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The "What is Money?" Show
WiM004 - The Saylor Series | Episode 4 | Bitcoin: The First Digital Monetary Energy Network
01:47:31
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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- [00:03]
Michael Saylor
Technologies that are dominating today. They're dominating because they're able to deliver force faster, harder, stronger, smarter. So if we ask the question, what is money? Money is the highest form of energy that human beings can channel. Bitcoin is channeling human ingenuity into making it better. And every commodity is channeling human energy into making it worse. The lowbrow or the historic colloquial term is hodl, right? Hold on for dear life and just hodl or save, whatever. And the highbrow term would be adopt as a Treasury reserve asset.
- [01:06]
Robert Breedlove
Hey guys.
- [01:07]
Unknown
So as you learned by watching the what is Money Show, Bitcoin is the single most important asset you can own.
- [01:14]
Robert Breedlove
In the world today.
- [01:15]
Unknown
And so this begs the question, which I'm often asked, how does one build their Bitcoin position? And the strategy really is simple. I suggest first you decide on an initial portfolio percentage allocation and and a target portfolio percentage allocation. Go ahead and establish the initial position with a one time buy and then start dollar cost averaging towards your target portfolio percentage. And you can also complement this by buying bitcoin price dips to further increase that position and reduce your cost basis. And finally I suggest to everyone to take custody of their Bitcoin to move all of their Bitcoin into self sovereign custody. Because again, Bitcoin left on an exchange is not Bitcoin, it's Bitcoin iou. And for those of you living in the US there's no better choice than Swan Bitcoin to do all of the above. So Swan lets you set up automatic recurring buys for Bitcoin, also lets you facilitate one time buys for buying price dips. And finally they let you do set up automatic recurring withdrawals into cold storage.
- [02:19]
Robert Breedlove
Which is a really big deal.
- [02:21]
Unknown
And all of this they provide at the lowest fees in the business. Approximately 0.99% per year for weekly buys of $50 or more, which is about 60, I'm sorry, 70 to 80% less than Coinbase by comparison. And the best part, Swann is a bitcoin focused education first company. They publish great content on their Swann Signal live podcast. They publish a lot of content in their newsletter and website. And their team is just the absolute dream team of Bitcoin, I would say. Check out their roster. It's growing every day, but it's a.
- [02:57]
Robert Breedlove
Super impressive group of individuals.
- [02:59]
Unknown
And so with that I would highly recommend you check out swan bitcoin.com breedlove. You get $10 in free Bitcoin for signing up and it lets you stack sats with myself and the rest of the Swan team as we continue the fight to restore freedom, truth and virtue in the world through bitcoin.
- [03:21]
Robert Breedlove
All right, thanks. Hey, guys, welcome back to episode four of the what is Money? Show. We're coming back today with part four of the Sailor series. And this is the first part of day two. So Saylor and I spent two days recording. We did about ten and a half hours in total. So episode four represents the first episode in day two. And if you haven't seen episodes one through three yet, I highly recommend you go and check those out. We built a lot of foundational material there that just gets referenced back to going forward. So I think it's really important. In episodes one through three, we covered the Stone Ages, the Iron Ages, we went into the Dark Ages, and we came forward into the steel and the Industrial age. And now today we're getting into the good stuff. Bitcoin theory, the digital age. How money and economics is changing once again based on these new and radical innovations we see in the world today. So today we're going to learn about how bitcoin is the first true digital monetary system in world history. We're also going to hear Saylor's question. I'm sorry, Saylor's answer to that all important question, what is money? And he has a really, really good answer. I think you're going to dig and we're going to get into a bit of the economic principles underlying commodities and their uses. Money and why commodities make a really bad form of money. Actually, Saylor lays out a really good case for commodity money being kind of a self defeating endeavor. And then finally we're going to start looking at Bitcoin as the ultimate means of wealth settlement and preservation. It's, as Saylor refers to it, is the first closed loop or closed source energy system we've ever had. So I don't want to spoil anything. This episode is really good for me. This is when a lot of the light bulbs started to go off and sort of have a lot of those little mini epiphanies during our conversation, which you might see me having as we engage. So I hope you like this. It's a really good episode and see you again soon.
- [05:45]
Unknown
Hey everyone, welcome back to the what is Money Show. I'm your host, Robert Breedlove and I'm sitting down today with Michael Saylor as we dive into part two of this deep conversation involving history, technology, commerce, economics, money. Really covering a broad, broad spectrum of topics today. And today's the good day because we're getting into the good stuff with bitcoin theory as the first digital monetary system. Michael, welcome back.
- [06:22]
Michael Saylor
Thank you for having me, Robert. I'm excited about this. So we're going to talk about bitcoin theory.
- [06:31]
Unknown
Bitcoin theory, it's a field you wouldn't have thought you would have heard about even five years ago.
- [06:38]
Michael Saylor
Well, when I think of bitcoin, I think this is the first digital monetary system in the history of the world, perhaps the first. We've tried others. They just didn't work. This is the first one that's perfected, that's functioning. It's the first one to cross $100 billion in market cap, and now it's about 200 billion in market cap. $200 billion means $200 billion of monetary energy. And if I look at all of the other great digital networks, Apple, Google, Facebook, when they cross $100 billion of monetary energy, then that's a legitimizing step. Generally, when they get there, 95% or more of the investment community doesn't believe in them. Sometimes 99% doesn't believe in them. But they're too big to fail. Their fires that have been unleashed into the society, and they're burning. And the effect is exothermal. What we have in each of these networks is we have the collapse, a dematerialization of some product or service or virtue or some ineffable quality, be it friendship or mobile devices or information, it's collapsing into a lower energy state. And as it collapses into a lower energy state, huge amounts of energy in the form of profit, cash flow, and value get given off. Apple can ship a better camera to a billion people overnight for a nickel. Facebook can improve the way that you communicate to your loved ones overnight for a nickel. And Google can package the Library of Alexandria in the palm of your hand and ship it to a billion people overnight for a nickel. And when you have these massive dematerializations of value and they get on a network with a network effect, it's almost like when you see a crystallizing structure where you've got an amorphous substance, and as it crystallizes, we go from steam to water to ice. Collapses, gives off energy. And what bitcoin is, is it's that first digital monetary network, digital monetary system, it's collapsing into a much more efficient form. It's giving off energy. And that just brings us back to this entire subject of how important is energy to the human race?
- [09:22]
Unknown
Okay, let me ask you. So let me ask a question. There, there's a chart with phase transitions of, say, water, of going from ice to water to steam as its temperature increases and it shows increases in temperature. And then when it actually goes into the phase transition, it flatlines. So it's like all that energy is being reallocated to, I guess, changing the molecular structure for the next state. Then the temperature starts to increase again as it goes into water, and it flatlines again before it goes into steam. So I guess what you're getting at is that energy becomes transmuted into the next state before it can start to give off energy in the form of profit, productivity. It's giving back economic substance, I guess, to its users. I think that's sort of the analogy you're drawing there.
