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The "What is Money?" Show
Bitcoin Economics and Evolution | The Saylor Series | Episode 16 (WiM062)
01:29:31
Michael Saylor joins me to discuss anthropology, energy, and technology from first principles as we build the intellectual foundation necessary to truly grasp the historic significance of Bitcoin.
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- [00:09]
A
We we just finished discussing the proof of work mining network and the seven layers of security, Energy, technology, politics, finance, the network itself, the spatial security, the temporal security. What you have is you have bitcoin as a decentralized crypto asset network. The thing that pops up a lot is the question of what does energy usage look like over time and is energy usage going to keep increasing as the price of bitcoin increases? I've seen commentary on this. I think a lot of people get it wrong. They seem to think that as the price of bitcoin increases, the energy usage will increase linearly. If there's 100x increase in Bitcoin price, there's 100x increase in energy usage. I think it's just worthwhile to make the observation that over the past 10 years the mining network has gone from being energy intensive to being technology intensive. Another way to say it is in every single industry you go from being labor intensive to capital intensive. When we started with a million people sewing or farming, it was a labor intensive activity. As the capital equipment gets better, first you have horses and carts and ox carts, and then you have tractors, then you have mega tractors, then you have factories. All of a sudden the amount of labor matters a lot less and the amount of capital equipment matters a lot more. There's a time when 90% of the country was farmers and now just 1 or 2% of the people in the country produce all the food. It's because it's become technology intensive. The bitcoin network is similar in that exception. Substitute for labor energy and substitute for capital technology. And we go back 10 years. It probably took 100 times as much energy to generate an exahash as it is right now. An S19 takes 30 megawatts per exahash, but an S9 takes 150 megawatts an exahash. So you have a 5x improvement energy efficiency over one generation of equipment. Where like on the seventh generation of mining equipment, if you go back two or three generations, then you, you get that 100x improve increase in energy intensity. If you look at where we are today and you go forward 10 years, it's it's reasonable to expect that you will get improvements in efficiency from three dynamics. You've got halvings in the protocol and we have one every four years. So that means that over the course of a decade you have a 5x increase in efficiency from the halvings. Then if you have a 4x increase in energy efficiency and you get it twice, or a 5x and a 4x. You get a 20x increase over two more generations of hardware, and now you've got a 20x times a 5x or about 100x increase in efficiency. So bitcoin price could go up by 100 and the network efficiency would go up by 100 and the energy consumption could be flat. That's an important thing to keep in mind because people sometimes think, well, energy is used to secure the network. No, it's crypto energy. It's encrypted energy that's used to secure the network. In order to get it from raw energy to crypto energy, you have to run it through a SHA256 miner that's properly engineered in a heat sink. As the heat engineering improves, the miners get more efficient. And as the semiconductor technology for ASICS improves, the miners get more efficient. What you have in that dynamic is never ending. Struggle between brute force and technique reminds you of something like nature and competition. There's two ways to do things. You either use raw labor or you use technology. And it's important to have that dynamic or that yin and yang. Because when the technologists get lazy and they stop improving, then the raw material or the brute force overwhelms and the control of the network shifts back to the energy holders. But to the extent that the technologists upgrade their engineering facilities, their heat technology, their chip technology, then the energy becomes less important, the technology becomes more important, and the combination of both of these things require capital, free flowing capital. And in a free market, the capital is continually seeking the best use. Should I invest money in creating the next generation of Shaw 256 miners? Should I invest money in engineering a more efficient bitcoin mine with immersion cooling? Should I invest money in commercializing more energy or plugging in more energy and just manufacturing the same design over and over again? What you have is this nice delicate dance or balance of power. But a model you can think of is when we first started bitcoin mining, it was all energy intensive. We're using off the shelf computer equipment and you were throwing raw power and raw commodity materials added, it's rotated through a set of generations of hashing equipment. Now you need energy, but the limiting factor is not really the energy. The limiting factor on generating hashes is the mining rigs. And maybe you could say the limiting factors on doing this well, is the mining rigs properly installed in a mining center with the right cooling technology, and if you look forward another decade, you'll see it's going to be much more technical intensive and you could have all the energy in the world, but you're not going to be able to generate crypto hashes. The break even point of an S19 is like 40 cents a kilowatt hour. You could pay 40 cents a kilowatt hour for electricity and make money. The break even point for an S9 is 8 or 9 cents kilowatt hour. If you have 20 cent power, you can't make money. You got to turn it off. The break even point for the generation of equipment before that is like 2 cents a kilowatt hour. You can't pay 3, you got to turn it off. And the generation before that, you're down to half a penny a kilowatt hour. So if you're looking to run antiquated equipment to generate hashes, you have to be stealing the power. If you have free energy and it's literally stolen or it's given away, you can run 8 year old or 5 year old equipment. But if you're paying your way, you have to run modern equipment. This is a dynamic model, but it's important because it's a dynamic evolution of the sophistication of the bitcoin security network that has Darwinian overtones. Because the bitcoin miner that just buys a bunch of equipment five years ago and stops upgrading becomes obsolete. You won't last 10 years without equipment. Your break even point becomes a tenth of a penny after, once you're three or four generations behind. This is like nature healing itself. It's a very natural process. If you're out of touch and you're 1,000 miles away, the free market somewhere else is going to keep moving the state of the art forward. And should you isolate yourself, you will find that you can't generate enough hash power to participate. And the revenues and the transaction fees, and it's the network's way of simply squeezing you off the network. Now what that means is Bitcoin miners are organic creatures with a negative feedback loop. In essence a market mechanism. The difficulty adjustment is not just tactically, every two weeks in the protocol, the difficulty adjustment is in the market because if you don't upgrade your hardware every four years, you become uncompetitive. And you can't upgrade your hardware every four years unless you are responsible custodian of your capital. If you spend all your money, if you didn't save any money, if you're not trustworthy, if you don't have credit, you can't buy any equipment. And so to stay competitive on the bitcoin network, you have to be credit worthy. You have to be competent and you have to be credible. Someone that has the technology has to be willing to sell to you. I would say that the dynamic nature of the network is you have this competition between minor operations and the technology providers and the energy sources and the political jurisdictions. And you have to be upgrading and you probably need to be improving your efficiency by a factor of one and a half or two every year. You're subject to Moore's law and this competitive Darwinian pressure. The result of that is energy. Energy consumption is going to fall per exahash. We'll go from 150 megawatts and exahash to 30 megawatts and exahash to 5 megawatts in exahash to 1 megawatt and exahash to half a megawatt. You know, and on down, we're just going to move, move down this efficiency curve. You could imagine if I gave you this supercomputer the size of a sugar cube. Look at the amount of power on modern semiconductors. Think about what's in the latest iPhone chip. We just keep compressing computing power and we find a way. Human ingenuity is like that. They will keep finding a way to create more hash power using better technique. That suggests that energy consumption will probably increase nonlinearly with the log of the price. If the price goes up by a factor of 10, energy consumption might go up by a factor of two or two and a half or three. At some point you start to think you will roll over, you'll peak. We might have already done it. You peak energy consumption and then you taper off or it holds constant as the hash rate increases. And instead of a bitcoin miner spending half of their budget on energy, you roll over to spending half of your budget on capital. You're buying capital and amortizing it. And pretty soon your variable cost on Energy is 5% and 40% is capital equipment. And what you've got is not an energy war to see who controls the network. You've got a technology war to see who controls the network. And why is that good? Well, because energy is a raw material in the universe. But seventh generation SHA256 miners, our specialty equipment, right? Everybody on earth can find some energy and throw it at the problem. But. But you know, throwing the 11th generation of SHA256 mining equipment at the problem is something that probably no one's going to be able to do unless they spent a decade or two decades engineering that equipment and thinking about it. So you have a specialization in the same way that John Deere tractors are specialized after 100 years. And you know, if you, if you went back to a farmer in 1850 and you describe what a farmer in 2020 can do, right? It's like night and day, right? That's what's going on with the network. So I think it's, it's self healing, self sealing, self correcting and the combination of the Darwinian and Adam Smith capitalist competition is critical advantage for Bitcoin versus say a proof of stake network. Because in proof of stake network you pretty much turn off energy competition, you turn off semiconductor competition and innovation, you turn off engineering and heat engineering innovation, you turn off capital financial competition, you turn off the political element. And that means that I can get fat, dumb and happy, just, I can just post a billion worth of my tokens and go to sleep for a decade. And no one's trying to make the network better. So it's not being tested, there's no stressing of it. And ultimately the problem with that is you're going to suffer an integrity and durability.
