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The "What is Money?" Show
How Bitcoin Changes Everything | The Saylor Series | Episode 17 (WiM065)
01:29:38
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]
Michael Saylor
So that, that's mobile payments and then retail banks. If you go to commercial banking. Well, with commercial banks you've got treasury services for companies and you've got credit lines. So corporations like an individual in a way. I've got a bunch of cash. I want to, I want to generate yield on it. Call that treasury services or I have a lot of assets, I want to generate yield on them and I also want to borrow against my assets. And so I need a commercial grade bank to do that. I tend to have slightly different requirements and I'm going to move in greater scale and I may have different accounting issues, but the commercial banking application and the retail banking are pretty similar. Exchanges are another application of Bitcoin. And there people want to trade assets against each other and trade derivatives against each other. And you can imagine infinite assets and infinite derivatives. They will be compliance heavy. Do you need to comply with the CFTC or the SEC or who knows what? And that gets very complicated. But it's a big business. The next big area of applications would be corporations. And here any company that simply buys Bitcoin becomes an application of Bitcoin. And this is not a technical application. If we take MicroStrategy as an example, when MicroStrategy buys Bitcoin, then MicroStrategy stock becomes a derivative of Bitcoin. And now MicroStrategy stock is trading on a NASDAQ, a regulated exchange. So what you did is you took one asset sitting on the blockchain and you used it to back another asset, an equity that's trading on the Nasdaq. And then you back a third asset, calls and puts and leaps that are trading on a futures exchange like the CME or something. And you may have even issued debt that trades privately over the counter through a set of broker dealers. Each of those are applications of Bitcoin. Well, how big are they? They could be a billion, they could be 10 billion. You could have $100 billion worth of these applications. Why do they exist? Because people want them. Because there are a lot of people that want to trade stocks on nasdaq. They don't want to trade Bitcoin on Coinbase. Why don't they want to? Because they took a decade to raise $100 billion and they promised a bunch of pension funds that they would only trade equities on Nasdaq. And now it would take them another five years to reset expectations with the pension funds. Maybe they want that because there are companies that do convertible arbitrage. They have $10 billion. They raised it from pension funds and endowments, and they do convertible arbitrage. That's their strategy. And that means they have to be able to buy the convertible debt and short the stock and try to generate a yield. And they've got billions of dollars to do that thing. So they get up. That's what they want to buy. There's a phrase on Wall street, when the ducks are quacking, feed the ducks. If the ducks want to buy convertible debt, give them convertible debt. If they want to buy equity, give them equity. If they wanted to buy bitcoin, then they would buy the bitcoin. But these applications meet different needs. If you're a consumer, you're a consumer, you want to download square cash app and you want to smash buy $37 worth of Bitcoin, and you want to do it in two clicks. You don't really want, you know, a super complicated trading console with like 16 Bloomberg screens, you know, with futures and options and 3700 trading pairs. That's not what you want. You want to smash by $37. So sometimes simplicity is. Is the right thing. Sometimes you want simpler than that. Sometimes, you know, you've been doing business with the same private wealth or client advisor. You want to call them on the phone and you want to say, buy $10,000 worth of that bitcoin, and you want them to buy a bitcoin etf. And the pure bitcoin maximalist will say, you're crazy. You should store 10,000 in your own hardware wallet. Okay, well, I'm 82 years old and I'm a wheelchair and my hands shake and I don't use computers. How am I supposed to store this in a hardware wallet? I'm just buying it as an investment instead of buying gold. And I've got five seconds. Okay, so you have five seconds and you talk to a guy, Bill, that you've been doing business with from Merrill Lynch. Merrill lynch was a company of its own before it was bought by bank of America. So I talked to my guy, Bill for. I've been talking to him for 30 years. I have five seconds and I want to buy $10,000 worth of Bitcoin. Okay, does that application matter? Sure it does. What if I want to buy $10 million worth of Bitcoin? Does that matter? Sure it does. What if I want to buy 100 million worth of Bitcoin? It's the same dude with the same five seconds. Okay, so do applications scale the bitcoin network? Yeah, absolutely. Would it be helpful to have more? They're all handles, they're a handle. I'm grabbing onto Bitcoin. People handle it different ways. If I have PayPal, it's installed on my machine and it works. And I can click on a button in one second and buy Bitcoin. I prefer that to downloading a better application that takes 37 clicks and takes two days to get authenticated.
- [06:28]
Robert Breedlove
Right.
- [06:30]
Michael Saylor
At the end of the day, these applications make a big difference. And what you have going on here is the creation of financial applications being wound into other exchanges and other platforms. And the platforms are everything, right? And they take like, for example, a corporation on the New York Stock Exchange takes you to the New York Stock Exchange platform. A corporation on the NASDAQ takes you to the NASDAQ platform. A corporation in Japan, you know, takes you to the. To the Nikkei, you know, trading platforms. So as Bitcoin spreads on the balance sheets of different companies and different governments, it spreads onto different platforms and it morphs into different derivatives and different flavors.
- [07:26]
Robert Breedlove
Sorry to interrupt. I just wanted to say that I think this is a very useful framing, actually. I've said that money is the base layer protocol for human interaction. We've had gold functioning for a long time, and we get arguably say that a lot of these institutions, technologies, government, currencies, these are all applications on top of gold, effectively. And so now Bitcoin's kind of like a new base layer. It's a new base layer protocol replacing gold and enabling lots of other applications to flourish on top of it.
- [08:03]
Michael Saylor
Yeah, I would agree. It's the base property protocol or the base monetary protocol. And what you want to do is to build something on a stable monetary base or a stable value base, then you need digital money, digital property. And that's a little bit different than digital currency. If you want a good digital currency, you're best to base it on a good digital money.
- [08:34]
Robert Breedlove
Right. Currency is an application of money. I think it's a great way to look at it.
- [08:37]
Michael Saylor
Currency is an application of money.
- [08:38]
Robert Breedlove
Yes.
- [08:39]
Michael Saylor
And if you understand it that way, money is the base layer, the end all, be all, source of all value and virtue. And everything else is an application on top of it. I don't need 100% of everything I am to be in my currency. I only need 1% of everything I own to be in the currency. And the 99% of what I am, I need to be in the money. And in fact, if the money has integrity, the currency doesn't need to.
- [09:16]
Robert Breedlove
Right.
- [09:18]
Michael Saylor
Which is a pretty important point. If I had 99% of my wealth in the money. And if the economy was growing or my assets were growing at 4% a year, and if 1% was in the currency and the currency was devaluing at 10% a year, it wouldn't matter.
- [09:36]
Robert Breedlove
Yeah.
- [09:37]
Michael Saylor
Because on the margin, right.
- [09:38]
Robert Breedlove
10 basis points to you, I'm getting.
- [09:41]
Michael Saylor
Wealthier faster than I'm dissipating energy, Right?
- [09:45]
Robert Breedlove
Yes. Yeah.
- [09:46]
Michael Saylor
And it's. It's this. You know, it's the same with a lot of things in life. It's like the $5 bill that falls out of my pocket on a Saturday night isn't going to impoverish me.
- [09:57]
Robert Breedlove
Right.