- [10:16]
Michael Saylor
Yeah, it's a wild thing when, when all the monetary energy leaps from gold to Bitcoin, or when it leaps from fiat to Bitcoin, there's this phase transition. And we see it throughout all areas of science. But right now, this is just the first time in human history that we see this creation of a pure digital monetary network. I want to replace monetary network with energy network because monetary energy is energy and money is energy. In fact, money is the highest form of energy. So if we ask the question, what is money? Money is the highest form of energy that human beings can channel. So if I look back through time, human beings as a species prosper by channeling energy. And when we mastered fire, we channeled chemical energy. And when we mastered missiles, we channel kinetic energy energy. And when we master water and hydraulics, we're actually channeling gravitational energy. The idea of an aqueduct is, well, I'm using gravity to move water 70 miles, or I'm running a water wheel, or I'm floating a 2 ton block in the water and the gravity is pushing down on the water and the water is pushing up. And when I dam a stream and I generate hydro energy, well, that's gravity being converted energy. But if I dam the stream to divert a bunch of fish into my pond, I'm still using gravity. Now I can channel gravity by dumping a bunch of rocks on your head. But it's not nearly so easy to create a river of rocks as it is to actually just tap into a river of water. And so the mastery of fire and water is the mastery of, of chemical energy, gravitational energy, eventually thermal energy. And the modern era morphed into the mastery of electrical energy and atomic energy. And of course there's conservation of energy. And when we look at all of these energy networks, I mean, look, a Hundred guys with bows and arrows are an energy network, right? I'm moving kinetic energy from this side of the battlefield to that side of the battlefield. And a civilization at the mouth of a river, with cities up and down the river, right, is sitting on an energy network just like the Aegean. And the Greek civilization was sitting at the middle of an energy network. And they were using gravitational energy, wind energy, another form of energy between sails and gravity. You know, I'm taking advantage of these energies. So the theme is humans prosper by channeling energy. What's the most efficient energy network in the history of the world? Well, it's about to be Bitcoin. Because the challenge of humanity is how do I store energy and transmit energy across time and space and domain. And by domain I mean perhaps governmental domain. Like how do I move my energy from New York to Tokyo? And this becomes an interesting question, right? Let's say, let's take a typical power grid. Well, I generate power, I channel chemical energy into electro energy. I lose like 35% of the energy in the coal or in the fossil fuel. When it gets onto the grid, I move it over a high voltage line and I can move it up to about 500 miles and I lose 2% of the energy. Now it has to get stepped down to 240v or lower voltage even to get into your house. As the voltage steps down, I lose more energy. It's about a 4% loss. If I had pure energy at the power plant, I'm going to lose 6% of the energy to put it into your house 250 miles away. I can't send it 2,000 miles away. I just can't. I can't send it 10,000 miles away. Energy will not move from New York to Tokyo. But I can do New York. Disconnected. Now when it gets into your house, you have to use it immediately. You can't store it. So let's say I wanted to store it. I need a battery. Well, the absence of a battery prevents a mechanism. The mobile wave is a function of lithium ion batteries in the palm of your hand. No lithium ion battery, no smartphone. Now we're working with modern batteries. You know, Tesla, it's all about the battery, right? And Elon Musk has really driven battery technology. So let's say I put a battery in your house and you pull energy into your house. Well, you've lost 6%. Now, typical battery, a good one is going to lose 2% per month. Okay, that means you're going to lose 24% of your energy. A year. Well, what does that sound like? It sounds like 24% inflation a year. It sounds like hyper inflation. It could get worse. Right? Hyperinflation is 100% inflation. Here. Let's say that I have a battery which loses 20% of my power a year. Well, my half life on my energy that I pulled off the plant is three and a half years. In ten years, up to twelve and a half percent of my energy. So the entire civilization is based upon electric power grids and networks, and yet it's not that good. I mean, you really can't store that much power. Anybody that ever put their computer, they charged it and left a computer for a month or two months and you whipped it open. It's like it's drained.
- [16:47]
Unknown
Yeah.
- [16:48]
Michael Saylor
Okay, so now let's say I want to take $100 million. I can take $100 million of money and I can buy $100 million of electricity in New York and I can distribute it to 10 million people in New York as long as they use it today. So if they don't use it today, it starts to bleed out. And so this is the loss on the network. No.
- [17:23]
Unknown
And in a monetary sense, we would say that energy really lacks durability. I think this is important to you to tie this back to money. Is that gold itself, to your point, was an energy network. It was whatever productivity couldn't be allocated towards something more economic. We would go and mine gold such that gold became this claim on savings of humanity, which is what money is. And those savings themselves are the result of all our collective energy utilization up until that point. Right. We've been transitioning energy into capital. And then gold or money becomes the network that commands that capital. And then what I think is interesting too is that the scarcity of the gold actually reflects the scarcity of the energy. So it maps onto it in a way.
- [18:19]
Michael Saylor
A brilliant insight. Now let's play a thought experiment. Let's take our hundred million dollars worth of monetary energy and let's put it in a power network that runs on copper. And then let's put it into a gold network. If I put it into a copper energy Network, I have 24% bleed rate per year. By the time it gets to the battery, I lose 6% and I can't get it more than 500 miles. Okay? So it's a very short term, short duration here and now. Energy network, let's put it into a gold network. I put $100 million into gold. Now I can move that $100 million of gold 100 miles. Would I lose 6%? No, probably not. 6%. Right. I could probably move $100 million of gold 100 miles for 10,000 to $100,000, depending upon how much security I need. So we're talking about 10 basis points instead of 600 basis points of loss. 10 basis points. So goal is a more efficient way to move large amounts of energy. Short periods of time or short distances. What if I want to move $100 million worth of gold 10,000 miles? Well, that's about 3,000 pounds of gold, one and a half tons. So I put it on a Global Express, cost $10,000 an hour. I put some dudes with guns on it. I fly 16, 18 hours around the world. That's about $180,000. Plus another 70,000. 250,000 if I have to fly the plane back. Let's just assume I don't, it's 250,000. So now, now we're up to like 25 basis points. 0.25% is the cost to move it around the world once. Okay, so that's okay. Now, what if I want to deliver $100 million of gold 100 years into the future? What if I want to deliver $100 million of energy 100 years in the future on copper and batteries? Well, my half life is at 24%. A 2% bleed a month. Right. My half life is three and a half years. It's gone completely. And everybody with any common sense knows if you put your laptop charged in your attic for 100 years, it will not be charged in 100 years. You cannot store electricity on a copper network or a lithium ion battery. It's no good. I put it in gold, put it in a vault. So let's say I put it in a vault in J.P. morgan. I put in a vault in J.P. morgan in 1900, in the United States of America. The United States is the most successful country in the 20th century. We win every war. And J.P. morgan remains as a bank and the vault and New York remains. In that case, assuming a 2% mining rate, assuming a stock to flow of 50 and miners mine 2% more gold a year, the half life of a gold battery is 35 years. I go from 100 million to 50 million in 35 years, to 25 million in 70 years, to about 12.5 million in 100 years. I depleted my gold battery 87%. If the United States wins every war, and if JP Morgan is in a corrupt institution and doesn't fail, and if no one drops a nuclear Bomb on New York City.
- [22:26]
Unknown
Right.
- [22:27]
Michael Saylor
If things don't happen, then I will get 12% of my money back.
- [22:31]
Unknown
So in addition to betting on gold, which is governed by natural law, you're also assuming this counterparty risk in the form of the US Government, in the form of JP Morgan, you have to bet on stability in the geopolitical landscape as well, because gold has to be secured and it has to be secured by institutions.