- [15:12]
B
Right? So we're again at this point where the bitcoin mining network itself is a free market in and unto itself and it reflects many of these properties of capitalism. So there's this yin and yang, I guess of efficiency and magnitude going back and forth. And to your point, that's reflected in many markets historically where we shift from labor intensity to capital intensity. And this basically means that the capital, as it becomes more plentiful and effective at amplifying labor, you need less labor to accomplish the same results. This is a natural capitalistic progression. Let me ask you this, the useful life of a miner, I'm not sure what that is.
- [15:57]
A
Maybe it varies four to five years.
- [16:00]
B
Four to five years. So we have the older generations rolling to cheaper energy to remain in the marketplace.
- [16:07]
A
Newer generations, steel energy, right. If I, if I can bootleg energy then I can run old generation miners profitably because my variable cost is zero.
- [16:15]
B
Right. And then so newer generations would then be allocated to more expensive energy resources initially. Does this then are we, is this an aspect of the gradually increasing fully amortized cost to produce each bitcoin because there's more capex? I mean maybe the capex opex mix is changing, but the overall cost to produce each bitcoin is rising which is putting upward pressure on its price in the marketplace. Is that another way to look at this?
- [16:48]
A
That's not clear to me. What's the price of energy? Is it going up or going down? Maybe the price of energy is going up and then it's going down.
- [16:59]
B
Yes.
- [17:01]
A
What's the price of semiconductors? Is it going up or is it going down?
- [17:05]
B
Right.
- [17:06]
A
Well, sometimes it's going up. It's going up if there's a monopoly on the semiconductor chips and then it's going down when someone else enters the market. And our intel chip, a 386 chip is pretty cheap now, right?
- [17:21]
B
Yeah.
- [17:22]
A
So chip prices are coming down but the next generation is going up and, but again it's a competitive thing. What's the price of semiconductors? Well, if there's only one provider and as a monopoly then you could say, well the price of your semiconductors is going to go up every generation forever. And cost of bitcoin mining is going to go up. But there isn't one semiconductor company, there's multiple. If there is one. We're back to Jeff Bezos statement. Your margin is my opportunity.
- [17:52]
B
Yeah.
- [17:54]
A
Bitcoin is an open market for mining. So anybody can engineer a SHA 256 chip. Anybody? There is no one type of Bitcoin miner. There are people slapping these things in the back of trucks and driving them around and plugging them into bootleg power lines. Right. It's not very efficient. There are people that slap 500 bitcoin miners into a container and they just drop it on top of a pad. Does it work? Sure it does. Is it properly heat engineered? No. Does it get hot? Very. What's the consequences of running hot? You have to turn off the mining equipment some of the time so you lose efficiency and they burn out. And their useful life is not four years, it's three years, it's two years. There's a competition here, just like there's competition for energy. Will energy go up forever? No. I mean energy could go to zero. Right. If I invent coal fusion, will semiconductors go up forever? No, they'll go up until at some point Bitmain, they raised their prices and then everybody started talking to Intel. You go to another semiconductor company and you say, well look, Bitmain's triple their prices and now you can make this much and now you draw somebody else into the space.
- [19:22]
B
Yes.
- [19:23]
A
So I think that there's going to be, there's a dynamic equilibrium between the engineering and the semiconductor and the energy. And the best capitalized companies, they can buy the new equipment like the publicly traded North American companies, they will go and buy all the new shiny equipment and poorly capitalized companies will run the old equipment and then you will roll forward like that.
- [19:55]
B
So let Me. Okay.
- [19:57]
A
It's not clear to me how much it will cost to create a bitcoin. Yes, right. Because I mean that's a function of. Well, if we. Look, maybe the profitability of bitcoin is a function of the rate at which we add hash power versus the rate at which we add bitcoin holders. If we increase the number of bitcoin holders by a factor of 10 and we increase the hash power by a factor of two, then the profitability and the revenue per exahash is going to go up by a factor of five. Right. If we increase the exahash by a factor of 10 and the holders by a factor of 2, the profitability is going to deteriorate. The profitability of the bitcoin mining is going to have an impact on the rate of development of bitcoin mining. Semiconductor caps. Right.
- [20:50]
B
So here's what I was saying is that every. So the total opex and capex going into the bitcoin network at a halving that total allocation of expense goes from producing, call it 900 bitcoin per day to 400.
- [21:06]
A
The revenue gets cut about in half, not quite.
- [21:09]
B
So the production cost per bitcoin is effectively doubled. And then my thinking was that this higher cost to produce each bitcoin is actually incentivizing miners to hold. They don't want to sell below cost of production. So that's what's bootstrapping bitcoin's price upward.