- [09:58]
Michael Saylor
And on the margin, you could say, well, you're kind of crazy to carry cash to a bar on a Saturday night. I know, but I'll take the risk for the convenience. Each of these things is putting value at risk. For example, if you have a billion dollars in a company, you have the counterparty risk of the billion dollars in a company. If the company fails or the company's defrauded, then a billion disappears, but it doesn't imperil the entire blockchain. And a publicly traded company that files quarterly results is a lot more trustworthy. Counterparty, Microstrategy is able to issue debt backed by bitcoin. But we're a public company. If you were a private company and you also wanted to issue debt backed by bitcoin, it would either be harder, impossible, or you might pay a higher interest rate. And if you were an entity, an individual that nobody trusted, and you went and you tried to sell the same bond, maybe you wouldn't get it, because people are taking counterparty risk and they're trying to figure out whether they trust the counterparty. But now here you see the beauty of bitcoin, which is everybody can have an application. So the question is, which exchange is going to embrace bitcoin most effectively? Which mobile app is going to embrace bitcoin most effectively? Which commercial bank will embrace bitcoin most effectively? Which corporation will embrace bitcoin most effectively? Which government, like any government municipality, could issue a billion dollars of municipal bonds at 2% interest. They could buy a billion dollars of bitcoin that has 100% yield. They could scrape the arbitrage, and they could generate a billion dollars a year in appreciation. You play the game, right? In theory, you could just issue a bunch of debt, buy the bitcoin, eliminate taxes forever. Now you're like, well, that sounds too good to be true. Well, everybody can't do it. If you're last, it doesn't work that well. For example, Mark Zuckerberg was first to own Facebook stock. So he's rich forever. Yeah, you can't get rich forever by buying Facebook stock. Now what's the difference between you and Mark Zuckerberg? The difference is he was first and you were last. And the same is true with Jeff Bezos. So if you're the first city and you move early, then as everybody else enters, then it's like if you came to America first and you got 1,000 miles of farmland. Right, Lord Baltimore. Right. You get a better deal than if you show up nine generations late. So with this, you've got a market dynamic where the first government, the first city, the first state, the first country, they can all seize an advantage and they're competing. I talked to an energy company the other day. I said, well, you're an energy company, but you know what? You can either sell your energy to bitcoin miners and get paid 2 cents a kilowatt hour, and you could sell your excess energy. Small idea. Or you can become a bitcoin miner and you could mine with all your excess energy and make 40 cents a kilowatt hour. Yeah, better idea. Or you can go big and you can buy a bunch of bitcoin miners and. Or mine it, and then you can go and issue billions of dollars of debt at 2% interest and buy the bitcoin and then make billions and billions of dollars. Right. If you want to make $5 billion and you're an energy company, buy 5 billion worth of bitcoin, issue a press release and then wait 90 days and you will probably make 5 to 10 billion dollars.
- [14:09]
Robert Breedlove
Right.
- [14:09]
Michael Saylor
Do you want to bend over and do that? I mean, now that's a bigger idea. But the biggest idea is you do all those things, you reposition your company and your, your revenue multiple doubles or triples. Because now you're not a sleepy regulated entity. You're a high tech company. You know, these big energy companies, you know, you could have 20, 30, 40 billion in revenue and trade at $40 billion market cap. Well, it's likely that a $2 billion Bitcoin miner will trade with a $40 billion market cap. I think. What if the bitcoin miners start buying the energy companies? It happened with UNET and WorldCom back in the day where you actually saw the Internet companies buying the baby bells, buying the telcos, and maybe they don't. But the bigger idea is the utility companies are in competition with the tech companies and they're in competition with the financiers and the hedge funds and the traders and the governments. Bitcoin doesn't care.
- [15:17]
Robert Breedlove
Right. And at every level there's this game theoretic incentive to move first, benefit disproportionate to later adopters. Because to your point, wealth is hierarchical. If you're there first and you're right, you're going to benefit the most. This is true in Bitcoin as well. If you're early to Bitcoin, you benefit more than later adopters. And this is also, I think the problem with fiat in a way, is that the central bank has irrigated itself to always be first. It always gets to allocate itself new shares of currency. So it's hijack the hierarchy of wealth, if you will, in fiat.
- [15:57]
Michael Saylor
Yeah. And Bitcoin, the courageous, with clarity, a vision get to make themselves first. It's private market and money. And with Fiat, it's those that are politically connected stay first.
- [16:16]
Robert Breedlove
Right? Exactly.
- [16:18]
Michael Saylor
So it's public money. And so it's worthwhile to say all of those organizations are competing, but we have other types of derivatives that are very interesting or other application of Bitcoin. Let's take insurance. If you're an insurance company, then every insurance policy you issue or annuity that you sell based on Bitcoin becomes a Bitcoin derivative. So if I want to sell you life insurance policy that pays off a million dollars when you die, and I'm going to charge you X premium, right? I got to charge you enough premiums and invest them to pay off the million dollars. So if I charge you those premiums and I invest them at 2% yield or 3% yield, it's kind of hard to pay off the million. I have to charge you a high premium. Whereas if I charge you premiums and invest them in Bitcoin, I can lower the premium or I can raise the payout, or I can make the payout variable. So now you've got an insurance company that's created a differentiated insurance product and you can either do it explicitly, you can do it explicitly by offering the policy backed by Bitcoin, or you can do it implicitly on your balance sheet. You could just take $50 billion of your balance sheet that are your collected annuities or premiums, and you could buy Bitcoin with it and use it collectively to back all your policies at the corporate level. And of course, insurance companies have long durations. They have to look out 30, 40 years, they're in business forever. They have huge balance sheets and their traditional funding vehicle is Bonds and bonds are broken. And so you need a better type of annuity generating asset or a better appreciating asset. And that's where bitcoin comes in. And that's where investment firms come in. I mean, my next application, you get an investment firm and you sell mutual funds or you sell investment funds and people invest with you. So if you create the fund based on bitcoin and then you sell that, that becomes an instrument that's interesting to corporate investors, family offices, individual investors. There's a lot of people that will want to buy that fund. And there's an entire industry that sells those funds. There's also an interesting hybrid twist on that. If you look at Fidelity, Fidelity sells all sorts of fixed income funds, municipal bond funds, sovereign debt funds, corporate bond funds, junk bond funds. They all have a low yield and they've got a negative real yield. Well, you can juice them by blending them with bitcoin. So if I have an instrument or an asset that's been going up 100% a year and I blend it into an asset that's been paying 3% interest. Now I created a hybrid instrument that's got downside protection of bonds, but upside opportunity of something not as much.
- [19:47]
Robert Breedlove
Kind of a barbell fund.
- [19:49]
Michael Saylor
Sucralose is a powerful sweetener. You can put it in anything. It's an artificial sweetener or it's a booster. It's a sugar, if you will. So for an investment fund, you can blend various types of funds. What if you're 50% bitcoin and then the other 50% is bitcoin derivatives, call and future caller options. Maybe you collar the bitcoin or maybe you're 50% Bitcoin and then you're selling covered calls out of the money to generate yield. So you're creating a bitcoin yield fund. It doesn't have the same upside as bitcoin, but it's got a guaranteed at some point downside protection, upside yield. You're blending the thing and you're selling it to someone that wants to buy that. Are there people who want to buy it? Sure, in a way. Microstrategy issues a bond 6 and an 8% interest and we buy bitcoin with it. If you swap the two, you've given up the upside of bitcoin in return for getting the guarantee of 6 and 8% interest. And why do you do that? Well, because the government paying you 1% interest, because the spread is 500 basis points over sovereign debt and because the spread over investment grade corporate debt is 400 basis points. So you want the yield? Who wants the yield? Well, somebody that actually sold $100 billion of a high yield fund to an endowment. That's who wants the yield.