- [22:54]
Michael Saylor
What if you put $100 million worth of gold into a bank in Frankfurt in 1900? What if you put it in the largest bank in Japan, in Tokyo in 1900? Name a city and a bank you could have put it in in 1900. That would still be there in the year 2000. It's a short list, by the way. London, Switzerland, Zurich, New York, you would have failed in Paris, Berlin, anywhere in Eastern Europe. You would have failed in Moscow. You would have lost it all in Beijing, you would have lost Tokyo, you would have lost it all. Anywhere south of the Rio Grande.
- [23:39]
Robert Breedlove
Yeah.
- [23:40]
Michael Saylor
And in the U.S. everywhere in Africa, possibly.
- [23:45]
Unknown
Would Executive Order 6102 have impacted you.
- [23:47]
Michael Saylor
In the U.S. and you would have lost it in the U.S. yeah. Okay, so isn't it ironic? Okay, so can't we reduce it down to maybe Switzerland, maybe? It's an interesting exercise for the reader, but the counterparty risk on gold is at the municipal level, the state level, the federal level, and the corporate level. And that's. And over a lot. There's a phrase, right? Over a long enough timeline, the mortality rate is 100%, right?
- [24:27]
Unknown
Yeah, yeah, yeah, yeah, yeah. In the long run, we're all dead. Right. So I think Keynes may have said that.
- [24:34]
Michael Saylor
He said it. Robert Heinlein wrote a book called Lifeline, and he said over a long enough timeline, the mortality rate is 100%.
- [24:42]
Unknown
Yeah.
- [24:43]
Michael Saylor
And so in this particular case, back to our gold network. We have a gold network and we want to move money. So I put $100 million in gold and I want to move it around. Well, it's 25 basis points every time I move it around the world. If I move it once a quarter, it's 1% bleed a year. If I move it once a quarter, okay. If I mine it, it's 2% bleed a year. That gets me to 3% bleed a year. Divide that into 70 and every 22 years, that's the half life of gold. Energy on a gold network has a half life of 22 years at best. When you throw in the counterparty risk and the need to move it around. Let's just assume we're moving it around so we don't lose it. You're just down to now the issue of technology and commodity risk. And this is an important point. Gold is the king of commodities. Gold is the greatest of all human commodities. But my first job at dupont was I built computer simulations of commodities and specialty chemical networks. And let me tell you what people in that business think. They think commodity a dirty word. The first thing I learned is commodity is awful. Nobody wants to be in a commodity business. And here's the reason. Commodities are awful. If I actually create a factory that creates a commodity, say gasoline, the only thing it can do is create gasoline. If I invest $10 billion into gasoline refinery, my fixed costs are 10 billion. The ideal rational price for me to make a profit, call it $4 a gallon. But my variable cost is $1.50 a gallon because I've got all these billions of dollars in the factory. What happens is when I create commodity refineries, when the price goes below the profitable point, I can't do it. I will still keep running the factory because I've got a variable margin. I'm generating cash flow even though I'm driving the price down for everybody else in the business. So it's possible in a commodity business for every single producer to be losing money and for them to all be acting irrationally. And they're all pumping out the commodity, be it silver. If you're a gold miner, what can you do other than mine gold? Once I've gone and I've invested $100 billion in mining gold, if the price of gold is cut in half, but my variable cost is $400 an ounce, and it's $800 an ounce. I'm mining gold and selling it at $800 an ounce. I'm selling it at $700 an ounce. I'm selling it At $600. When it gets to 500, I'm selling it because the market is not rational. I can't transmute my $100 billion of gold mining capital into Google stock, right?
- [27:58]
Unknown
Switching costs are too high. It's just not possible.
- [28:01]
Michael Saylor
By the way, maybe I've been captured by the government. Maybe a certain government wants to mine gold. Maybe I can't legally stop even if I wanted to stop. When you have a commodity business where people have specialized capital and they make those investments, what happens over time, everywhere, in every industry, in every commodity in the history of the world, is the producers overproduce the commodity. Because in the phrase of Hotel California, you Can check anytime you want. It's a one way route. You go in, you can't get out. That takes us to this real issue of gold or the real risk of gold, which is gold price goes up by a factor of 10. Capital gets attracted into commodity production. It's a feedback. People produce more gold. Price comes down. People keep producing to try to recover their cash flows. Lots of intelligent people become desperate. When men are desperate, they invent new techniques to produce more gold. They, they keep producing because they don't have a choice. They will produce down until the variable cost equals the price. Then they will keep producing below variable cost because it's possible that they're in a situation where they can lay off. For example, a government that takes ownership of a gold mine will produce below variable cost in order to maintain jobs.
- [29:46]
Robert Breedlove
We'll subsidize it.
- [29:47]
Unknown
Yeah.
- [29:47]
Michael Saylor
Where does this happen? Automobiles and airlines. This is why you don't ever want to be a budget airline. Because a government will operate airline flights at a variable cost loss in order to avoid shutting down the airline. Right. If you're Singapore and you turn off the airlines because they're not profitable, you turned off your bridge to the world. The politicians will run the airline below variable cost. If I want to keep jobs and how many countries want to project jobs? If I want to project jobs, I will produce something below the variable cost and sell it below the variable cost. We do that with anything that is politically charged. When a government decides. Education, health care, transportation, automobiles, local manufacturing, security, defense. Defense is a great example of something that we produce, whether we like it or not, at a cost that's higher than potentially the value and use of it. And we can't stop. It creates this industrial complex. So I think.
- [31:04]
Unknown
Sorry to catch up. Just a good point there. That I think reinforces your earlier point too. You said that gold was the greatest commodity in history. I think the point there is that it is the greatest commodity in history because it commands human time or commands savings. It commands the collective output of capital that humanity has ever created. In that way, it's the smartest form of energy as human beings. Our ingenuity, our time, our ability to see the world. We are the greatest form of economic energy in the world. Right. And gold is the instrument that commands that energy.
- [31:46]
Michael Saylor
For thousands of years, it was the best commodity that we could produce to store our energy in. Like, partly it was hard, but it's not the hardest thing to produce. I think there are other commodities that are harder to produce, but it was the best combination of being hard and then being durable and being non toxic. Right. There are toxic things that kill us. There are things that aren't durable, that are unstable. I'm sure we figured out how to produce gold before we figured out how to produce uranium or polonium, but so there's other stuff.
- [32:30]
Unknown
Sorry. The other important piece too is that gold is indestructible, right? Such that every ounce we ever mined is pretty much still part of the extant supply. I think it's two Olympic sized swimming pools of gold you can never produce.
- [32:42]
Michael Saylor
You want stability, right? It takes us back to like why Marjorie Meriwether Post was the richest woman in the world because Post cereal was starch that was stable in a box for a year. Stability at room temperature. Coca Cola is stable at room temperature in a can and is stable energy. So yeah, it's energy, but nonetheless it's a commodity. And you know what they call a business when it's been totally wrecked? They call it commoditized, right?
- [33:21]
Unknown
The profit margins.