- [21:28]
A
Yeah, I can see once every four years the energy cost doubles. But if once every four years I upgrade the equipment and it's five times faster. Now the question is how much did you pay for the equipment?
- [21:49]
B
Right. Yes. Okay.
- [21:52]
A
And the answer is if you paid a lot for the equipment and now amortize the cost of the equipment into the cost of the bitcoin and you got an answer. But that's a price that a vendor charges you, which could be triple or half depending upon the competition and a very competitive market. Well, let's say it a different way. Like if, if you're buying intel grade 38646 chips and slopping them into your home appliance, what is the price of the intelligence that you put inside your toaster as a percentage of the cost of the toaster? It's pretty cheap, right? I mean like at some point the cost of intelligence starts to drop because it's a commodity market. AMD drove down the prices. And so everybody can put intelligence into their appliance because of competition. If there was no competition, it might Go the opposite way. I think that the protocol guarantees us through halvings that we're going to have to get five times as efficient every decade. But the other dynamics, like the rate of technology advance, go even faster and they're just as much. And I do agree with you on this one idea. We're in a gold rush right now, or a bitcoin rush, call it. Between now and 2035 and 2035, we'll have mined 99% of the Bitcoin.
- [23:27]
B
Right.
- [23:28]
A
So you've got 14 years. And during the 14 years, the block rewards are pretty high, relatively speaking. And so it's very lucrative to be in the business, but the business is going to become less profitable, likely. At the very least, we know it's going to rotate into a transaction fee business. So instead of 90% block reward, 10% transaction fee, you could expect 90% transaction fee, 10% block reward. The transaction fees are also going to scale more likely with the log of the price not linear to the price. If I want to move a million dollars, I might pay you 10 bucks. And if I want to move $10 million, I would pay $12, but I'm not going to pay $100. I'm just going to overbid the million dollar buyer. And what I want to, if I want to move $50 million, I'll bid $14. So the transaction fees will increase with the, with the number of transactions on the base layer and that'll be a dynamic but the block rewards go away. And so if you're a bitcoin miner, it's a very lucrative, high growth business right now, but it will move toward an efficient transaction security network later. And you would do well to buy bitcoin. That's why it makes sense to hodl bitcoin if you're a bitcoin miner, because it's your hedge. It's a hedge against two things. It's a hedge against the inevitable protocol, which is the protocol says bitcoin mining is going to get 90% less lucrative over the course of. Right. Cut in half once, cut in half twice. Right. Over the course of 12 years, you get cut in half three times. So it's a hedge against that, but that's a long term. It's also a hedge against the near term hash rate explosion. If you're mining bitcoin right now, and if somebody comes out of the blue and they bring a lot of hash rate on the network faster than you expected, then your market share gets cut. In that situation, bitcoin may win if everybody believes bitcoin's going to win and there's a flood of people that enter the mining business you want to own Bitcoin mining is going to get competitive. Bitcoin's going to get more valuable. So you definitely don't want to be in a situation where you mine bitcoin, you sell all your bitcoin for cash and then you're, you know, in that case, you're attempting to run a cash business in 16 years when the revenue has been cut in half four times. Right, right. And, and presumably if you cut 100 to 50, to 25 to 12 to 6, when you're generating 6% of the revenue and everybody else has had 12 years or 16 years to get in the game, it's going to be more of a commodity business. Now, that's not to say that a bitcoin miner can't compete and evolve. It may be a great business. Then too, it may be that bitcoin miners evolved be running lightning nodes or running layer 2 platforms of other sorts. It might be that as a bitcoin miner, you have a huge bitcoin treasury and then you can generate yield on. Might be that there are other applications. We'll talk about some. It's very logical for bitcoin miners maybe to get into some of these other application areas that will pop up in time. And there are technology possibilities here. So I would say the illogical thing to do in business is you don't worry about what happens 16 to 20 years out. If you can make a ton of money now, I mean, you might very well make enough money now to have 10, 20, 30, $100 billion of capital, then at which point you can go buy something else to get you in the business. And my other point I guess here is yes, it's true bitcoin miners should keep bitcoin, but it's also true that non bitcoin miners should keep bitcoin. If you believe in bitcoin, then the logic follows that no matter what business you are in, if you have operating income, you should invest in bitcoin. And if you are able to generate financing, if you can raise debt or equity, then you should also raise debt and invest that in bitcoin. So that would be the case for, for other companies like MicroStrategy looks at it that way. We're not even a bitcoin miner. That's my thought on the bitcoin mining network and the dynamic model over time. I think that some people intentionally misunderstand this, like people that are like proof of stakers. They intentionally misunderstand it. Because if they misunderstand it, then they can assume that energy consumption is linear and then they can, you know, play the ESG card and pretend that they're, you know, they could do their virtue signaling and say they're doing something good for the environment because they're not using energy. But the truth is they're not using energy, nor are they using technology. They're not using hardware technology, engineering technology or energy, nor are they submitting their network to competition. And they're not using external capital, political or financial. What they're doing is they're creating a protocol, a virtual protocol in order to create security. And even there, if you're going to rely upon a virtual protocol to create security, you'd be better off to stake the protocol with an asset that is outside of the network, that is external to the network. So for example, the lightning network makes a lot more sense because it's staked with bitcoin than if it was staked with lightning coin.
- [29:54]
B
Right? Yeah. And it's again paying the revenues for services rendered, which is actually the routing of transactions versus just how much bitcoin you hold. It's not how it works. I think this is a key point here, is that the proof of work, energy expenditure is actually transforming what would just be kind of video game asset into a macroeconomic asset. There's a real, it's creating a vortex in the real world.
- [30:22]
A
Yes. Yeah, yeah. It's your connection to thermodynamic reality and socio political reality.
- [30:34]
B
Exactly.
- [30:34]
A
You can't be in denial of those two.
- [30:36]
B
Yes.
- [30:38]
A
What people think of you matters. If the person is the police officer on the beat or runs the country, what they think of you matters.
- [30:46]
B
Yes.
- [30:47]
A
And what nature thinks of you matters. If you decide to step off a cliff by looking the wrong way, Nature's opinion matters, whether or not you respect nature or not. And so it's very important that if you're building something that you want to last for a thousand years, you respect politics and you respect thermodynamics and you respect physics.
- [31:12]
B
Yes.
- [31:12]
A
And proof of work is this very creative invention to continually connect and synchronize the bitcoin network with political, physical reality.
- [31:30]
B
Yeah.
- [31:30]
A
It's holding never ending evolution. Every four years, every two years, new miner, a new chip, a new place, a new thing. Throw away the old. The, you know, you have to. The old generation has to die so the new generation can form, so that the creature can evolve.
