will move forward. It's a mechanical process. And with Bitcoin, I think a good metaphor to understand what bitcoin does to money and banking is to think about telephones. Back in the day, I'm old enough to remember, when I was a kid, there was a time when if you wanted to call somebody, you didn't just. Just press the numbers on the phone. You lifted the phone. And then the guy at the central spot, central station, he would talk to you, and you tell him, I want to talk to that person. And then he would take a wire, connect it to your house, and connect it to his house, and then put your two together, and then the two of you can talk. And of course, he can listen in if he wants to. And this, I think, is a great metaphor for modern central banks. We actually have human beings sitting in rooms and deciding whether this person can pay that person or that person cannot pay that person. And they decide how much money should exist. Which in a hundred years from now, people are going to look at this as being insane. Like, why do we need somebody to sit in an office and tell us we need this much money? Any quantity of money is enough. The value of money changes to accommodate whatever demand exists. You don't need to increase the supply. So the notion that we need to trust in people to manage the money and in order to manage the bank is a function of inferior technology. Just like we needed at a certain point to trust in people to connect the wires for us to call each other. Eventually we found a way, technological way, where you just press a bunch of buttons on the phone and then that connects you directly to the guy, to the other guy over time. Any technological invention that saves human time is going to succeed. You know, if you asked people, hey, you can get into the car, which is a little bit faster than a horse, but it can blow up and you will die in a fire. You would think nobody's gonna want to do that, right? But when a car is available, a car can save you time. People will take the risk of dying in a horrible fire if it saves them time. So that's why it doesn't matter whether people trust or don't trust or what they think about. Whether we need to keep the guy and the telephone operator in, in a business, whether we need to protect the jobs of the telephone operators, whether the telephone operator is a geopolitically important national security job doesn't matter. It's going to be replaced by buttons and mechanical processes because it's infinitely more efficient. And similarly to central banks, people. I think what people need to do to trust Bitcoin is to just continue to open their eyes and look at how manual money is managed by central banks and what it does, and then look at how automatic, technologically advanced money is managed, which is Bitcoin, which has a fixed supply which nobody can change, which nobody can control, nobody can manipulate. And essentially, you don't need to trust anybody. The whole point of Bitcoin is that it's. You know, the slogan that Bitcoin is always used is verify, don't trust, doesn't matter what you trust. You run the entire code base of Bitcoin on your own computer, and that allows you to see every single satin, every single tiny fraction of a Bitcoin, where it exists, who holds it, and how they're trading it with one another. And you don't need to trust in anybody. You can verify the entire code, which is not the same thing as with government money. Who here knows how the central bank actually works? Most people in the central bank don't quite understand how the central bank works. I'm pretty sure nobody could build a central bank from scratch. If they tried to. A lot of people can build a bitcoin node from scratch. They know because the code is all transparent. So I think in retrospect the technological gap is going to look so large and I think people are, you know, the only question is why did it take people so long to upgrade from Bitcoin from fiat to Bitcoin? And I think the answer is simply that the volatility and the government propaganda, government does a great job of trying to tell people we need inflation, we need inflation, we need inflation, we need inflation. It's going to take a while for people to get over that. But you know, the good thing about Bitcoin is that it doesn't need pr. It just has what we call number go up, the value goes up and the price is available, everyone, for everyone to check. And people can see that the price keeps going up. You can remain obstinate and stubborn about it for as long as you want. But you know, if you don't want to be poor, you need to accept reality.
- [65:15]
A
Okay, another question. Okay, this question is from Yoon Hyun Jun from LGU plus. Okay, the question, I read the question, it is written in English. So comparing Bitcoin's adoption to gunfire compounder rather than the iPhone is the most pivotal game theoretic insight presented in the Bitcoin standard. And then I compared completely agree with it. My question is regarding the catalyst for the explosive transition to Bitcoin standard. Do you believe this transition will be triggered top down driven by macro triggers such as the Dala Hegemon accumulating Bitcoin as a reserve asset or through geopolitical crisis? Or will it emerge bottom up like crossing a critical threshold as the masses naturally adopt it to escape inflation and reclaim financial sovereignty?