- [21:28]
Robert Breedlove
Right, right, right.
- [21:30]
Michael Saylor
So there are structures in the financial universe. They exist. You don't just snap your fingers and change those structures in a day or a week or a month or a year. In some cases, those structures have formed over 30 years, 40 years, 10 years. 10 years is a short period of time in the finance world. So what you have here is investment firms that are able to create all their own financial products with any mixture and blend of risk and volatility, and they can hybridize them with existing conventional assets. What if you had a fund which was half gold, half bitcoin for people that like gold but they can't bear to give up? Or they like bitcoin, but they can't bear to give up their gold. It's like an alloy, right? An alloy, yeah.
- [22:29]
Robert Breedlove
What's coming to mind here is that you could almost put in your parameters and just back into the right blend customized for you. Using bitcoin to kind of augment your risk profile and volatility and such.
- [22:42]
Michael Saylor
Yeah. And there's a lot of people that would give up the ability to get 100% return in a year in return for a downside protection. If you went to every conventional investor and said, are you willing to give up more than 30% upside a year in return for all these downside protections? Yeah, there is a lot. And big banks sell these all the time. They're very lucrative products.
- [23:17]
Robert Breedlove
Yeah.
- [23:17]
Michael Saylor
Like, I charge you a 2% fee to give you a structured product that gives you some mixture of downside protection and upside that we've tailored, you know, to your needs. So those are just other applications. Moving on, let's talk about trust and endowments. You got a family trust is supposed to last 100 years, fund it with bitcoin. The Rockefeller Foundation. Right. If you have any kind of endowment. Every university, every nonprofit has an endowment. They all have the same funding problem, which is, where do you put your money? Where it lasts 100 years. And here, this is an interesting. It's a digital transformation of money managers. I can either put $100 million into an endowment and have like 10 money managers, and they charge me 2% fee or 1% FE a year to manage the money. Or I can just put the money into bitcoin. And I've dematerialized the money managers. We talked about the complete digital transformation or dematerializing of the fiat banking system in our early sessions. In this particular case, you're just dematerializing money managers. But there's an application. The application would be, I need a certain type of reporting and compliance. What if you did run a nonprofit foundation and you wanted to be a custodian of $12 million, you want to flip into Bitcoin, and now you want to spend one hour a year monitoring your position, filing the appropriate forms with the irs. And then you need to make disbursements. So you're an endowment. What you probably want is a credit line so you can borrow some money to pay your disbursements, your fees on an ongoing basis, and then you want the principal to be protected. Normally you have that. You would have to reinvest it. Well, what's the closest thing to bitcoin? Probably the Vanguard 500 or the like. And if you look at Vanguard and you look at Fidelity and look what they do, one big business for them is this like endowment management or donor assisted funds. And they just run these funds where you put your money into this stuff and you put it on autopilot and people look at it once every 90 days. And that's a big business. Right now, $100 trillion of it is broken because $100 trillion of it is bonds. And so you've got massive amounts of fixed income bonds and other assets that are broken. And those are traditionally the things that are easy to manage. And if you can't do 100 trillion in bonds, you have to go into equity, but there's not enough equity. So if the equity markets in the US were 35 trillion and they got 100 trillion in bonds that are broken, you can't just jam $50 trillion into equity. Well, you can, but what are the consequences? Right. You overvalue the equity.
- [26:32]
Robert Breedlove
Right, right. Which is happening.
- [26:34]
Michael Saylor
Which, I mean, I can't imagine any of those examples, right? Yeah, lots of examples. We overvalue the equity as we jam the money into it. And people are waking up and they're looking for that alternate asset class. And the beauty of bitcoin is bitcoin can never get overvalued. Because bitcoin's a bank, is cyberspace. If you jam 50 trillion into it, the price would go up by 50 trillion. Well, and it would be worth 50 trillion more.
- [27:03]
Robert Breedlove
And this is the crazy thing about bitcoin too. I guess money more generally is that it's a veblen good. So actually, the more expensive bitcoin gets, the more de risked it is. As money. So therefore it's almost like a self catalyzing feedback loop in a way. The more money you jam into it, the more likely it is to eat all the other money in the world, the more value you would expect to be placed on it.
- [27:31]
Michael Saylor
Yeah, I mean, it's the ideal solution to the problem. Now, I talked about a bunch of financial applications and I'm always thinking about corporations and governments as platforms, but we should also talk about hardware applications. So there's a lot of hardware applications of Bitcoin. There's the miners, there's the nodes, there's the wallet. Any device that exists could have Bitcoin's protocol built into it. And the question is, do you want to build the wallet protocols? You can build lightning and you can build Bitcoin wallet right into any mobile device. You can build it into jewelry. You could build multi signature protocols into your watches, your jewelry, your phones, your desks, your appliances. And that's a differentiating business. It's just, it's not on. You know, people build Bluetooth into stuff, right? This is more important than Bluetooth. Bit more important than Bluetooth. Right. You can, you can build, you can also build nodes and node capabilities right into devices and you can build mining into devices. You could integrate these capabilities right into firmware, into hardware. And why would you do it? Because it's differentiating. If they build bitcoin Support into Face ID or Touch ID and the iCloud, if the icloud was like a multi signature, multi factor, you know, bitcoin cloud, then you've got a trillion dollars worth of bitcoin that can flow into the icloud. That differentiates icloud. You can do it with Google, you could Google cloud, you could do it in Microsoft. Right. You could do it in Facebook. And so Apple is interesting because it crosses hardware and software and network areas. But if you go into the software area, you've got Windows and iOS and Android and these are all operating systems. And to a certain extent, things like Chrome are like their own little mini operating system. You can build Bitcoin right into those things. I mean, Google built password managers into Chrome.
- [30:04]
Robert Breedlove
Yep.
- [30:05]
Michael Saylor
Right. And if the operating system has native support for the monetary protocol, then either that's a reason to use the operating system, or you can pass on those primitives and that functionality to the applications running on the operating system. Like for example, Apple lets banking applications use face ID for authentication.
- [30:34]
Robert Breedlove
Mm. Right.
- [30:37]
Michael Saylor
And that makes the banking applications better. And so, so if you want to compete in hardware and devices or in software oss, then putting the monetary protocol into it is just like building TCP ip. I mean, I'm old enough to remember when TCP IP wasn't built into every computer, right?