- [31:50]
B
Right.
- [31:51]
A
Otherwise the creature stagnates. And becomes progressively more fragile, right. Until it's no longer capable of competing in the real world.
- [32:03]
B
And that energetic anchor to this, to these realities, you know, energetic, which we get socio political reality. This is what's keeping all networks participants honest and accountable. Right. There's this synchronization and rule set imposed upon them every 10 minutes that you can't avoid. It's like gravity, you know, you just cannot ignore it.
- [32:26]
A
Yeah, it's quite a wonderful thing. It's a, it's a crypto universe. Yeah, Satoshi played God created, you know, either call it creating your own universe and setting the planets in motion by define the space time constant, or the other metaphor is you released a creature into cyberspace. You set the genetic DNA of the creature, you controlled how it will procreate. And once you release the thing, then it spreads as some kind of swarm life form continually evolving. I think with that, I think we conclude that the bitcoin mining network, and the bitcoin network in general, is quite a wonderful thing. Now the next question is, how does it scale if we go beyond the network? The primary purpose of the bitcoin mining network is to provide security and enforce protocol integrity and durability of the system. And it does that very well. But so how do we actually scale out to provide hundreds of billions of transactions a day to billions of people on the planet at the speed of light using the latest computer technology? And that's, I think, where a lot of people fall down. They don't, you know, they, they just want to look at the base chain and say, well, it moves seven transactions a second. And so you can't scale. But, but they lack the imagination to understand the consequences of the layering. So the bitcoin monetary network, it scales based upon platforms at the layer 2 level and then applications above that level. And you could call them layer three applications, or you could call and you can also have applications embedded in applications on top of applications. So you could have layers 4, 5, 6 and 7. And eventually you've got, and you could have interplay between the applications, but for the purpose of our discussion, let's just call them layer two platforms and layer three applications. In order to keep from getting too confusing in our semantics. What's the most important one? Well, Lightning is a very interesting and maybe the most important layer two platform. The idea behind Lightning is I want something to be exponentially faster and exponentially cheaper, and in return I'm willing to secure exponentially less money. So if I have only $100 at risk, then there's no reason why I couldn't do 10 million transactions on that channel. And that totally makes sense because as you scale out, if you look at the transactions that 8 billion people need to make on this planet every single day, you know, the majority of the transactions are actually of value less than $1. In fact, there are plenty of transactions that could be valued in pennies. And then the big transactions might be 10, $100 or $1,000 probably. If you were to look at the transaction stream on the Visa Network or the MasterCard Network, the average check is like 28 bucks or something. But there's billions and billions and billions of them. They go on. So you don't really need the final settlement security of bitcoin because that's the highest level of security in the world. And you're getting that to move a billion dollars. You probably only need to move a billion dollars around occasionally. It's like if I moved seven nuclear powered aircraft carriers per second anywhere in the universe, I could probably win whatever war I wanted to win, if that's what I'm using my teleportation power for. So bitcoin is good for teleporting large chunks of value, but for all of the routine work, you want something smaller. And so the logical thing to do is, the way lightning gets out of it is you're putting liquidity in a channel, you're putting value in a channel, and the channel is at risk, but the overall blockchain is. And of course, the beauty is you get to keep your keys and keep custody of that. So that's a very fascinating thing. You can build the universe on lightning. So presumably you could give 8 billion people Lightning wallet or wallets more than one. You could build Lightning into PayPal and square cash and Apple Pay and Google Pay and Facebook and every messaging app. You could use it at all scale, not just to move money, but to move anything. The other day I did 1000 satoshi transaction on lightning for one satoshi in one second.
- [38:00]
B
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- [39:08]
A
So lightning is an obvious layer too. And the simple design idea is I create a channel with a million times less bitcoin in it and I move it a million times faster. And that works fine. There are other approaches, of course, but if we give up, you can give up all of the proof of work because you don't have as much at stake. And you're creating a staked network, but you're staking it with an external asset that derives its value from external assets external to it. Energy capital and political capital and technical capital are flowing into bitcoin capital, and bitcoin capital is flowing into the lightning network in order to secure it. So once you get that idea, you realize that a layer one, layer two solution is a lot better idea than a higher performance layer 1 solution. Because making the layer 1 twice as fast or 3 times as fast, or 10 times as fast, or a hundred times fast doesn't get you to a million times as fast. And what you're doing is, it's no different than the common sense way that human beings solve every problem. If you had a million dollars in the bank and you were going out on a Saturday night and you needed to spend money quickly, you would take $100 in cash and you would break it into $25 bills, you put it in your wallet and you would rest assured that you can't lose more than $100. And you would leave the rest of the money locked up in the bank. And the money in the bank takes 48 hours to get at and takes lots of degrees of authentication, is behind 3ft of steel and the money in your wallet is in your front pocket and it takes one second to get at. And occasionally you drop a $5 bill on the floor when you're drunk and the life goes on. And if somebody said you had to take the entire million dollars with you out to a nightclub every Saturday night, you would say, that's pretty stupid. And they said, well, you know, the bank vault doors, they're too heavy. We're just going to have to re engineer them to make them a thousand Times lighter, so that you can open the bank vault doors faster, so that you can access the million dollars on Saturday night while you're drinking. You might think, well, maybe it wasn't such a good idea to actually have access to all my money while I'm drinking on a Saturday night. And the same is true with the idea of a base layer, right? Maybe it's not such a good idea to have that many transactions on the base layer because every single moving part is just something to break, right? And so you got yourself too many moving parts. You don't want it. So the layer two platform is this idea that what I want to do is I want to just take. I want to create a cache, a cache, if you will, of a much smaller amount of value that I have that is much less at risk, that I can afford to move much quicker, and I don't need the same degree of security on it. And Lightning is not the only layer two platform you can conceive of. Another crypto network could be a layer two platform. In theory, you could spin up a proof of stake network and you could stake it with Bitcoin and it wouldn't be a theoretically different thing. You can also spin up a crypto network, proof of stake, and then you can move Bitcoin through it. But if you're, if you're using the native token and moving Bitcoin, then your bitcoin is only as secure as the native token. And of course, if the native token is gen out of thin air and yo yo coin, then that's a problem. Ultimately, the real issue with layer 2s is you're moving a portion of value into that layer 2, trusting the layer 2 in order to get performance or functionality.
- [43:49]
B
Exactly.