- [66:21]
B
Yeah, it's a, it's a very good question. I think if you asked me when I wrote the Bitcoin standard, I would have said that Bitcoin will emerge organically, bottoms up, people will hold Bitcoin and the bank value of Bitcoin will appreciate and people who hold other assets will witness those assets go away. And so we'll have a much more spontaneous emergence. Over the last eight years since I wrote the book, I would say there has been more official and institutional and state adoption than I would have expected. And there has been probably less widespread adoption among people than I would have expected. So I probably tend more. I mean I would say I think the possibility of top down adoption is probably more likely than I used to view it in the past. But I struggle to really choose between the two, because it's very difficult to think how this will map out. So one way it can map out is that we could just continue with this gradual process which most people don't notice, but most people don't understand, most economists don't notice. But it is a true shift in that, you know, we only. It's only $1.6 trillion in Bitcoin right now. But if this continues, then bitcoin is going to be serious money. You know, a trillion here, trillion there. Eventually. It's a very, very big financial asset. So we could just continue with this. But I think. I think there may be some kind of geopolitical turning point. And it may come at a point, may come as a result of, say, a collapse in the value of the dollar, a massive decline in the value of the dollar that forces people to, or forces some large institutions to think seriously about an alternative. And some of them arrive at bitcoin and that can be a major tipping point. But, you know, I don't have a crystal ball, so I don't know. I think. I think my base case scenario is we're just going to continue at around 20, 30, 40% per year for the next 10, 20 years. And that means Bitcoin dominates by 20 years and it becomes the world's money in 20 years or so. But I'm very open to the possibility that somewhere along the line there will be massive kicks upward where we go through a very fast phase of adoption because a government adopts it or because a large financial institution uses it, or because a payment system is built around it, or something like that.
- [68:46]
A
You are heavily influenced by Austrian school. And then as far as I know, Austrian school highlight the productive use of money. They highlight real economy, always, right? And then current Korean government, one of their interest is, one of their problem is how to make Korean financial system them more productive, more contributing to the real economy. Do you have any suggestion, especially in connection to the crypto and bitcoin?
- [69:23]
B
I think the best way to make the financial system more efficient is to kill inflation. I think the best thing that you could do in Korea is to just wake up and say, all right, no more wands will ever be printed. Break the money printer and keep the supply of wands fixed. I think the next thing that will happen, what will happen the next day, is that the value of the yuan will probably double. Remember in Iraq in 2003 when the US military bombed the Iraqi central bank, what did that do to the Iraqi dinar? Does anybody know? It doubled in value Overnight it was about 5,000 Iraqi dinars per US dollar. Once the central bank was bombed, it dropped to 2,500. Why? Because if you kill the central bank, you can't make more money. So that increases the value of the money. So I think, you know, my advice to any government is shut down your central bank or at the very least make it just a mechanism for processing payments and take away its ability to create money. Keep the fixed money supply that you have, don't increase the supply and let the people in the banks just scrap for this money and which will increase its value. It'll make everybody in the country richer. But the, this is the kind of more general advice, but in terms of Bitcoin, I think the real correct approach for Bitcoin, whether you're an individual or an institution or a government, is to build your cash balances conservatively, but as quickly as you can. So don't expose yourself to too much volatility. Don't put yourself in a position where you could be Destroyed by a 30, 40, 50% percent drawdown in Bitcoin. If a 50 or 70, 80% drawdown in Bitcoin can destroy your business or destroy your finances as an individual, then you're over allocated. Reduce your allocation to Bitcoin and wait until it grows through the appreciation of Bitcoin, until you're able to have a bigger and bigger position so that even an 80% drawdown doesn't hurt you. So accumulate larger reserves. And that is going to protect you whether you're a Korean individual, whether you're Korean in business or you're a Korean central bank. If you're a Korean central bank, you're now looking at the US Treasuries that you're holding and think about all the risks. I mean, really, the U.S. treasury people call it risk free. And I think it's hilarious because the US treasury is just the accumulation of all the world's biggest risks. It's already lost 50% in terms of dollars over the last five years or so. And the dollar has lost something like 20% of its real value over the last five years, conservatively. So basically, government bonds are just a terrible, terrible, terrible investment. And that's what most central banks hold. That's what most sovereign wealth funds hold. So if you care about the future of Koreans, then you don't want to be holding things that are designed to rob them. You want to be holding things that are designed to hold on to their value. And so I would suggest whether it's the central bank, the Central government, regional governments, provincial governments, cities, everybody build your bitcoin cash balance. Because everything else is going to be destroyed and everything else is highly vulnerable. On top of all the financial risks associated with treasuries, there's also the other most more important risk now happening, which is the politicization of them. It was the Biden administration that was froze the Russian bank holdings, they also froze Afghanistani bank holdings. And you know, that was Biden. Now imagine with Trump and with his, how shall we put it, activist way of approaching the presidency. It's not too difficult to imagine that tomorrow you get a new tweet from Trump saying, oh, the Koreans are negotiating with the Iranians about passage of the. We're just going to take all of their treasuries. I mean, it's a really serious risk. And the more inflationary the US becomes, the more the treasuries are risky as a financial asset, but also the more they're risky as a political asset because the US is essentially lashing out like a bankrupt power because it's losing power, it's losing influence, it's losing money and its money is, and its fiscal and monetary position are terrible. It needs, it needs to prey on something and that something might be you. So you want to diversify away from these kind of US dollar based financial systems. I think that's everybody is over allocated to the dollars. No matter how much dollars you have, you are probably over allocated. And I think that really is the most consequential long term position that you could move. You know, you don't have to dump all of your treasuries today, but if you start building a small bitcoin position today, in 10 years time, the bitcoin position could be significant enough that it will allow a significant amount of political freedom for the Korean government to be able to conduct its foreign policy as it sees fit without having to be held hostage to the Americans.