- [30:59]
Robert Breedlove
Hey everybody. As you've no doubt learned by watching this show, Bitcoin is the single most important asset you can own in the 21st century. And one of the most important companies in Bitcoin today is Nydig. Nydig's mission is to get Bitcoin into the hands of as many people as possible. One of the ways they are accomplishing this mission is by empowering banks and financial technology companies to offer their own Bitcoin products and services. As a true game changer in the industry, Nydig is safely unlocking the power of Bitcoin for forward thinking individuals and institutions alike. Led by Robbie Guttman, Yen Zhao and Ross Stevens, Nydig has absolutely exploded onto the Bitcoin scene recently and has quickly become a leader in this space. So whether you are a professional investor looking for asset management services or a company looking to white label your own Bitcoin product or service, consider Nydig, your single source solution for everything Bitcoin. I've seen recently too that the Lightning network can actually augment authentication where you can authenticate through the lightning node as well. So it can be an alternative to password management at some point.
- [32:21]
Michael Saylor
Yeah, I mean there's really fascinating decentralized applications like decentralized identifiers that is probably like outside the scope of our conversation here. It's like an entirely other world.
- [32:33]
Robert Breedlove
Yes, yeah.
- [32:38]
Michael Saylor
But with hardware and software that leads you to cloud. Right, because cloud's another application. Aws, Azure and Google Cloud and, and the like are all general purpose containerized corporate platforms for spinning up massive applications. And so to the extent that they have support for Bitcoin or Lightning and certain other monetary protocols, then it makes it easier for their clients. Like Zoom. You know, Zoom went From nothing to 400 million users during COVID because they were sitting on top of cloud platforms from an Azure or an aws. And if they weren't, they couldn't have scaled. So when they're scaling, they need to be able to access these underlying services. Monetary services are destined to be built into every application and they would be differentiator. Now if we go to another really interesting application, Take social networks, Twitter, Facebook, Instagram, TikTok. Well, one of the killer applications for social networks is verification and credit worthiness. Or another way to say it is to put skin in the game. Right now there's no cost for malicious behavior. So if I open up my Instagram direct messages, 99% of them are bots. They're not really people. And when I look at my Twitter comments, a lot of times 90% of them will be bots or malicious actors. So you've got a bot war. People have computers spinning up fake Twitter accounts, and then Twitter has computers taking them down as fast as they can. And in the first hour after I post, I just see a bunch of garbage. And then maybe after a day they've cleaned it up and there's like real comments. But what that means is there's a 2, 3, 4, 5 hour delay between when I do something and when I don't have garbage in the feed. How do you solve it? Well, the logical way to solve it is I put 100,000 satoshis on a Lightning wallet and then I make a security deposit to Twitter or security deposit to Instagram or security deposit to YouTube. And if you deposit, that's like 40 bucks, right? Pick a number. It doesn't matter what the number is. Something less than a lot, but more than nothing. I deposit 100,000 Satoshis and that gives me. And then people on Twitter can say, I only want people with an orange check that are credit worthy or Lightning certified to be able to post comments on my tweets. And I only want to receive direct messages from people that are lightning certified or verified, or I follow one of those three, and if you're not an orange check, we'll call it, then you can't message me and you can't comment. So what happens? Well, first of all, if I just turned my entire feed to only orange check and blue check, all the bots disappear. Everything disappears. CZ does this on Binance a different way. He basically blocks anybody but people that he follows from being able to post on his Twitter comments. But the problem with that is that if you only follow 1,000 people, you know you're living in this hermetically sealed world of only a thousand people can comment. What you want is you want 100 million people to be able to comment, but you want them to comment with safe and civility. Or at least you want them to be human beings. So if 100 million people post $30, then you got $3 billion worth of Bitcoin posted as a security deposit on the Twitt. Now everybody that comments is a real person. Well, let's say 98% of them are. And if someone wants to spin up 29 Michael Saylor Bots, well, they can do that, but they're not orange checked. And so I'll never see them and no one will ever see them, right? Or if they want to get the orange check, then they have to post 100,000 satoshis 29 times. And if it turns out that they were imitating somebody, maybe they get a fine of a thousand satoshis. Or maybe they just lose their orange check and they forfeit the security deposit. It's like if you trash somebody's house when you're renting it. Whenever you rent a house or whenever you cross public property, you either have to have. You have to have insurance, like, like car insurance, or you have to be bonded if you're a worker, or you have to post a security deposit. And if you have that concept that you have to be bonded or have to be credit worthy, then what that means is that every time a bot attacks you, it costs them $30 and you're monetizing maliciousness. If someone's stupid enough to be malicious, right? It's not that the platforms don't have rules. They do have rules. Like they take people down and kick them off and put them in tylty box all the time, but the rules have no consequences. If you have a computer that generates 87 million fake Michael Saylor accounts every day, what the heck do you care about the rules? The rules don't hurt robots. There has to be a price or a cost to maliciousness. And so what you have here is you have a bitcoin lightning network that allows a billion people to post $20 each, then you can have micropayments. And when that happens, if I go on Amazon, I look at the opinion surveys, I don't have to worry that someone hired someone created fake bots to fill in the survey. Because if you get caught faking it, you get a fine. And if I go on YouTube and someone's running a scam video and they have to have the right green check, and then when they get. We report scam videos every. Every two hours, Robert. Every two hours someone spins up a scam video on YouTube which fakes something and we report them as fast as they spin up. But there's no cost, right? Or there's minimal cost. The denial of service accounts or denial of service attacks. There's no cost to spamming. There's no cost to hostility online. There's no cost to being an imposter. There's no cost to spinning up 97,000 fake accounts that actually try to create the appearance of a panic when it doesn't exist.
- [39:59]
Robert Breedlove
Right.
- [40:00]
Michael Saylor
Cyber warfare. So what's the solution? The solution is in the real world, you have skin. In the game, if you walk up to two women on the street and you, and you, and you insult them, you take the risk that the person next to them or they punch you in the face. Right. And if you drive your car and you get in a wreck, you get fined and they've got an insurance claim and there's consequence. And if you go rent someone's house for the summer and you trash the house and you have a security deposit, they take it. Or if you, if you rent an apartment, the security deposit, you trash it, they take it. So there's skin in the game and that causes people to act with some degree of civility. There's no civility in cyberspace because there's no skin in the game. Why not? Well, because if you use credit cards, there's two and a half percent fee. It takes two days to clear. And two billion people don't have credit cards. Among other things. You do it to the App Store. Well, I mean, you could try to do the app store as a 30% cut. How do you move 1000 satoshis for one satoshi in a split second? So having a value network becomes a credit network. And so for all these social networks, you can actually inject the quality of credit worthiness. And you could do a different scale. For example, you could post 100,000 satoshis to get a small check. You could post a bitcoin to get a green check. You could post 10 bitcoin to get a purple check. And if I'm going to go ahead and scalp tickets or I'm going to book a flight from someone online, I want them to have a purple check because I want rechorse against them if they lied to me or defrauded me.
- [41:49]
Robert Breedlove
Yeah, this makes a ton of sense because the original purpose of proof of work itself was a countermeasure to spam. So it only makes sense. Yeah. It would be applied at other levels.
- [42:02]
Michael Saylor
That was Adam Back's idea. Proof of work to fight spam. Well, we're living in a world 30 years later and we still have spam.
- [42:13]
Robert Breedlove
Yeah.