- [43:50]
A
You can do it. You can do it with Lightning. And the logical thing you do is you stake with Bitcoin and then you reduce the risk to the channel liquidity. That's a way to do it, and that's logical. Another way to do it is to build some kind of system. Maybe if I was in an exchange and I had Bitcoin on the exchange and I created an API to the exchange that was programmable, then in a way the exchanges is holding the Bitcoin. The API is providing you with a very fast speed. Now you've taken a different risk, you've taken exchange risk, which is some counterparty risk of some sort. If you use a Paxos or a Nydig platform, those are more conventional platforms to build applications on top of. Like Nydig has a platform for you to build a credit card plugged into Bitcoin. And Paxos is a platform plugged into PayPal to their application. And so if you want that kind of platform, you plug a mobile application into one of those platforms. There is some risk with that counterparty. It is limited to the amount of Bitcoin you're handling on the platform and you can do all sorts of things to mitigate the risk. But clearly there is a need for layer two platforms, and there isn't a need for just one. Layer two platform like Lightning is a compelling decentralized layer two platform because it's decentralized. But there are a lot of layer two platforms that'll be centralized because they need to be regulated in order to meet with regulatory compliance obligations. And there are a lot of counterparties, like a credit card company might, might prefer to work with a centralized layer two than a decentralized layer two because they have regulatory constraints of yeah, and.
- [45:59]
B
This is all this is similarly rooted in something very fundamental as proof of work is there's this fundamental trade off between security and freedom, typically. And so in money, we're saying that the security model of Bitcoin is its decentralization. But with that comes a lot of work. It doesn't do many transactions per second. But what you can do is abstract that Bitcoin to a more centralized database, whether it's a custodian or lightning, a lightning is kind of a decentralized centralizing force. You pick up all this functionality, but you're giving up some of the trust minimization you get at the base layer.
- [46:42]
A
I would say that if your focus was on property and what you want is digital property, you want the system optimized for durability integrity over time, and performance and functionality and compliance are not on your list. Your list is durability, integrity, immortality. Very simple. But as you move toward applications and you move away from property toward applications, you either have to optimize for functionality. If there is no functionality, there's no application, or you have to optimize for performance. If I can't pay for the coffee within one second, I can't pay for the coffee, or you have to optimize for compliance. If I really want to issue an insurance policy or I want to issue a security, or if I want to issue maybe a yield token and it's illegal in a certain state, then if I want to do it, I have to actually comply. Compliance pops up with stablecoins. Compliance pops up with DEFI exchanges, Compliance pops up with derivatives Compliance will pop up with any kind of thing that looks like it's a security token. These are all applications. And is there a future for those applications on top of Bitcoin? Yeah, but Bitcoin's not the application. The application will be built on a layer two platform, or it'll just be built naked against the Bitcoin. Right. Maybe it is. You know, you don't use a platform. Like, I can implement my Bitcoin credit card using the Nydig platform, or I could hire an army of programmers and I can build it one off. Right, right, right. There's this. There's this little battle of, you know, do I build a custom app or do I build an app using your SDK? And so platforms are going to be, you know, either operating system type things with an SDK, you know. Yeah, I mean, that's what they're going to be. They're going to look like that. And it might be. It looks like an AWS where they spin up services. You can imagine AWS spinning up a whole package of Lightning nodes. If I could spin up my Lightning nodes, you know, and run them, maybe I would do that, maybe I wouldn't do that. Probably Lightning is not the best example because people are looking for something totally decentralized there. But a better example would just be an SDK that allows someone to deploy a mobile app that has Lightning and Bitcoin money transfers embedded in the mobile app. And I just want to do it quick and easy, scale the back end.
- [49:50]
B
There's a continuum where we have this totally decentralized layer two and lightning. Maybe you have SDKs in the middle versus a fully centralized solution via Nydig or someone else. But it just speaks to the versatility of Bitcoin, which again, you can't get from a Gold. You can't get this versatility of application layer. With something like Gold, there's going to.
- [50:12]
A
Be competition, massive competition with regard to what are the SDKs and the layer two toolkits.
- [50:19]
B
Yes.
- [50:21]
A
And even Lightning has Lightning Labs creating a toolkit to help you. Lightning. So that's competition and it's interesting, but it gets theoretical in a way. So it's actually probably more instructive to move down to the applications themselves and talk about what are the applications of Bitcoin that scale the system, because these are the things that are that make the difference. And once you start to think about the way the range of applications, then you figure out what you might build into your platform. If you're trying to create a business hosting Those applications. So let's talk about that. The obvious application, you know, is, is, is the individual holder that owns Bitcoin or just holds it in cold storage for long periods of time. So it's like the family or the individual. And I think that's pretty well understood and that's been pioneered for a while. The thing that's, that's varying is the way that that individual chooses to hold the Bitcoin. And that's where it gets really interesting. So, for example, one thing I probably want to start with is this observation that one interesting application of Bitcoin is a bond. You can actually create a derivative or a security of Bitcoin and scale the network with the bond. So if a government owns bitcoin, the government is the customer. And if the government then buys the Bitcoin and then issues sovereign debt, the sovereign debt becomes a bitcoin derivative. So you're creating credit from Bitcoin. Bitcoin is the base layer, money. And the debt, or the credit of the government or the bond is the layer to money. It could be backed in whole by Bitcoin, like 100%, or it could be in part by Bitcoin or something. If a municipality, like a city, buys Bitcoin and issues municipal bonds, that becomes another form of an application of Bitcoin. If an agency like Fannie Mae or Freddie Mac or any international agency, United nations or the like, if they were to buy Bitcoin and then issue any kind of bonds, it's another example of a derivative. When a corporation buys Bitcoin like MicroStrategy, and then we issue a bond that's backed by the bitcoin, we created that derivative. And you could take Bitcoin, there's $700 billion of this Bitcoin out there. And you could issue asset backed bonds, call it bitcoin backed securities. These be mortgage backed securities. And with mortgage backed securities, we take a bunch of heterogeneous assets and we securitize them into a note. And so bitcoin is. Imagine you had 21 million identical houses called bitcoins and you decided you were just going to create a Bond backed by 11 of them or 37 of them, an asset backed bond. All of those are applications of Bitcoin. They're not applications the way a computer scientist thinks of them. They're financial applications of Bitcoin. You can have technical applications of Bitcoin that are running on mobile devices, like mobile apps. You could have web applications. You could have financial applications of Bitcoin and a Lot of times when people think about scaling, they only think about the technical applications and they don't really think about the financial applications. If we move on to the next layer, our next type of application, think about mobile payments. A mobile app that does payments is something you can plug into Bitcoin, like Square and PayPal have plugged mobile apps into Bitcoin. And what does the mobile app do? Well, maybe it lets you buy Bitcoin, maybe it lets you send Bitcoin, maybe it lets you send Bitcoin via the Lightning network, like the Moon Wallet. That's an application, but maybe it lets you send Bitcoin on its own proprietary network, like Square. Cash tags. You can send Bitcoin between one cash tag and another cash tag instantly, for free. Or you could send Bitcoin between any two mobile apps within the network using the handle of the network. If you were doing that, then probably the application provider custody some of the bitcoin and they're moving it, and they become a fractional bank of Bitcoin. Bitcoin becomes the central bank in cyberspace, or as our friend Ross Stevens would say, the decentral bank in cyberspace. Then all of these other mobile apps or websites become fractional banks. Plugged into the central bank of cyberspace, they custody some amount of Bitcoin. The mobile payments space is particularly promising because all these mobile applications are one step removed from being mobile banks. And there's no reason why Facebook and Apple and Google and the like don't eventually become mobile banks. It was a matter of time before they let you send photos, and then at some point they decided to let you send videos, and then they decided they give you emojis, and then they decided they'd let you send audio files. And in a way you could think of Bitcoin, it's just another file type.