- [33:23]
Michael Saylor
And so every business person forever has always strived to avoid being commoditized. That's the origin of branding, right? We branded sugar water, we branded Gucci bags, we branded everything. We patent things, we brand things because we want to avoid the inevitable result. The result is as soon as something is commoditized and open to the public and anybody can produce it, its value goes not. It goes to the variable cost of production and then it goes below. For example, Apple computer worth $2 trillion today, Google, worth more than a trillion. Facebook. These are valuable networks, but are they the most valuable networks? No, they're not the most valuable networks to humanity, they're the most valuable non commoditized networks. Because if I go to New York City and I pull the plug on Google, it's inconvenient. But if I go to New York City and I pull the plug on the power company, it's deadly. If I cut off your power and your water or even turn off the bridge, people die. If I turn off Google, Facebook and Apple, nobody in New York City is going to die. People forget this. And this is the danger, by the way, of putting all your wealth, this is the danger of storing your wealth in Apple stock. The world thinks Apple, Google and Facebook, big tech, they're a store of value. Post pandemic, everybody surged into the NASDAQ 5 and the NASDAQ because they have big tech equity. This is a store of value. I'll be safe here. Well, you'll be safe there for a year or two. Years. But General Electric and General Motors were once. And Standard Oil. They were the most important networks on Earth and they changed humanity a lot more than Google, Apple and Facebook did. You want to change your life? Try to go a week without electricity and see if there aren't riots, murders, mayhem, and it comes to the end. People don't ask the question. They don't ask, why is it that I get my electricity for nothing? Why do I get my water for nothing? Because you try to. Try to go three days without water, three days without electricity. You see what that's like? And the answer is because those two things got declared as public utilities. They're so important that nobody could have a monopoly on it. As soon as Standard Oil became so instrumental that it changed the Western world, politicians got interested in Standard Oil. And as soon as. If your power company said, we just decided to jack the cost of electricity by a factor of 10, would you pay it? Sure. You pay it, right. Would you complain? Who would you complain to? Politician. Right?
- [36:49]
Unknown
Yeah.
- [36:51]
Michael Saylor
So we've got these networks. They're really important. But eventually, if they're important enough, they become commodity networks. That's an interesting characteristic. The reason that gold doesn't work over time is, by the way, we have two examples. It doesn't work over time because people produce 2 to 3% more of it a year. And over 100 years, that means you lose 90% of your energy. It doesn't work over time because there's counterparty risks. And the Polish bank, through no fault of their own, got overrun by the Nazis in World War II. And the Beijing bank got overrun by first one regime, then another regime, then a third regime. That's another reason it doesn't work. And the third reason it doesn't work is if the people become threatened by the network. So, for example, 1933, Franklin Delano Roosevelt found gold to be inconvenient. If the people become threatened, they complain to the politicians. The politicians might go ahead and take action. And in this case, the reason that they were able to take action is because all the gold was sitting in the same place. If the gold sitting in a vault, and we know where it is, and it's under the control of institutions, the institutions are under control of governments. And therefore that height is the counterparty risk. Because the centralized nature of gold. The best case for a gold network is you're going to lose 90% of your energy over 100 years. But the likely case is you're going to lose 95 to 90, 98% of your energy over 100 years. And if we looked at Nicholas Taleb's range of outcomes, if you take the 100 biggest cities in the world and you put your gold in the best bank in any of the hundred cities in the world, it looks like in 95 of them or 96 of them, or maybe, maybe 99 of them, you lost all your money. You lost all your. So isn't it, if we come back to the issue of monetary. Go ahead, Robert.
- [39:23]
Unknown
Just add one thing. So that highlights to one of the shortcomings of gold is that the economies of scale lead to its centralization. Right? Because it is so heavy and hard to transact. It's not compared to bitcoin that's non corporeal, that can be transmitted at the speed of light. Because gold is so heavy to settle, that leads to its centralization and bank vaults and that becomes the ultimate honey pot for politicians and governments. Frankly. The other, I guess, attack vector we didn't discuss is that temptation is always given into. As soon as things get dicey, governments immediately monopolize that golden energy network which is the most important in the world.
- [40:13]
Michael Saylor
Let's say it's not fast enough. We talk about every good technology is smarter, faster, stronger. Every technology smarter, faster, stronger. So coming to digital gold versus gold, physical gold is not fast enough. How fast is it? If I wanted to move $100 million of gold, as we talked about, it's going to cost me $250,000. So that's impedance. But how long is going to take you? A week, a month? Somewhere between you want to move 3,000 pounds of gold from New York to. So I've got a month, I'm guessing if you want to get all the protocols set up. So you're talking about a quarter million dollars in a month to move the gold. Assuming I needed another custodian and I used bitcoin and I wanted to move $100 million of Bitcoin. And this is where bitcoin critics are just utterly wrong and missing the point. They all think, they all think, oh well, it takes 30 minutes and $5 to move Bitcoin and they're comparing it to a new crypto network that has no value on it. And they're saying I could find a way to move it in five minutes for a nickel. But that's not the point. The appropriate comparison is to gold. How long would it take to move $100 million of gold? And because there's $250 trillion in assets in the alt assets and there's only $25 billion of real asset in the altcoins or the alt cryptos. So how long does it take me to move the $250 trillion around? And when you think about that, you realize that that bitcoin would move it in 30 minutes instead of 30 days. Okay, that's 1440 times as fast, right? Thousand times as fast a minute versus 1440 minutes in a day. And so it's thousand times as fast, but then it's $5 versus $250,000. Right, I know. So we do that. That's 50,000 times cheaper. Absolutely. So now we've got people saying, oh well, it's very energy inefficient, blah, blah, blah. Well, it's not really. It's inefficient in the way that it's inefficient to create an electro high speed transit system, a mass transit system. It was expensive to build the mass transit system. It got really, really cheap to move on the rails. If you look at the history of railroads, right? The biggest thing in the 19th century was railroads. It was pretty expensive to create the railroads. It became really cheap to move on the rails. What we do is we created crypto rails in order to make it 50,000 times cheaper to move. But it's, it's not just that it's 50,000 times cheaper, it's that it's a thousand times faster and 50,000 times cheaper. And then when you start to multiply a thousand times 50,000 and you realize it starts to be 50 million times faster. And then you start to add that third dimension, which is maybe a computer that thinks about this while you're sleeping 18,000 times. And you realize eventually you get to 50 billion times faster. And now we've, we've got to a new engineering or new scientific metaphor, which is superconducting networks. Okay. If you, you know, there's impedance going through electric power network and you're losing it. And so the solution is I need to get the superconductance, I gotta cool the network down to close to near zero. And it's expensive. And the point is, yeah, it's expensive to get to near zero. And then the impedance disappears in the network and the friction goes away. And what could you do if the friction went completely away?
- [44:55]
Unknown
Right? You're in outer space, right? The smallest amount of energy, you can move something billions of miles. And I love that analogy too, that you're getting to a lower energy state and that eliminates the frictions to conductance. So you achieve Superconductivity. And in a way, that's what Bitcoin is.
- [45:14]
Robert Breedlove
Right.
- [45:14]
Unknown
It's a monetary medium completely free of the noise of unexpected inflation. So you're actually conveying pure price signal, something even gold. We didn't quite have that.