- [42:14]
Michael Saylor
Like we're running two levels of spam filters. At my company, 90% of my email is spam. I'm getting spammed on LinkedIn. I'm getting spammed on Facebook, I'm getting spammed on Instagram, I'm getting spammed on Twitter. All of the news feeds are getting spammed. And it's worse than spam. There are hostile malicious actors that are fake bots that are waging a psychological psyops warfare to destroy people and ideas and demoralize them. They do it for economic reasons, they do it for political reasons, etc. And there is no way to stop that in the absence of some value network. The killer application for bitcoin with social networks is credit worthiness, leading to cybersecurity, safety and civility in cyberspace. Now if you think about where you can apply this idea of just a security deposit, which is the same as a cyber bond if you will, or a cyber passport. The beauty by the way, is you don't have to disclose your identity. You could spin it up and spend it down and it's lightning fast and dirt cheap, so it's open to everybody. But once you spin up this idea, it works across every social network, it cleans up all of the feeds, the news feeds, etc. It also works for all the communication networks. So you've got WhatsApp and Signal and iMessage and Zoom and you've got Gmail, every other mail office 365. All of these things have spam imposter malicious accounts that the phishing attacks are ridiculous.
- [44:06]
Robert Breedlove
Right?
- [44:07]
Michael Saylor
Right. So if you're a corporation and you want to send something, you know, maybe you ought to post. If someone sent me a mail message and I knew they posted a thousand bitcoin security deposit and if they had it all at risk and if they could lose it instantly on the platform, I would, I would probably trust them more. It's all about cyber reputation. If you really want me to do something risky, what do you have at risk? What's your value at risk? Now what's interesting about this is you're picking up all these security deposits. The platforms could use the money to float to do something if they wanted.
- [44:49]
Robert Breedlove
Yeah.
- [44:51]
Michael Saylor
And it's generally good for bitcoin because it locks up the bitcoin on the platforms.
- [44:55]
Robert Breedlove
Yeah.
- [44:57]
Michael Saylor
And so, and the sky's the limit. Once you've done that, you're not that far from say, implementing fees. You could say, look, you want to send me a message, pay me a thousand sats. You know, you can have micro payments, you can have streaming payments, you can tie services to creditworthiness. Look, if you go to a bank and you put a bunch of money in the bank, they'll give you a higher level of service. Right. Than if you put a small amount of money in the bank. So if you want to distinguish services Whatever they might be, it might be more bandwidth on spaces or more bandwidth or something, or it might be some other functionality, but everybody, eventually they can become a bank. And, you know, that takes us like entertainment news. I mean, they have similar opportunities. They sell access via these micro payments, or they curate the response. They create safer forums and safer spaces by requiring that you be credit worthy in order to engage. Or they certify their news by posting some credit worthiness. There's a lot of news circulating around, so if you're trying to separate fake news from real news, then you could use this to certify. You've also got service providers like Uber and OpenTable and Airbnb. And for them, the idea of credit worthiness also matters. It matters when you're pairing restaurants with customers. Can I trust the customer to show up to the restaurant? Will they forfeit their deposit? Can I trust the driver? Can I trust the passenger? Can I trust the person that's going to come into my Airbnb? They try to do that with reputation, but there is no more important metric, I think, than the credit worthiness. If someone says, I'll post $10 million in order to drive your car for the weekend, yes. It's highly unlikely that they're going to trash your car. And one way or the other, it's just an example of insurance policy or a bond. I mean, if you have the recourse to the bond in cyberspace, then it creates accelerated commerce. And that means that millions of people can trade with millions of people without the impedance of quote, unquote, getting to know each other.
- [47:39]
Robert Breedlove
Yes, yes. Yeah. Accelerated commerce and higher quality. So again, the skin in the game term we keep throwing around, but it's this balancing of incentives and disincentives that facilitates quality discourse among people.
- [47:56]
Michael Saylor
There's not a day that goes by, Robert, that you don't hear about someone getting hit with a denial of service attack. If you have an open website, there are hostile actors in Eastern Europe and they'll unleash an army of machines or an array of machines, and they'll just start hammering your website to take it down. It happens all the time. It's like spamming, except it's worse. That's because there's no cost for denial of service. But a lot of the proof of work and a lot of the Bitcoin protocol was to protect the underlying Bitcoin mining network from denial of service attacks. But this actually solves the problem. If you have a web service and you require someone have an orange check, you could actually filter on the orange check and you could then prevent the denial of service attack. Or you could protect yourself from it. Again, like having a credit rating in cyberspace and since it's open to everybody in the world, anybody can have one. And it causes 98% of the malicious behavior to be non economic anymore. It doesn't make any sense. So I didn't spend much time on retail. But clearly retail is another example of a layer three application of Bitcoin. And it's either again, it's either buying, selling, trading security deposits or credit checks or the like as you're doing business. If I'm selling something to someone and I trust them and I trust their credit rating, then maybe you can do business with retailers friction free that don't know you and you don't know them. Right. And it definitely is the case that if I'm Amazon or I'm setting up a retail operation, people are coming at me that I don't know very well. And so what I want to do is find a way to accelerate the transactional speed and I do that with some type of lightning security deposit and or lightning payment. We didn't really touch on the elephant in the room here, which is the Visa MasterCard network cost 2.5% just the general payments network in general and remittance network is another killer application. Just money movement around the planet because the existing systems either bank wires, the existing way to move large sums of money is bank wires and small sums of money is credit cards. And you have knockout periods, they don't move on the weekends, they don't move from certain jurisdictions to others. You can't program them, they're not automated. So you've got a heterogeneous, expensive manual patchwork quilt of payment options and you can't scale that. Lightning helps you scale it at the transaction level. And then Bitcoin is the core settlement network. If you want to plug 100,000 businesses into each other and move blocks of money, a million to 100 million or a billion at a time, you do it on the Bitcoin network. And then when you want to plug the millions and tens and hundreds of millions or billions into each other, you got to do it on these other platforms. But it won't be one. I mean, lightning I think will be very successful. But I think that, you know, Square and PayPal and Apple Pay and Google and Facebook, they will all build their own proprietary networks and they will have additional functionality built into it or compliance built into it or performance built into it or Just convenience. It's so subtle. If I bought an insurance policy a decade ago, and if the insurance company just buys bitcoin for their balance sheet, I now own a bitcoin derivative insurance policy and I did nothing. So there are certain subtleties where the corporation or the actor can do something that provides a benefit to millions of people without them doing anything. And that's how you really scale in a big way. If you're a country and all of a sudden you start buying Bitcoin, your currency in circulation with 11 million people using it has become a bitcoin derivative. And it just happened because someone in the back office started buying Bitcoin, right?
- [53:00]
Robert Breedlove
Yeah.
- [53:01]
Michael Saylor
So the beauty of all this is there's a lot of ways to scale Bitcoin and there's a lot of applications. There's hundreds of thousands of applications, millions of applications. There'll be lots of platforms, lots of tools. If Twitter creates the orange check and they plug it in the Lightning network, then who's to say that Twitter couldn't open up the API and let Google and Facebook and Apple and Medium and Reddit and Discord inherit the orange check? Twitter becomes a platform for cybersecurity. And you carry your Twitter reputation or credit rating to all these other places. I mean, that's what Google tries with their Google login and Apple has login with Apple. Right. They're carrying authentication around the network. But there's no end to the type of opportunities that there are there. And you're only limited by human creativity.