- [74:09]
A
Okay, our time is up, but I want to take one question from floor. Do you have any question anyone?
- [74:18]
B
Yes there, please give him a microphone.
- [74:23]
C
Hello, my name is Kyle. I'm from one of the largest central exchange, crypto Central exchange called Coin1. First of all, thank you so much for your speed. As a bitcoin Mexican myself, I could not agree more on everything you said. So I have a question that's kind of paradoxical to the Bitcoin concept. And this is something that I couldn't solve myself. So do you see any possibility of being Bitcoin being the most powerful surveillance and censorship platform because of its transparency. So I joined this industry because of the concept of decentralization of sensor free ness, of course. But ironically, blockchain is exposed to everybody. And you would think that government would hate blockchain because they would not be able to control however the information is spread and is exposed to everybody. And as the blockchain and bitcoin and cryptocurrency becomes more huge part of the traditional finances, I would assume that majority of the wallet addresses will be KYC'd and many countries will execute travel rules. Right. And even though they cannot block the transactions right away, they, I believe they still can label one of certain transactions or funds as illicit if they want to. And if none of the compliant exchanges or institutions would allow or take those funds as is tainted. Right. They can obviously have a very effective censorship on those if they're able to block all the on and off channels. So in that sense, do you think there's any possibility that blockchain can actually become more powerful surveillance system that any traditional finance system has ever seen before?
- [76:28]
B
Yeah, I think that's a very good question. I think, you know, initially, if you read some of the early bitcoiners, some of the early promotional material that people built for bitcoin, a lot of it was based on the idea that bitcoin was, was free, instant and anonymous. And I think those three things have not survived the test of time. Initially, transactions on bitcoin were free because you didn't have to pay transaction fees because the miners were making enough money from the rewards. And so a lot of people promoted bitcoin is free. And then they said instant, you know, because yes, it does show up in your wallet instantly when somebody sends you money. But no, they actually, they, you need some confirmations and you can't take money without confirmation. So it's at least 10, 20 minutes to get the first confirmation. But you should probably wait for more. So it's more like an hour. So bitcoin is not free, it's not instant. And the third one was anonymity. And I think a lot of bitcoiners imagine that this would be the case because there's no, there's no form of identity on the bitcoin blockchain. There's no KYC for bitcoin. You don't need to upload your passport until a computer in order to get bitcoin. And so people assume that we're just going to get this massive economy grow around addresses and nobody will be able to know what those addresses are. But over time that's also proven to be mistaken. And I think in retrospect it kind of makes sense. You do have a record of transactions. All that bitcoin does. All that you do when you download the bitcoin software is download the record of all the transactions. Every single satoshi that has ever existed. You know, it's every single transaction that it's had. So you have a full record of every transaction that has taken place. And then I think the, perhaps the thing that the early bitcoiners didn't appreciate was just how much money was going to come into bitcoin from kyc. And this is something that was very surprising for me when I first heard about bitcoin. It was I think maybe 2011 or 2012, 2013, there wasn't a lot of material about bitcoin. But I immediately assumed this was going to be something criminalized. They're going to lock those people up and put them in Guantanamo. And it's, you know, I wouldn't, I wouldn't dare send my information to a bitcoin exchange because I wouldn't want my name to be associated with bitcoin in any way. And that turned out to be the most expensive mistake of my life because I could have bought bitcoin at like $1 and less than a dollar and $5 and $10. But I thought, no, no, no, if I buy it, they're going to throw me in jail and if I buy, they're going to link it to my identity. And then around 3, 20, 13, 14, 15, 16, you start realizing, well, hang on a second, everybody's got money on an exchange and it's linked to their identity. And then chain analysis companies emerge whose job it is to link addresses to identities. And now they claim at this point that something like 80, 90% of the coins, they're able to identify the ownership of them. And I think that's probably a reasonable estimate. I don't have my own estimates, but, but I think that's probably reasonable just because think about the way that bitcoin works as it currently stands. The vast majority of people get their bitcoin from KYC sources. So then we know that this bitcoin is yours. Now you may go ahead and spend that