- [45:27]
Michael Saylor
And I love your analogy because, I mean, the aerospace engineer in me is loving it a lot. You could think about when you encrypt monetary energy on the Bitcoin network, it's like achieving escape velocity out of the gravity well. What we've done, we paid a price to get out of the gravity well, throw a baseball on a baseball field that goes a couple of hundred feet, get out of the gravity well, throw the baseball. It'll go around the earth forever, doesn't it? Okay, so how much more distance do you get out of the baseball if you pay the price of getting out of the gravity well?
- [46:13]
Unknown
Right.
- [46:14]
Michael Saylor
It's not like 10 times better. It's not a hundred times better, is not a million times better. It goes to infinity and it never stops. And that's the breakthrough that people don't get. It's like, what could I do if I had vacuum and I was rid of friction? And yeah, there's a price to pay. And that's your phase change and your state change. And that's why I would say Bitcoin is the most efficient system for channeling energy through time and space in the history of mankind. We've never figured out how to channel energy with no impedance and channel energy with no loss. But let's come back to the outer space analogy. Take your flashlight, shine it in your basement, take your flashlight, shine it on your baseball field. Now get into outer space and take your flashlight and shine it. Or flip it the other way. The Hubble telescope. How much better are the photos you get from the Hubble telescope than the photos you get from a telescope that has to shoot through the atmosphere?
- [47:34]
Robert Breedlove
Right.
- [47:36]
Michael Saylor
Totally free of distortion. It's a billion times better. Yeah, it's like you just can't really imagine the world when you're trapped in energy.
- [47:49]
Unknown
Well, this analogy too holds for the counterparty, the institutional counterparty risk. It's almost as once you escape the gravity well, you're also free of institutional counterparty risk. Right. I don't need to worry about the stability of the United States or JP Morgan to transmit Bitcoin 100 years into the future. You only need to be concerned about the stability of the energy network which is maintained by the collective self interest of the world. In theory.
- [48:17]
Michael Saylor
Yeah, it's something that's just altogether unique and we've just never had it before. If you now conceptualize that and you go through your thought experiment, you realize we need a monetary system. Our monetary system. The three in front of our face. Let's take it fiat as a monetary system. Gold is a monetary system. Bitcoin as a monetary system. If I put my $100 million of monetary energy, I have energy, I take energy, I sell it on the grid. You give me money, I take my money, I put it into the US dollar bank, it's in fiat. I wait 100 years and it's 7 to 8% asset inflation rate. I have a half life of 10 years. So I get cut in half 10 times. Okay, 100 million, 50 million, 25 million, 12 million. It's going to get painful. Six million, three million. I only cut in half five times. One and a half million, that's six times. Now it gets really painful. 70 basis points, 35 basis points, 17 basis points. 8 basis points.
- [49:48]
Unknown
8 basis points.
- [49:50]
Robert Breedlove
Crazy.
- [49:51]
Michael Saylor
8 basis points. If you don't get hyper inflation, the 8 basis points if your nation wins.
- [50:00]
Unknown
In this case, yeah, you're bet, you.
- [50:03]
Michael Saylor
Know, so we're not even want to say it's you're losing. 99% of your energy is being charitable. 99% of your energy. Let's say now let's put that, let's generate $100 million worth of electricity by burning coal or nuclear power or pedaling on my flywheel or rowing on my rowing machine. However you got to it. Windmills. Let's sell it to the grid. Take the 100 million and let's go to JP Morgan and let's buy $100 million worth of gold and let's have them custodian for me put it in their vault. I guess I could just take it with me. It's 3,000 pounds, right? $2,000 an ounce or whatever the number is, you know. Okay, so one and a half tons. No, I got to put it a vault, right? So I put it in a vault and I pay for custody fees and you know, going in there's a fee but. And then I'm paying whatever 20, 30, 40 basis points a year to keep it. And then the miners are out there doing their mining thing and it's probably 200 basis points worth of additional gold. So that's 250 basis points a year. And if I watch it and assuming it's just a dead rock and it's heavy, I'm not moving it, I'm Doing nothing with it. I'm just staring at it. Then I've got to add on the counterparty risk and then the fracking risk or the technology risk. The fracking risk is. Academics always opine about shortages. Academics have been saying there's an oil shortage, an energy shortage coming. They've been saying it since the Club of Rome in 1973 or something. They said it in the 50s and the 60s and the 70s and the 80s and the 90s. And the world always predicted that we were going to run out of oil or run out of energy in about 10 years. And I studied this at MIT. I created computer simulations about it. There's an entire school of thought, system dynamics, that studies these things. The flaw in the reasoning is it's a linear interpretation of the world instead of a closed feedback or a nonlinear interpretation of the world. The linear interpretation of the world is we got 10 years worth of oil, because that's what our name, proven reserves are. The closed loop interpretation of the world is when we get to, when we actually get to five years worth of reserves, people start looking for more reserves. And so no company wants to carry on their balance sheet more than about 10 years worth. And then they just keep finding more, but they don't publish it because we're not factoring in human will to live, human ingenuity, right? People have a tendency that when you tell them they're about to run out of something, they reprioritize, they think a little bit harder and they go, come up with an innovative solution. That's what happened with fracking. We were going to run out of oil. We had a crisis. And eventually the price of oil went high enough that people sat down and said, if we invent a new chemistry and if we raise some capital, we can go ahead and implement fracking and we double the amount of oil. We did it fast. We had 5 million barrels a day for like 40 years. And that was conventional wisdom. And everybody thought, that's it. And then we went the next year to 6 million the next year to 7 million the next year to 8 million, the next year to 9 million, the next year to 10 million. And I watched it happen. And I watched all of the big investment bankers, JP Morgan and the like, they went and they raised billions of dollars from investors and they invested in these fracking companies and Chesapeake Energy and all these other popped up and we were awash with oil. And the next thing you read is that we have too much oil. You know why? Because it's a commodity. Because if you put a hundred billion dollars into anything, you invent something new. So for, for you to be a. This is why being a cynic and a pessimist about technology is generally a losing trade, because you're assuming that human beings won't invent anything new and have no capability to do it different.
- [54:26]
Unknown
And this has its roots in the, what I would say is kind of the Malthusian fallacy, right, where he said, we're going to run out of food, there's going to be mass starvation. And it just fails to take into account the non linearities associated with innovation. When we get our back against the wall, so to speak, we get smarter. We figure out new ways of extracting resources or growing food. And it's impossible to, I think, project that.
- [54:54]
Michael Saylor
Right.
- [54:54]
Unknown
You can't, you don't know when those breakthroughs are coming, but when they do come, it releases a lot of energy.
- [54:59]
Robert Breedlove
Right? It releases a lot of productivity.