- [54:09]
Robert Breedlove
Hey, everybody. So that was episode 17 of the Saylor series. And in this episode we got into the how of bitcoin, how it changes a lot of things. And so start out. I think this is a point we've reiterated a lot, but I think it's worth touching on again as it really points to the inevitability of Bitcoin. And that's the simple fact that every individual and organization is essentially forced to buy Bitcoin out of self interest at some point. And so the reasoning behind this, one useful way to think about it, in my opinion, is that money is the prime mover of human action. So there's this old saying that show me the incentives and I'll show you the outcome. And as I've said a few times, I actually view incentives as the soil from which human action springs. So people tend, not always, clearly it's not perfect, but on average, people tend to follow the pathways of their incentives. In the world of economics, there's no more powerful material incentive than Money itself, which explains a lot of what we talk about on this show. In that way, you can consider it the base layer protocol of human action, or perhaps even the most powerful incentive in the world, as an emblem for freedom, for power, for human time. This instrument that we call money is clearly something that's very alluring to a lot of people. And so when you come to look at money that way, when it's the base layer operating system, to use a software analogy, come to see social institutions, organizations, all the things we build as really just applications of money. Ultimately, and this is very clear with the business, that the business is based on its P and L. If it's not performing in a true capitalist society, it would liquidate, it would go bankrupt, and the capital that constituted that business would be put back into the marketplace and put to higher and better use based on the wishes of consumers. You could say the same of any other social institution as well, including the state. The state is a business as well. It has a bottom line. It has revenues. Its purpose is to grow, to increase its revenues and to increase its power. Frankly, it has wielded its monopoly position on violence and coercion historically, always really, to manipulate money and to monopolize money, because, again, money is such a powerful tool. So Saylor makes this great point that if you can get high integrity at the monetary layer, then you don't need it at the currency layer. So again, to back up a little bit, currency too, just like a business, just like a social, social institution, currency, this paper note we have that was redeemable for money historically, like gold, that too is an application of money. So Saylor's making the point that if you have high integrity in the money, then you don't actually need it at the currency layer. So the way I unpack this is to say that when money is well integrated to its referent, which again, if money, currency used to be redeemable for gold, gold was just an emblem of all these things we just named time, energy, work, power, whatever you want to call it. Money is kind of an amalgam of all of these. And when money is integral to that referent and in a highly portable form, because money, clearly it's a tool useful for expressing value across time and space. So it needs this quality of portability. Then all of a sudden, you don't need promises to money. You don't need a currency. Actually, it becomes unnecessary. This application of money we call currency becomes unnecessary when the money is integrated to its referent and it's highly portable and as you might have guessed, that's exactly what Bitcoin is. Bitcoin is perfectly portable money rooted in work, which is a superior base layer protocol to human action. It's superior to gold, and that's why it's so significantly disruptive across all of these dimensions of human action to zero in on the nation state a bit. The size of the nation state today, I would argue, is actually a result of, of exploiting that attack vector on these promissory notes to money we call currency. Gold lacked portability. Gold was not useful for day to day transactions. Therefore we needed to abstract it into a paper currency that was more portable, more transactable. This introduced counterparty risk, though in the form of the custodian, which was the bank, which later became the central bank. And my argument here would be that the size of the nation state or the government today is a result of exploiting that very attack surface. That need to trust the issuer or the custodian gave the most forceful player in the room, the state, the ability to extract wealth, essentially ad infinitum, until the currency hyperinflates. And if the currency hyperinflated historically, your economy would transition to the next strongest currency. So market actors, at least in the 20th century, have just been kind of forced into the best of the worst. Whatever the best fiat currency was, they were forced to use. So Bitcoin, by being this universally accessible money, again with a Bitcoin world, you don't need to custody it with a warehouse and then take receipt of a paper promissory note to that money, which would be an application of money called currency. You don't need that to conduct Bitcoin transactions at high frequency. We can abstract into something that's more trust, minimized, like the lightning network. Instead, Bitcoin's, in a way, it's like destroying the notion of currency in a lot of ways. If you define currency as what is government authorized. And so Bitcoin is like this globally accessible monetary layer because it's purely digital, it can be integrated to these other layers to increase its transactability and whatnot. And I think the thought process I have here is that again, if all of the organizations we build, all the institutions we build in the world are just applications of money. But money historically was not as accessible. It was largely centralized and controlled by banks and ultimately the nation state, then this impeded the experimentation process in social institutions and businesses, et cetera, et cetera. It's impeded capitalism in general. So my thought here is that by having Bitcoin that's a globally accessible money. You'll actually accelerate the experimentation in social institutions, including government and the state and businesses, et cetera, which leads to more innovation, more quality and lower cost. So that's another way to view this transition, I think, is that money was something that was really hard to access because gold was so expensive to move. We needed this complex set of complex interdependent counterparty relationships. The central bank and the prime broker and the, the regional banks. There's just all this stack of promises, frankly, where Bitcoin just slices through the whole thing. It's like you don't need promises because the money itself is highly accessible and highly portable. So you can just have final settlement. So you have real truthful signals propagating in the sphere of human action. Whereas today there is a lot of opportunity to obfuscate and manipulate those signals. So the net outcome of that would be a much more honest world built on honest money. So Saylor and I later got into this point where all monies and assets more generally, as he points out, they exhibit this multi level marketing valuation dynamic. So that is to say Sailor gave the example of Amazon and Facebook. They were first on the cap table. They were first to hold that stock, therefore they are rich forever. They were the first to own the certificate to this company's capital, the capital of which that company came to satisfy the wants of billions around the world in the case of Amazon and Facebook, so that those first movers, the founders, basically benefit disproportionately to everyone else. You can't go buy Facebook or Amazon stock today and expect to have the multiple of return that say, Bezos or Zuckerberg had. So I like to point out that this is very similar to monetization, actually, in that if we consider that a stock certificate is titled to company capital, each stock certificate represents a share of that company's capital. You could analogize and say that money is a title to the global capital stock because money can be used to redeem anything effectively. So when an asset's monetizing, as we see with Bitcoin, the early adopters, the people that figure out first that hey, money that is resistant to supply, inflation and dilution is better than all monies that are not resistant to or not as resistant to inflation or supply dilution, the people that figure that out first and buy bitcoin first benefit disproportionately in anticipation of later adoption. And this also works in reverse with fiat currency. Those that realize that, hey, expanding the money supply is diluting me Diluting my interest in the global capital stock. And I see that this supply expansion is being done arbitrarily and is likely to continue. Those that figure out that game first and exit that game for something like Bitcoin benefit disproportionately to later people that are forced to exit in the case of something like hyperinflation. So this is just an important point that the nature of wealth is hierarchical. Whoever builds it first or gets there first or owns it first, tends to benefit, actually will benefit not necessarily at the expense of later adopters, but will benefit in relation to later adopters. And so this is the game, this is the game of investing. It's like who can figure out where the world is going first? This is the aim of entrepreneurship, is to map current production efforts to anticipated future market