- [56:45]
B
It's all media file type.
- [56:49]
A
So kind of inevitable. Now you start with mobile payments, and then when you start to think about moving that around and the services that consumers want. Right, you're now into retail banking. So the retail banking applications are in essence, savings accounts and credit lines based on Bitcoin for consumers. So you've got billions of people that presumably want to carry, they want a wallet with an asset in it, and the asset would be Bitcoin. And then they want to borrow against it. So you want to be able to draw down a credit line at an interest rate. So I carry around 10,000 in Bitcoin. I borrow $1,000. I pay 4% interest. Now I've drawn the Credit line in the local fiat currency in question, Euros, dollars, yen, I pay the interest rate, whatever that is, and then I spend the money. That's pretty popular. I mean, credit cards are quite popular, right? How many credit cards are there in the world? So we're really talking about credit cards drawn against Bitcoin property instead of unsecured credit lines. And then the opposite is also the case. Maybe the consumers want savings accounts that generate yield. So I have Bitcoin. I either hold the Bitcoin or I move the Bitcoin into a yield generating account, or I move the Bitcoin into, or I put it in a collateral line and I use it and pledge it as credit. Now is that, is that the same everywhere in the world? No, not really. You're going to have different regulators in every jurisdiction in every state. They're going to tell you whether or not you need a money transfer license or a banking license, or whether or not you need a securities registration in order to give yield or give loans or move money around. Of course, there are always nuances. I think this is one of the nuances that caused El Salvador to designate Bitcoin as legal tender so that they could easily move Bitcoin around on mobile apps. In a place where the government has collapsed, then the solution is going to be a mobile wallet with lightning because there is no regulator. And wherever you have that kind of weak governance, then it's not going to matter. As the governance gets stronger, then there are going to be questions of what's your compliance requirements to do a retail banking application. And it looks like it's literally different state to state, country to country, jurisdiction to jurisdiction and evolving right now. And that's one of the reasons why maybe centralized applications CEFI will actually beat the DeFi. I mean, because the message of DeFi is oh, it's really expensive going through all this. AML KYC yes, that's true, but it's also illegal not to. So the real question will be, can you do it? And how much validation do you have to go through to do it? And how compliant do you want to be?
- [60:18]
B
Hey everybody. So that was episode 16 of the Saylor series and we started off this installment by taking a dive into the economic dynamics of Bitcoin mining and what Saylor describes as the shift from a energy intensive business to a technology intensive business. Again, if we're looking, I think it's important to reflect here on Bitcoin, as Saylor described it in a previous episode, as a microcosm of capitalism. Because what we're seeing here and describing here. Bitcoin mining is indeed a natural progression of capitalism itself. This is akin to bitcoin mining. Shifting from energy intensity to technology intensity is akin to the shift from labor intensity to capital intensity in agriculture. What does this mean? It's in the name, actually capitalism. The purpose and intent of capitalism is to accumulate capital. And capital is anything that accelerates an actor from an intention to the realization of that intention. So if you are trying to go from New York to la, your shoes will accomplish that aim at a certain speed. A car will do it much faster, and a plane will do it even faster than that. So as you increase your sophistication up the capital stack from shoes to car to an airplane, you're actually decreasing the distance in time between you and your goal, in this case going from New York to la. So as humans accumulate more capital, they are further magnifying the economic output of labor. That's what capital really does. So naturally in the case of agriculture, when we didn't have much capital, and this could be knowledge, tools, et cetera, it took a lot of man hours to produce enough food to feed everybody. But as we start to accumulate capital and we have additional layers of labor magnification, it takes less and less labor to feed the whole population. And so this is reflected in, I forget the exact numbers, but clearly at the dawn of the agricultural age, it was basically 100% of human labor going into feeding everyone. Today in the world economy, I think agricultural employment is sub 5%. So that is only possible through the accumulation of capital. And indeed, this is the purpose of civilization actually is to trade and innovate, to magnify productivity in this way. And really those are, in fact, despite common misconception, people think government is involved in the creation of capital. It's only through trade and innovation that we can create capital in this way. And so for Bitcoin, this pattern plays out in the network, shifting from a very energy intensive model, as it was early on when people were just mining on computers, to a more sophisticated capital stack and therefore more capital intensity over time. And so Saylor's making the argument here that again, contrary to common misconception, that the bitcoin price will always track to its energy consumption, that he actually thinks we either have hit peak energy consumption or will soon hit peak energy consumption, and then the capital intensity of bitcoin mining will shift from energy towards capital, towards technology. Rather, this is a pattern too, that he's not just hypothesizing this. This is well established already in Bitcoin's 13 year history. So I thought that's a very intelligent way to look at it. And once again, it's just pointing to Bitcoin as a microcosm of capitalism, which is a very useful model for understanding its resistance to disruption. So this is, there's another dynamic equilibrium here. There's a dance between energy producers and technologists that make up this microcosm of capitalism. So this is very much like a Darwinian dynamic equilibrium, one in which where energy producers are effectively using brute force in the attempt to solve the Bitcoin mining puzzle and produce new Bitcoin, but they are competing against technologists that are using technique instead. So they're trying to get more efficiency per unit of energy in the production of hashes. A hash is just a guess or a vote in this mining puzzle. And so energy producers are just trying to cast as many votes as possible. Brute force approach. But then the technologist side of it is more dependent on technique, trying to get more hashes per unit of energy. This is a classic magnitude of force versus efficiency of force struggle. This has been observed and written about in many markets. You have investors standing outside of this struggle, effectively allocating capital to whichever one is more profitable at that time. So as Saylor describes this, this is a very delicate dance or balance of power in that we're constantly pushing the envelope on energy production. Older generation miners are rolling to cheaper and cheaper energy sources. Everyone's incentivized to monetize cheap energy or stranded energy. And then on the other side, you have technologists incentivized to do competition, to squeeze as much margin or as many hashes from each unit of energy as possible. And this is again looking at Bitcoin as a microcosm of capitalism. This is that dynamic Darwinian equilibrium that keeps the whole ecosystem healthy. This over time is driving down energy consumption per exahash generated and causes the improvement of semiconductors or ASICs. The net outcome of this is that same progression we just identified in capitalism, where we have this shift from energy intensity to technology intensity. And through an accounting lens, we could say this is a move from variable costs structure where most of the cost per bitcoin produced is this variable of energy, to a more fixed cost structure where you're actually assembling these pieces of mining infrastructure, ASICs, et cetera, and then amortizing them over time. This will over time shift the contention, actually the market competition