- [55:01]
Michael Saylor
Yeah. Malthus is. It's the iconic example of just being utterly wrong over and over and over again. And if you study the history of science, the history of science is very simple. The non scientists and non believers, that will tell you why it's impossible. And then the creative, innovative scientist who thought, I'm going to ignore that and just go try it, and 99% of the population generally will just tell you why it's impossible and be cynical and critical and they're fearful. And the 1% will say, I think I'll just go try it. And of course the 1% is generally right. I mean, they're wrong until they're right. The technology fails until it succeeds. But if they just keep trying, the likelihood that you'll invent electricity or airplanes or antibiotics or better techniques for agriculture or mobile phones or YouTube, the likelihood is high. It is highly likely that someone in the future will come up with a way to extract all the energy you're ever going to need from some element the size of a sugar cube. We don't have it yet. And I can probably find a million conventional thinkers that'll tell us why it's impossible. The same guys, you know, that told John Harrison he couldn't discover longitude with a clock. And the same guys told the Wright brothers they couldn't fly. It'll be those same guys and they'll be right until they're wrong. And in this particular case, that's a good thing. That's a good thing if what you want is abundance. But that's why it's a crippling intellectual mistake to run a Monetary system on a commodity that can be produced by man. Ultimately, you have to run a monetary system on math, right? As you pointed out, I think before mathematical money, because 2 plus 2 equals 4. And as long as 2 plus 2 equals 4, 4. Human ingenuity is not the enemy. This is a basic sociological principle, really, which is, do you want to design a system assuming that people are stupid and will not evolve and cannot defeat it, or do you want to design a system assuming people are smart and channel the energy of human ingenuity into making the system work better? And this is why gold is defective and why a decentralized crypto network, of which Bitcoin is the most successful in the history of the world. That's why that is effective, because bitcoin is channeling human ingenuity into making it better, and every commodity is channeling human energy into making it worse. As a money. If we come back to this idea, Bitcoin is the ultimate energy network. Well, we're going to bleed 99.5% of our energy on a fiat network. We're going to bleed 95% or more of our energy on a gold network. Once you calculate the fully diluted Bitcoin count, 20,999,999, spot 98, as I heard from Andreas the other day, that number just slightly less than 21 million. Once you've done that, then you just realize that it's a lossless monetary energy system. Through time, through space, it has a slight loss in the form of transaction fees, but that's a good thing. And the transaction fees on the bitcoin network are like a little bit of impedance and. Or a little bit of gravity, a little bit of friction. And, you know, the goddess of wisdom that created the universe gave us a little bit of friction. It's a good thing. No gravity, no friction. Your life gets really, really complicated.
- [59:38]
Unknown
No resistance, no growth.
- [59:42]
Michael Saylor
And so there's nothing wrong with just a slight bit of friction. That's why the idea that I got to drive transaction fees to zero is a silly idea. It's like, no, what we want to do is drive inflation, or the loss of energy over time, to zero. And then we want there to be a slight loss of energy when we reorganize all of the monetary energy. When I send $100 million from New York to Tokyo, I don't mind spending $5. I probably won't mind spending $50. When Bitcoin has $250 trillion of energy into it, there's no reason why you can't pay 25 billion in transaction fees. People forget. Again, this is the problem of the crypto community. They're fixated upon a prototypical coin network that's a lab experiment and they're comparing it to Bitcoin instead of comparing Bitcoin to actual monetary or asset networks in the real world. So for example, here's a real asset network. It's called real estate. I have $100 trillion of real estate. You have a house. Let's say you have a million dollar house you want to hold. This is a good example. Let's assume that real estate is my energy network. If you want to actually carry a million dollar house 100 years in Florida, there's a 2% real estate tax. You would pay $20,000 a year, every year for 100 years, assuming that the house was capped and not reappraised. And so you're in essence going to lose the house in 50 years. Right? Under the best of circumstances, you're going to lose all your wealth in about 20 years if you store your wealth or you store your monetary energy in a real estate network in Florida. So if you go to any other real estate jurisdiction, they've all got different tax rates over time. But this is why you can't really store energy and property because the tax rate generally will bleed you out with a hat, you know, somewhere between 20 years and 100 years. Now that's the inflation rate or the energy loss rate over time. What about over space? What if you want to transfer a million dollar house? What if I want to buy it from you? So you want to exchange heat, exchange energy exchange, you want to exchange the energy in the house? Well, it's a 6% transaction fee. And at the point that I said, robert, I want to buy your house, I'll give you a million bucks for it. How many days to closing? 30.
- [62:48]
Robert Breedlove
Probably 30 best case.
- [62:51]
Michael Saylor
Okay, so you just paid $60,000 and waited a month order to do your transaction. Now compare that to bitcoin again, right? 30 minutes, 6 bucks, 30 days, $60,000. This is why we don't use property as an energy network, by the way. Some people do. You could ask people point blank, how are you going to actually give your money to your granddaughter? Oh, I'm going to buy property. Buy it where? California, Florida, where it's the same counterparty rate. By the way, it's worse than gold. You can move 3,000 pounds of gold in 30 days for 150, $200,000. You can't move $100 million worth of property in 30 days to another country.
- [63:54]
Unknown
You're also taking the counterparty risk. Again, the other thing with property is that it's non fungible, right? So the liquidity, the market is much smaller than say gold or Bitcoin. And yeah, you run the risk of that area having some natural disaster or some other event that makes it uninhabitable or, or unappealing.
- [64:16]
Michael Saylor
It's illiquid, Right. It could take you three years to sell the house.
- [64:19]
Unknown
That's right.
- [64:20]
Michael Saylor
It'll take you three years to find a counterparty. It'll take you 30 days to do the transaction. Now we just come back to this fee, right? What are the transaction fees on the Visa network? What are the transaction fees across any monetary network? It's pretty routine to pay 1, 2, 3% to move something around. If Bitcoin gets to be $100 trillion and there's 1% transaction fees, it's going to be 10. Pick any number, multiply by 1%. Right? It's a trillion dollars a year in transaction fees. Nothing wrong with that. What's the entire size of the. You know what the spreads are? In the bond industry, like I used to buy and sell convertible debt. There were 200 basis point spreads. You could buy at 96, so you could buy at 98, you could sell at 96. The banks got in between. So all of the financial system is built on taking a spread. That's why New York City has tall buildings. We talked about this before. Wherever there's a node in a network, a railhead, I mean Venice, Paris, London, New York. Wherever there's a node in a central network where there's exchange, there's a transaction fee. And if you're lucky, it's only 1% or 2%. When you're unlucky. There's a reason people refer to free ports. Free port meant that when you pull your ship into the port, we weren't going to steal it all. You know what the great breakthrough is in Singapore? Here's the breakthrough. We're going to have a port in the middle of the Pacific where if a ship comes into our port, we don't take all their cargo or we don't take 10% of their cargo. That's your idea? Yeah, that's my idea. We're going to let them stop here and not seize 10% of their stuff. Wow, that's a brilliant idea by the way. That's such a unique concept that Singapore is Singapore. It is the greatest port in all the Pacific because it's so rare that a country agrees not to take 3% of what you have when you stop. By the way, you can't even come into the United States without filling out a customs form where they charge you a 10% duty on whatever you have in your possession. The point, it's very common to take 10% of what you have when you come and when you leave. That's why those cities are cities. That's why those empires are empires. So when someone sits around and they whine about $5 in transaction fees is too great, they're whining because it's more expensive than their laboratory experiment on their scientific workbench that no one's using.
- [67:29]
Unknown
Right?