data. Where is the world going? This is entrepreneurship in a nutshell. The introduction of Bitcoin is interesting for governments, even in that it actually allows them. Saylor makes this great point that it allows them to be a little bit more entrepreneurial in competing for citizenship. And that a government could now adopt Bitcoin or start to acquire some Bitcoin. They could use the gains that result from Bitcoin's monetization to actually reduce. They would not need to generate as much tax revenue to remain a going concern. So they actually reduce taxes to attract citizenship. So you could make this means that the first mover nation states to adopt Bitcoin could use the wealth they gain as a result to decrease taxes and attract the best and brightest citizens in the world, which is to say, draw in more capital, more business activity, more intellectual capital or entrepreneurial capital into their country as a result of using or adopting Bitcoin early. So that's interesting. The state almost has to play this game now too, where if they want to have a tax base in the digital age, they need to cater to that tax base. And Bitcoin's a tool that really empowers that aim a lot or the realization of that aim. And so just to round off the discussion of wealth being hierarchical, this is another good way to think about fiat actually, is that if all wealth is hierarchical and it's whoever gets to where everyone else is going first, wins. You could think of fiat currency as a game in which a privileged few, the shareholders of central banks and those nearest the spigot of freshly produced liquidity are effectively always the early adopters. They're granting themselves this perpetual privilege to always be the first at the pump to just drink the freshly produced money and Spend it as they see fit before the value of it is diminished by inflation. So I think that's a deep point, that all wealth is hierarchical. The problem with fiat is that there's no game being played actually toward the satisfaction of wants. It's just this isolated group of individuals that have enabled themselves to drink first always. Which is a zero sum game, by the way. I should add that that's wealth destructive. You're just stealing from people. You're not creating any new wealth through trade or innovation as you would be doing in a hard money society. So fiat currency really perverts the entire incentive schema, which, as we said earlier, if incentives are the soil from which human characters spring, then we've really poisoned that soil of fiat currency. So it's no wonder that we get really bad, wicked, immoral behavior coming out of state bureaucrats and central bankers. So shifting gears a bit, we got into Saylor laid out a lot of instances and examples of how different industry players can use Bitcoin to their advantage. On the energy company side, he made this point about Bitcoin mining that essentially, if you're an energy producer, the easy strategy is sell energy to Bitcoin miners. Slightly more complex strategy is to become a miner yourself. You could also buy Bitcoin and announce if you're a large energy producer, that would trigger this game theoretic dynamic we've been describing. Or most aggressively, you could actually raise debt. If you're a publicly traded energy producer, you can raise debt against companies P and L and balance sheet, use that debt to go out and buy Bitcoin or pay your operating expenditures as a miner. So you could actually become much more of a holder. And you can do all the other, make all the other maneuvers that Saylor laid out, but you could also do it with borrowed money effectively. And this I think you see reflected in macro strategy where they are really adhering to Gresham's law. Gresham's law says that softer money will be spent and borrowed and hard money will be saved. And that's exactly what MicroStrategy's done. They've put their liquid assets into Bitcoin. They've also taken on leverage against the company's P and L and balance sheet and also use those proceeds to buy Bitcoin. So this is the strategy. This is the Strategy we've seen MicroStrategy and something you would expect to see in energy producers who have the added benefit that their operations can be used to produce Bitcoin as well. So if you can't sell the energy into the grid. You can use it to mine bitcoin. So I think this leads to eventually is a consolidation of bitcoin miners and energy producers. And it's interesting which way that could go. Today. You would think the producers would buy the miners, but miners keep performing as they have been and bitcoin keeps performing and the multiples in mining are much higher than energy production. You could see miners ultimately buying energy producers. And Saylor walked through some history on that too. And then if you tack on in that future where energy producers and bitcoin miners are consolidated, if you just tack on financial services to that consolidated entity, then you have this potentially this future banking industry that's producing energy, mining, bitcoin and providing financial services on top of it. So maybe the energy producers of today are the banks of tomorrow, something like that. Say they went into how Bitcoin can be used to add to different investment funds to increase their sharpe ratio or increase their, which is to say their risk adjusted rate of return. This is really interesting because then bitcoin becomes just a dial. Effectively you add a certain percentage, assuming it continues to do what it's been doing the past 13 years, you would just add a certain percentage of bitcoin to augment the risk return profile of any given mix of assets or any fund of assets. So it's a way to juice or sweeten traditional fund returns, which I thought was really interesting and will very likely be a very large demand driver for bitcoin. And this is a big deal because a Saylor states very clearly $100 trillion of bonds and fixed income assets are broken. Right? We're now at the zero bound in many parts of the world with government bonds. And this is not surprising actually when you study Austrian economics. One of the most mind blowing insights that I got from Mises was that all government action is a misallocation of capital because all government action involves coercion. So if a government taxes citizens to build a bridge, you may think, oh well that's great, we have this new bridge. How is that a misallocation of capital? But what you don't see, and this gets into the seen and the unseen, is all of the capital investment that the money would have gone to had it not been taxed away from citizens to build the bridge. So another way to say this is that all government revenue is via taxation. All taxation is coercion. And coercion creates externalities. People try to avoid it or evade it, they don't want to pay it and it costs Money to overcome that resistance. And therefore the end project funded by taxation is by definition a misallocation of capital. If the marketplace wanted a bridge there, if enough collective market actor preference wanted a bridge, then it would happen. The market would create it. Enough people would vote with their pocketbooks to make it happen. So it's no wonder that government bond yields have been collapsing. This is capital they've borrowed in the market and then they've allocated to projects. But it's all a misallocation of capital. So. So of course the misallocation of capital is not generating enough yield to pay bondholders over time. And you see this reflected in just more and more production of money. This is the debt monetization process. We increase the supply of money, use it to buy government debt, and then the government goes on misallocating more and more capital in kind of this vicious circle. But the zero bound on government bond yields is the inflection point of these broken store of values. Stores of value, sorry, because psychologically, a creditor is not going to accept a negative interest rate. It's one thing to go from 8% to 5%, something like that. It's an entirely different thing to go from 2% to negative 1%. All of a sudden you as the creditor are actually paying the borrower, which makes no sense. So I think as you see more of these large capital pools, more of these allocators, add Bitcoin as if even if nothing else is a seasoner, as we described earlier, that you're only going to increase the price of bitcoin, which further de risk it. And this is one of the craziest things about Bitcoin is that the higher the price goes, the less risky it is, which is to say, the higher it's likely to go. And this is really unlike, this is something unique to money. Some people have described money as bubble that never pops, which is to say it's the asset that has the most marketability, which is the definition of money. So it's held in anticipation of future exchange. And that anticipation is largely rooted in all the properties of money, but primarily rooted in the scarcity. How credible is the scarcity of this asset? And there's just no example of that historically except example of an asset being as it has a higher market value, it actually has more demand for it. This is contrary to any other asset except maybe gold. You could argue historically as hard money was similar and that the higher it went, the more cemented it was as the monetary standard. So with bitcoin, people that think they have missed the boat or they think bitcoin's too expensive at 60,000 or whatever the number is. You really need to absorb this point that it's actually the higher bitcoin goes in price, the more secure is its network, the more likely it is to continue out competing all other monies. Typically the