bitcoin, but then there are ways of figuring out where you spent it because more and more addresses are getting the anonymized and so more and more of the transactions are being linked. And I think, you know, with AI and powerful data analytics that only going to get stronger. And the record of transaction is only going to stay there. It's not going to get forgotten. We're not going to, you know, five years later, we just erase all the record of the earlier transactions. It's all there and it's always going to be there. And we're only going to de anonymize more and more and more addresses with time as we figure out more and more information about it. So I think the idea of anonymity on bitcoin on on chain is likely massively overstated. And you know what I would say? What I always say is if you're a criminal, stick to the US dollar. It's the criminal tried and tested currency of choice. You know, the real criminals use US dollars. If you want to buy some weed from somebody, maybe you'd use bitcoin. But I really wouldn't even advise it for anything because you're leaving a permanent record. So if you're committing a crime, you're leaving a permanent record of that crime on, on thousands of computers around the world. That's a terrible way to do crime. Now I'm not a criminal myself, but I presume in criminal school they'll teach you don't leave a record on thousands of computers around the world if you want to commit a crime. And you know, all of the talk about bitcoin being for crime is I think massively overblown because of this. You know, we have some small time weed sellers who were buying and selling weed with bitcoin. A lot of them got caught and got thrown in jail. But you know, the serious crime, the serious criminal activity, it doesn't work with bitcoin. If you want serious criminal activity, you want to be in the fiat system. In fact, you want to have your own bank. That's really how the pros do it. You own JP Morgan, you own hsbc. That's where the cartels go. That's where the massive money goes. You want to have your own bank because when you have your own back, you can create your own money. And that's how you get away with crime. You create your own money. You make fake loans, you destroy the loans, you pay them off. That's how these pros operate. And you can't do any of that on bitcoin. So I think we're heading toward a world in which more and more of the on chain bitcoin is identified. However, we're going to probably be able to develop more privacy solutions on Lightning which already exist and a lot of people use them and a lot of people are able to operate on lightning with an enormous amount of anonymity, but it requires some technical competence. I think over time it's going to be more and more and more accessible. But I like this idea. I like the idea that a bitcoin on chain is. Is traceable. Because I imagine that bitcoin on chain as I described in the Bitcoin standard, you know, Bitcoin does, on chain does basic capacity is half a million transactions. Maybe we can push it to 1 million or 2 million, which is, you know, not enough for a small neighborhood in Seoul maybe, or half of Seoul per day. Seoul has many more transactions than 1 million in a day. So the whole world obviously is not going to do all of its transactions on these on chain transactions and Bitcoin. I think you can think of bitcoin transactions being equivalent to Fed wire transfer or large amounts of transfers between, between large financial institutions. And for that you actually want transparency. You actually want to know every satoshi and who owns it. So I think this is actually ideal. If governments had to. If governments and large financial institutions and central banks were the ones operating on chain in Bitcoin because they're the ones making large value transactions whereas everybody else was using lightning for their day to day transactions, then we'd be able to develop a regular. Probably we'd be able to develop some degree of privacy. Although it's a very complicated question in terms of lightning and how much we can get to it, difficult to say. But we probably will be able to have some margin for privacy. But then banks and governments won't have any margin for privacy because all of their transactions will be on chain. And so you'll be able to hold them to account a lot better. Imagine if your government instead of having a money printer where it can just make money whenever it wants. What, at what, whatever quantity it wants. Imagine instead of that, it had all of its accounts public and every cent that they send was, or every satoshi that they sent was actually transparent and every citizen could see it. I think that's a good thing. It's turning the tables. Yes. It's not going to. It's not that it's going to give us anonymity. It's going to take anonymity away from government and it's going to take anonymity away from the people who control money, who print money and who essentially live off of devaluing the money of others.
- [84:10]
A
Excellent. Let's call it an end. Okay. Please join me to thank Professor Safedin Amos for his interesting, exciting and inspiring presentation and discussion.
- [84:23]
B
Thank you very much.