- [67:30]
Michael Saylor
Yeah, you can, you can. I can conceptualize, hypothetically, in my perfect world, a perfect system where it was better. But the real world is $100 trillion worth of real estate and $250 trillion worth of bonds and stocks and gold and silver and other property. And that stuff's moving around with. With transaction fees, which are high enough to have paid for all the buildings in London, Paris, New York, San Francisco, Beijing, Tokyo, Venice and Rome. It's not a new idea to charge transaction fees. It's not a problem. And the beauty of bitcoin is as more miners come on, they create a very competitive industry. And if a miner charges too much transaction fees, someone else is going to drive the cost of transaction fees down. If the revenue from transaction fees falls below the variable cost of running the mining rigs, people are going to take mining rigs out of production eventually, unless the government wants to subsidize them, in which a government's going to be subsidizing the crypto rails which create the 21st century economy. And that's, that's the reason why mining is a bit riskier as a business than owning bitcoin.
- [69:03]
Unknown
Right?
- [69:04]
Michael Saylor
Because you're getting into a commodity business where you may get driven down to the variable cost of the electricity or below the variable cost of the electricity if someone else wants to get into the business. And they can. And it's good for bitcoin, it's good for everything built above the chain. Right. Caveat. M4. If you want to get into the commodity or the business of encrypted energy.
- [69:34]
Unknown
I think that's a great point too, that you bring up. The transaction fees on the bitcoin network are set at fair market value. It is a freely competitive industry such that all of the transaction fees are a consensual exchange, and the value paid in those transaction fees goes with very little loss directly to supporting the security of the network. Whereas ostensibly these government fees that are non consensual, they're conducted under a monopolized area. A lot of that value being extracted, 10% in, 10% out, is not going to securing the property rights that you're bringing in and out.
- [70:18]
Michael Saylor
Right.
- [70:18]
Unknown
It's a very small piece of that. Most of it's going into political coffers.
- [70:23]
Michael Saylor
And politicians, they don't even hide that. They'll say, we've just decided to tax this in order to pay for something unrelated.
- [70:30]
Unknown
Exactly, yeah.
- [70:37]
Robert Breedlove
All right guys, how good was that? Another great episode with Mr. Saylor. I think we're starting to see things come together in this episode where all of this foundation we've been laying starts to really highlight the significance of bitcoin in the modern age. We started out talking about bitcoin being the first true digital monetary network in history. You know, there have been prior attempts with things like E Gold and other things, but they had never solved the issue of counterparties, frankly. We never had a trust minimized digital money that was basically more or less free of counterparty risk. And Saylor brings up the great point that bitcoin, I think at the time we recorded as well over $200 billion in market cap. And when you look at bitcoin through that lens as an energy, digital energy network, other digital energy networks like Amazon, Apple, Netflix, et cetera, once they pass that hundred billion dollar milestone, that tends to be kind of a point of no return and also a point that leads them to realizing these winner take all dynamics in digital competition. And so he also makes a great point that at that point in those companies life cycles, those digital monetary or I'm sorry, those digital energy Networks Life Cycles, 99% of the investment community still doesn't get it right. When Amazon or Apple was at 100 billion market cap, people were still just, just writing them off and didn't realize that these are going to be multi even trillion dollar companies today. So I thought that was really interesting that bitcoin is, we really are at that juncture, you know, where it's crossed the multi hundred billion dollar market cap threshold. And that gives it a lot of resiliency to just, excuse me, disruption or downside potential where it still has just a ton of upside potential. If you look at it even in the context of gold's market cap or even other store value, stores of value. And I liked that Saylor went into how these digital networks, they're dematerializing some ineffable quality, which he was talking about with, like social media as friendship, or, you know, with Apple, you could say maybe it's information or communication. In the case of Bitcoin, it's money. And it's taking that ineffable quality to a lower energy state, something that's more crystalline, like. And when it, when it does that, you know, using the, the analogy of a phase transition of, say, water going from liquid to ice, all of this thermal energy is released. And in an economic sense, that would be value or cash flows or market cap. What I think he called was an exothermal reaction, right, where it actually collapses to a state that requires lower energy to remain cohesive and gives off that excess energy in the form of value of some kind. And I saw that as a brilliant way to look at it. And it calls to mind, again, the standardization, right? Like when we achieve certain standards and everyone starts singing off of the same song sheet, productivity just explodes. So our effort, effort necessary to maintain the network collapses. So the network gains a lot of density. And then in doing that, it just throws off all of this, whatever the ineffable quality it's aiming for, whether it's energy or value or productivity, for instance. And then Saylor is so kind to actually answer the question that we always ask on the show, which is, what is money? And the way he puts it is that money is the highest form of energy that human beings can channel. And indeed, if you go back to what we talked about, like in episode one, we looked at Stone Age technologies. That's what human beings have been doing to advance themselves. And it's what distinguishes man from animal, in fact, is that we harness energy and channel it across the field lines of our intellect, essentially. And he made the point that, you know, fire. The three Stone Age technology looked that we looked at were fire, missiles and water. Fire was harnessing and channeling chemical energy. Missiles were kinetic energy, and water was gravitational energy. And in the modern era, you know, we've evolved past that, and now we're dealing with things like thermal energy, electrical energy, even nuclear energy. And the point that he makes is that all of this, the meta energy, if you will, that controls all of the others is money, right? Money is the claim on the collective savings of humanity. It's a claim on the efforts, present or past or even future of all of us. So any group that commands one of these forms of energy can be commanded themselves by money. So it makes money. This form of meta energy, which I thought was a very interesting definition and it's actually, it's also what defines civilization in a way. It's like, what types of energy are we harnessing, right? Are we Stone Age society that's only harnessing fire? And at what scale are we doing that? How you know, at what scale are we channeling that energy? That's. Those two aspects are kind of what define civilization in a lot of ways. And he makes a point too, that the challenge has always been moving the energy across domain. And this domain could even either be, say, a jurisdictional or governmental domain. How do you get your capital out of one country into another with the least loss possible? Could be characterological. So from going from thermal energy to kinetic energy, what's the most efficient way to do that? We could look at something like maybe the steam engine was such a breakthrough because it allowed us to transition energy in the least, the most lossless way we could say. Or even just moving the energy across space and time, right. If we can harness it and store it in a medium that's reliable and then transport it somewhere else and redeem it later at later times for later uses, that has a lot of value as well as humans try to go into world and solve problems. And so in that lens, historically at least, gold was energy money, right? It was the. It's what captured the residual energy that mankind was able to produce that was not able to be put to a higher and better use. So if we couldn't dedicate our efforts towards any other activity that could increase productivity, productivity more than say gold mining, then we would just go and mine gold, right? And gold, again, being kind of hard energy money would sort of be a. Its annual appreciation would be a proxy for the. The aggregate productivity growth in an economy. And if you, if, unless your investment can outperform that, say it's 2 or 3% a year, then you would just mine gold. So it kind of provided this floor for human energy and this medium through which we stored it and transported it. But I loved this part where Saylor went into the math behind why gold sucks. Like as good. Even though it was the best thing we ever had historically, like it still sucks as an energy money. One was if you want to move gold around the world once, say it cost you 25 basis points, which $100 million is $250,000 just to move it around the world once. So, you know, if you're doing that once a quarter, that's 1% energy loss per year. And that's something which we got into, you would almost have to do because if you're going to store gold, you've got to put it in a vault, it's going to be physically safeguarded, it's going to be physically safeguarded over a long period of time. Then you have to trust a counterparty, you have to trust a custodian. And as we went through history, many of these custodians and nation