will shift from being one primarily of energy production and we would expect it to shift more towards technology. Fabrication. As more of the mining competition's intensity shifts away from energy and into technology, this is really important too, because as the network then grows, becomes larger and continues to proliferate, it becomes more technology intensive. This is going to incentivize outside capital allocators to take it even more seriously. Again, with more fixed cost of production, you get a more predictable and manageable market or production process to participate in. So larger, more risk averse pools of capital will now start to look at bitcoin mining as an investable domain. So another way to maybe think about this is that capital itself, it's a form of frozen time or energy. So as the network becomes more constant within the plans of capital allocators, which is to say it's larger, it's more robust, less likely to fail. So it's kind of forcing everyone to develop a bitcoin strategy. As we've talked about previously, you'll see more investment related to the fabrication of ASICs, of the technology side of the business come into play. And what this does now is it starts to actually blow up that spatial and temporal bubble we talked about in the last two episodes. Or Saylor laid out his seven layers of proof of work, network security, such that if you want to come into the bitcoin mining game and say, mount a 51% attack, you're now competing with all of these other technology fabricators that are incentivized effectively to plug their production networks into bitcoin mining and generate profits from them. So it becomes this, this is where those layers are developed. I guess maybe the other way to think about this is that clearly the energy piece is very direct. You're just plugging in energy, you're running it through the mining competition and you're trying to produce Bitcoin, but when you plug in the capital piece, you're talking about connecting branches of production that are much longer, much more roundabout, much more complicated, much more capital intensive. So they are able to bring a lot more wealth to bear into the network over time, versus just monetizing energy directly. The visualization I have here is we're moving from something that's purely dynamic, which is just the monetization of energy directly, to something that's starting to lay down static layers as well in the form of capital networks. Again, looking at it through the lens of capitalism, this is what we do on a global economy basis. We're trying to amplify the returns on our energy, our labor energy, by accumulating capital. We would expect the bitcoin network to follow A similar path, and that it would initially be a lot of raw power being monetized directly. But over time, the technology, which is to say the capital intensity of the business, should increase and you'll actually get greater returns on that energy expenditure, such that energy usage peaks at some point. It does not track to the bitcoin price forever, which would saylor brilliantly elaborated that it probably moves at the log of the price or something like that. So great points there. I guess the overall moral of the story is that all this open competition in bitcoin, the microcosm of capitalism, is what keeps all market actors honest and adaptive. You're constantly being pressure checked by competition. You have constant incentives to evolve, to be at the cutting edge, to cut cost, to create value. And it's this Darwinism that keeps ecosystems free of failed or weak strategies. We see this in nature. If there's an animal in the herd and he's moving more slowly than the rest, then those are the ones the predators pick off. And the net outcome of that is that the herd is best conditioned for resisting predation. So similarly, in the Darwinism of capitalism, weaker inferior strategies or non cost effective strategies get picked off, they get destroyed, they get out competed. So that in a nutshell, is why bitcoin, via the proof of work mining algorithm, wins. And it wins over all of these other consensus mechanisms, like proof of stake being theorized about a lot lately. But it suffers from a distinct lack of this Darwinian element that makes proof of work so viable. So just great points there, connecting capitalism and Darwinism. Sailor and I got into a little bit of an exchange on how bitcoin actually bootstraps its market value. And there's a point here I've talked about before, but I'll reiterate as I think it's important in the market for gold mining, the production cost tends to converge to the market value. Again, there's a dynamic equilibrium between the two, such that if gold is selling for $2,000 an ounce in the marketplace, and I can go out and mine it at a fully loaded cost of production of, say, $1,900 per ounce, I am incentivized to increase production, to allocate more capital into the production of gold. Right up until I'm producing at a cost of $1999.99, so long as there is any economic margin left in my production process, I'm incentivized to produce gold. So I see this as, again, we have these larger production structures, these more roundabout production processes, specifically Related to semiconductors and asics. Coming into the bitcoin scene, connecting into this bitcoin microcosm of capitalism, and again bringing more force to bear, more wealth to bear into the network. Channeling more energy is maybe another way to think about it. They're actually increasing the cost per Bitcoin. And at each halving, all of that collective energy and technology intensity is going into mining. The daily production gets cut in half. So if we're doing 900 bitcoin per day in the current having epoch, that goes immediately to 450. But the energy and technology intensity did not change that much. And actually it changes less and less over time. As energy is a smaller component. Energy can be turned off quickly. But these large production processes, roundabout production processes, processes of capital, cannot be so easily turned off. They're much more permanent than just the energy side of the business. So this means in my mind, the way I understand this, that miners are effectively incentivized to hold bitcoin, to not sell bitcoin in anticipation of each having. Because at each halving the bitcoin side of their P and L, bitcoin revenue is actually getting cut in half. So you're incentivized to hold bitcoin and not sell the COVID production cost in anticipation of each having. In the competition between miners, you want to hold as long as possible, so the stronger balance sheets will tend to prevail, or more prudently managed balance sheets. And this engages like a game theoretic process between miners that's somewhat of a self fulfilling prophecy. And I've talked about this in some of my writing previously, where there's this virtuous cycle of bitcoin that no one has figured out how to break. I've called this an unstoppable vortex of incentives. And it's one in which basically bitcoin mining is the security budget for bitcoin. So as more energy and technology is allocated into the network, bitcoin becomes more secure, right? This makes its network more robust, makes bitcoin a better store of value. As bitcoin becomes a better store of value, more people want to buy it as money, buy it and hold it as a store of value. This causes its price to increase. A price increase in bitcoin makes mining more profitable. As mining becomes more profitable, more energy and technology comes under the mining network, and that makes bitcoin more secure again, and so on and so forth. So there's this virtuous cycle that is bitcoin centered on this idea of bitcoin as Capitalism, really, it's like an unstoppable game that really just forces rational economic actors to play. So that was a real interesting discussion there. But they did make some good counterpoints that you can't necessarily know the technology side of the inputs because that's subject to innovation. But we would still expect that whatever the best semiconductor or ASIC technology available is, that would be brought to bear in this game. Because again, the difficulty adjustment constantly makes it more or less difficult based on innovation. So it makes Bitcoin adaptive to innovation itself, which is hard to get your head around. It's like Bitcoin is a living money in a lot of ways. So speaking of living money, we went into a discussion about how Bitcoin would scale through layers. This is something