more regulatory headspace it has too, because again, the state is incentivized to operate with this thing, to try and tax it, to try and draw on business. So it's actually the opposite. Bitcoin's not like a stock where it's overvalued. It's the higher the value of Bitcoin, the higher the value of Bitcoin is likely to go in the future. Really interesting, Somewhat simple, but hard to accept point there. Finally, Saylor went into all these areas that Bitcoin improves. Hardware, applications, operating systems, entertainment, news, service providers, which again, back to the beginning of the conversation. If we consider that all human organizations are applications of money, then it's not surprising that Bitcoin is disruptive to gold, disruptive to money, it's disruptive to all of these higher order applications. And he just does a brilliant job of going through them individually and describing how that's the case. But you know, what I'd like to speak to here is that the core of all of this, and you've heard us say it a lot, the core of all these improvements is the introduction of skin in the game. And this is a really important concept. It's sort of synonymous with accountability. You could say that those who take the risk make decisions relevant to those risk and partake in the cost benefit of the risk taken. It's when you remove the cost of risk taking that the systems get flooded with risky behavior. Not surprising. If you reduce the cost of risk taking, people take more risk. You could look at this, the scamming and spamming on social media that we walked through, that's a bunch of risky behavior because there's no cost, right? These people are trying to execute these phishing scams and whatnot because there's nothing to lose. It takes a little bit of time to set up one of these fake accounts and they send someone a dm and maybe once in a thousand tries it works. But that, that's all you need. You just need it to work once and a thousand because there's no cost. But if you introduce a cost to the spamming, the phishing, the scamming and all that, then it really just goes away because you can flip that cost benefit on the would be spammer or scammer. And so you know, it's not. And this is something we lack in digital space. And really it was the purpose of proof of work originally as we talked about, was to to be a countermeasure against this type of scammy or spammy behavior. But it's no coincidence to me that digital space has been constructed without skin in the game. Actually when we consider that fiat currency is similarly constructed. Again, if the Internet is just an application of money and then our fiat currency is just an application of money, but fiat currency has no skin in the game, then it seems to me almost intuitive that these systems would come to mirror one another. To break this down a little bit, for those who may not be familiar, if you look at something like gold, and again, skin in the game it's just a balance of incentives and disincentives that keeps the system honest and balanced and actors accountable. With gold you have the cost of mining, cost and risk of gold mining. That's the proverbial stick. It takes sacrifice to procure the gold and then the market value which you can sell the gold for on the marketplace. That's the proverbial carrot, that's the incentive. So you have this balance of mining cost and risk as a disincentive balanced against the incentive of gold's market value. For instance, now with fiat we know the cost of production are near zero, right? This is just a database entry in the case of the US at the Federal Reserve, just a central database. Someone presses a key and then bam, you've expanded the money supply $10 trillion. So there's no stick, there's no downside for a central bank to produce more money. The market value of said money, called the dollar, it's really an expression if you boil it down of market actor, either ignorance or fearfulness that people will continue to hold dollars or maybe inertia too. It's like, oh well, dollars have always worked. So I just assume they're going to keep working or under the threat of capital controls or whatever state measure of coercion, you just choose to hold dollars. That's the incentive against the disincentives. But clearly it's much heavily weighted to the incentives and that the dollars are much more valuable in the market than they cost to produce. So what does this lead to? This leads to a dynamic where fiat currencies self annihilate and hyperinflation. Just like the spamming and scamming. We said there's no cost to spam and scam in digital space, what do you get? A flood of spammers and scammers. Well, if there's no cost to produce fiat currency, what do you get? A flood of fiat currency in the marketplace, which is exactly what we have today historically, always gets to the point where the money becomes so rapidly produced, the supply has expanded so rapidly that it ultimately goes into a hyperinflation event and contracts to worthlessness, frankly. And these things happen gradually, then suddenly, and maybe a bitter pill to swallow, but people think that the US dollar could hyperinflate. In fact, Jack Dorsey tweeted about this recently and there was an outcry from the traditional economics establishment saying, oh no, it can't happen, there's no inflation. But just look at the basic supply and demand economics and draw your own conclusion. That's all I can say and I can't. I'd be remiss if I did not share this Nietzsche quote that keeps rattling around in my head that everything the state has is stolen, everything it says is a lie. So when they tell you there's no inflation yet you see the cost of food and gas and everything else that you buy on a day to day basis going up, you should probably ask yourself a question, what are your sources and how do you trust them those sources? Or have you done your own analysis? And then to bring it back to Bitcoin again, this is skin of the game. There are incentives driving up the cost of bitcoin production over time. This is to say the cost of production increases. This is creating a more secure network, which leads to more demand for Bitcoin as a store of value, which leads to a higher market price, which makes bitcoin mining more profitable because they're paid in Bitcoin, which leads to more investment in mining, which leads to higher production costs. And this is the virtuous cycle that uplifts Bitcoin's monetization process. And you have that virtuous cycle colliding with the vicious cycle of fiat currency debasement worldwide. And that collision is what we call hyper bitcoinization. It's where bitcoin just devours all of the failing monetary technologies worldwide. It's early days, but I think so far so good. Everything that bitcoiners have been saying up until this point directionally has been true. It gets outside of just money though, because I would say the core problem in the world today is that our leaders don't have skin in the game. They lead from the back, if you will. And this is not the norm you know, when Napoleon led his troops to battle, he was in front right. He had skin in the game. He was taking his troops into situation of significant risk, but he himself was bearing those risks. And if his army emerged victorious, well, he himself benefited in those rewards. That's not what we're doing today though. We have people, leaders that are very separated from the consequences of their decisions. And in fact they can often make decisions that just hurt everyone else and don't affect them at all. It's a heads I win, tails you lose situation. I think Bitcoin by again fundamentally disrupting this prime mover of human action called money. It's reuniting decision makers with the costs and benefits of the decisions they make. This is pretty obvious. If you are the decision maker, you should be accountable for that decision. If it's a bad outcome, you should incur the loss. If it's a good outcome, you should enjoy the profit. I mean, this is just very basic economics. Yet in the current model of statism, it's not that way at all. If a government makes a bad decision, then they're just going to print more money or increase taxes to go and continue making more bad decisions. So everyone else bears the cost of a few bureaucrats decision making. And this just does not work. If we've learned nothing else historically is that that model of statism and systemized coercion, it fails eventually. So skin in the game is what we need. We need skin in the game. We need individuals to be accountable for their actions and their decision making. Clearly, skin in the game is what makes systems work. Skin in the game is intrinsic to nature. Right? If you walk off a cliff and you fall 300ft to your death, well, you have skin in the game, you made a decision and nature says, hey, gravity is now going to hold you accountable for that decision. Walking off the cliff, you can't print money to save yourself or paper over your bad decisions. You face the consequences of your actions. And so maybe the most important way to conceive of Bitcoin is as that it is a permanent implementation of the skin in the game, or accountability principle, responsibility principle, whatever you want to call this into money. And money is the prime mover, the soil from which all human action springs directly or indirectly. So I hope you guys enjoyed that. Sailor and I are likely going to record some more episodes, but this is it for now. Really enjoyed this series. Saylor just has this brilliant way of combining education and humor that has radically expanded my worldview. I hope you guys enjoyed this one. And I'll see you back here again soon.