nature does as well. Nature evolves in layers. So looking at layer two itself, it's basically making trade offs where you're giving up some trust minimization of Bitcoin at the base layer to pick up some additional functionality at a higher layer two. And this is very similar and intuitive to a trusted third party, right? So Bitcoin itself at the base layer, what makes it so expensive and slow is that every node and every miner is checking every other node and miner's work. It's distributed consensus. It's purposefully slow and expensive so that you don't need to trust any single actor. It's optimizing for decentralization. So clearly there's a lot more energy necessary to update this global set of ledgers versus just trying to update one ledger, which is effectively that's the opposite end of the spectrum. That's what a trusted third party would be. That's what the Fed is, that's what your bank is. You're just trusting one group, one political aggregation of willpower versus the distributed self interest of all actors. But because of that, there's a big gain in efficiency. You can get many more transactions per second on something like PayPal or Venmo than you can Bitcoin base layer. So what is Bitcoin going to do? Bitcoin to scale in terms of payments per second, it has to scale through layers. You cannot get rid of this trade off at the base layer. We need 21 million and we need decentralization. Those are the, or say fixed supply and decentralization. These are the most important properties of a non state money. That's what the Bitcoin base layer optimizes for. But to get it circulating as a more effective medium of exchange, Bitcoin has to scale at higher Layers, we see this already with third parties. There's groups like NYDIG that are basically acting as a bitcoin bank. So they're offering all the traditional financial services you're accustomed to using in the legacy financial system, but on a bitcoin standard instead. So that's one way to approach it. You can have layer two organizations. You can also have layer two applications, which we went into Lightning Network in a little bit. But the point here is that we have to optimize for decentralization at the base layer, as we've enumerated plenty in this series so far, precisely because that keeps the money immune to opinion, politics, counterparty risk. It's a neutral set of rules that no one can change. And that's the most important property of bitcoin at the base layer. So we can look at it like this. Money itself, and this is more general than just bitcoin, is this base layer protocol. It is this set of rules that ideally no one can change. This is kind of what gold was historically in the analog age, right? It was favored as money because no one could mess with the supply, no one could change the chemical properties of gold, et cetera, et cetera. But everything. So say that money is kind of like the base layer protocol for human action. Everything on top of that is really just an application. And this maybe gets into. We talk about the functions of money. It's a store value, medium of exchange and a unit of account. This is to say that that base layer really provides us things that are very important to human being, which is a means of establishing value. What do other people find valuable? A means for actually transacting with others to discover what is valuable and an accounting system to communicate the whole thing. Maybe this is a bit of an overgeneralization. This is the way I'm thinking about it lately, and I think it ties in nicely, is that if we look at it this way, that money is the base layer for human action. And then all the institutions and businesses and organizations we build on top of it are effectively applications. We could say that this becomes a common thread between the two, that individuals, organisms, organizations, they're all just wealth strategies, effectively. And when I say wealth, I mean specifically a lot of people think that wealth is like your riches or your stuff. But even in an organic sense, you could just consider wealth as being like time saved through some organic specialization or innovation. And at a very deeply biological level, that's how evolution occurs, actually, is there's some need, the environment is demanding, some need of the organism Whether it's an eye to see that lets you gather food more quickly or find mates more quickly. The evolution itself is the buildup of these economic specializations. Over time, it's increasing the organism's productivity. Then, at a collective level, organisms come together to do the same thing for human beings. It's trade and innovation. The reason we coalesce as a civilization is because we are more productive, acting in concert than we are in isolation. If that were not true, then we would not be grouping together like this. You'd say that at biological level, that evolution is occurring through specialization. At the socioeconomic level, innovation occurs through specialization as well. Clearly, that's how a tool that's more fit to its job just tends to outcompete in the marketplace. So herein lies that connection where these are very similar dynamics. We have evolution. That's this organic process of innovation. The body is learning through interaction with its environment to become more fit over time. And then we have innovation, which is more like an inorganic process of evolution. So in the case of humans, we're actually figuring out how to be more fit to our environment through material engagement, through tools, things like that. And so, yeah, I think that is just a big worldview shift right there, especially for people unfamiliar with economics and monetary history. I think the prevailing belief is that government is just the originator of money. Somehow government's like the base layer, and then they issue money, and there's a market on top of that. But when you study socioeconomic history and evolutionary biology, how did we get to this point? It's actually the precise opposite. And so we are engaged in a market process in nature. Nature is a market process. We keep talking about Darwinism and capitalism. I mean, they're very similar. And money is really beneath government. Government is just one business model. It's a business model designed to monopolize violence and enforce property rights, ostensibly, but it itself is just a business. It is just another wealth acquisition strategy, similar to every other organization and organism in the world. So this maybe points to how big of a deal Bitcoin is. It's something that's disrupting money, which is the base layer operating system for human beings in the most fundamental way possible. In my mind, this explains why so few people understand the significance of it. And it also points to those of us that study it closely. Maybe we're not seeing larger implications of what this might be. I guess the closest analogy here is that I think the transformation from the agricultural age into the, into the industrial age will be equally significant as the transition from the industrial age into the digital age. So if you could imagine being a farmer in the agricultural age and trying to envision where we are today, where the industrial age has brought us flying and telecommunications and all of these things, it would just sound like magic. And this gets us all the way back to the beginning of the Sailor series, where he quoted. I forget the author's name, but he says, any sufficiently advanced technology is indistinguishable from magic. So I think this is just a great way to look at Bitcoin. Bitcoin mining again. And it comes down to the space protocol and the functions that it. That it serves. That money lets us store value, which is to say we can hold something that other market actors find relevant, that other people find valuable, lets us accomplish trade, which gives us to the second function of money, which is free exchange. This is letting us become more energy efficient through trade, and it facilitates innovation, which further increases our economic efficiency. And then finally, money holds us to account, right? Which one of these applications, organizations, or any other application, we build on top of the base layer of money, which one is working, which one is not, so that we can facilitate this process of creative destruction that propels capitalism and Darwinism forward. So hope you enjoyed that one. That was episode 16 of the Saylor series, and I will see you guys back here again soon.