states have fallen over. So if you wanted to transport wealth across 100 years, you would necessarily need to change locations rather frequently just to avoid that risk or minimize that risk. And then I also looked at. So that was across space, right? Say it costs 1% to move four times a year across space. And then also gold production increases about 2% per year. So gold's losing, it's got a 2% dilution built right into it with gold mining. And so if you put those two together, you call it 3% loss per year. In this, this monetary energy battery, you've got a 22 year half life, right? In 22 years holding your value in gold, you're going to get cut in half. So that's just not that great, you know, like as far as building something in a long time horizon. And then when you start to factor in the counterparty risk. Oh, I'm sorry, after, when you get into 100 years, that's half life is 22 years. After 100 years, you're talking about 87% loss in value. If you're storing gold, and that's your best case, by the way, that's assuming you move it to the right places and you don't end up storing it in a Frankfurt or a Tokyo in 1900 or any of these other cities that lost a war or their institutions were compromised. This assumes that you make the right moves with it. Your best case is called a 90% loss in value. Your worst case is 100%, which is either confiscation or outright or theft. If you were in Poland and Germany, invaded your country, then your gold was stolen effectively. And bitcoins is fundamentally different because it's this form of money that is, it's digitized energy, right? So it's not stored in a physical corporeal form that can be seen targeted, confiscated. It's informational, which allows you a lot of unique ways to custody it in these ultra high security schemas that are largely resistant to these forms of counterparty risk that we've seen gold succumb to in the past. And then we got into commodities, the economic principles surrounding them. And I like how I described gold mining in that the capex deployed into gold mining is really largely for the purpose of mining gold and the switching costs related to it are very high. So you can't just turn your gold miner off and start mining silver, right? You have to, in some cases, depending on the actual piece of equipment, it may only be useful for mining gold, but assuming it's useful for mining something else, you would have to pull it out of the mine, put it on a truck or ship, ship it somewhere else, redeploy it, not to mention all the training and security involved with that. So very high switching costs on the capex related to gold mining. And this leads to specialized producers over producing, right? So they'll overproduce this commodity gold down to the point where marginal revenue is equal to marginal cost, so there's no profit. And even below at times because again, they're trying to amortize the cost of this capex, they've invested in gold mining. Or they can also possibly, if they get desperate enough, they can seek a government subsidy that can allow them to mine below the cost of capital even further. And so this, all of this leads to commodity money sort of getting destroyed. Destroyed. It just it the incentives are to always increase its supply and always compress its margins. And I, you know that the way Sailor puts this is that the energy being channeled into commodity production, it's actually the incentives related to it are targeting human ingenuity at destroying that commodity or commodifying it, which is to say compress its profit margin, increase its supply. Whereas those incentives in Bitcoin are fundamentally different, which we'll touch on shortly. But the interesting thing here with gold as a commodity or energy money is that it was a stable form of energy, room temperature, which as we touched on in prior episodes is like was akin to the breakthrough with consumer packaged goods, right, with post foods that they could store food energy at room temperature in the form of corn flakes or other canned or dried goods. So, and that's. This also points to quantification, at least points to this kind of interesting configuration in the world where we have say the electric and water networks in any civilization are clearly the most important, right? If you turned off electricity or water, chaos would ensue. Whereas if you turned off say Google or Amazon, it might be inconvenient, but it's not necessarily going to be a total breakdown in society. But Amazon and Google are tremendously more valuable on a market cap basis than electric and water networks. And the answer to why is because electric and water networks are commodified they have become this network that's so fundamental to civilization that we've optimized how we produce and distribute these goods in a way that makes them ultra cost effective to the consumer. Where things like Amazon and Google are. They haven't been commodified yet, right? They're still new enough, they're newly explored industrial territory, if you will, and there's still very large margins there. And then they're also monopolists, right? Which as we saw earlier in the steel age and the railroads and whatnot, in these newly charted industrial spaces, you tend to have monopolies first before commodification. Well, first of all, the monopolist sets standards. Once the standards are set, the commodification sets in and actually compresses the margin and leads us to the more free market environment we have today. So commodification also points to why Fang stocks, which are being predominantly used as a store of value today, right? Since the store value function of fiat currency has been so compromised, we see a lot of institutional capital pools, high net worth individuals, everyone really, that would typically depend on fiat currency as a store of value, resorting to the FAANG stocks or other high flying tech stocks as a store of value, something that is reliably scarce enough to hold its value across time. But commodification, the history of it and the economic principles behind it actually point towards why that's a really bad strategy for the long run. Because we're early in the digital age. You know, these data monopolies, although they could be expected to persist for some time, you know, years, possibly even decades, it's very unlikely that the large margins, profit margins they are enjoying today, will persist far into the future. What's much more likely is that now that standards are established, we'll see commodification of some of these digital utilities that are monopolized today, if history is an indicator. So in that way, you know, the Fang stocks, although they're like a primary store value today, maybe second only to government BO bonds and increasingly so now that government bonds are largely yielding negative, they make for a really poor long term store of value. And it also points towards Bitcoin and the uniqueness of it, in that Bitcoin is like the ultimate store value through this lens of quantification because it actually resists compared modification. So if you think that bitcoin mining is this race to produce hashes more cheaply, right. We can think of a hash as a vote or a lottery ticket trying to win, trying to solve the puzzle. To win the coinbase reward, which is, you know, the. The newly minted Bitcoin in every block every 10 minutes. And so the commodification of Bitcoin is actually in the energy being allocated into its network. However, and this is where Bitcoin is so unique, is that in every four years, the algorithm adjusts itself in such a way that it actually pushes back on this commodifying force by cutting its new supply flow in half. So, you know, at a. Having the operational and energy expense being allocated to generate a hash, which is to earn, to create Bitcoin, basically that same cost flows into half as much Bitcoin being produced. So as Bitcoin is undergoing this downward pressure cost reduction, as people figure out how to generate hashes more cheaply, right, with cheaper energy or better ASICs or whatever. The breakthrough is the algorithm pushes back every four years and says you're pressing down cost of production in one way, but then every four years we're going to double it. And that's actually the incentive structure that makes Bitcoin so interesting because that keeps ratcheting its marginal cost of production higher. Right? And then, as we know in, you know, by studying commodities and money, that the marginal cost of revenue or the market price tends to converge to the marginal cost of production. So Bitcoin, the algorithm, actually has this rising floor cost of production, and that's what's ratcheting its market price higher and higher. And if you look at just the price action of Bitcoin historically on a log scale mapped over these havings, you see it perfectly. It's not to say that that will hold indefinitely into the future, but it's definitely very unique in that we've never seen an asset that has this, you know, at least we're 12 years in. Very predictable and algorithmically enforced market value, or wouldn't say enforced, let's say driven. It's definitely influenced by the algorithm. So something that's really interesting and very unique to economics. And the other thing that's interesting to me about that is it's. It's like it's inverting the economic principles behind commodification. So if you think that the ratcheting effects in, say, gold production will actually be to produce gold more cheaply over time, right? So just make gold more and more cheaply over time. Which actually points to why gold was selected as money, because it's the thing that most resisted commodification. Right? You couldn't get the cost of gold production lower because it's so Scarce and hard to produce produce. But because Bitcoin's pushing back, it's actually pushing those instead of it. All of that effort flowing into producing cheaper Bitcoin, it's actually pushing us to just seek out cheaper energy. So it's, it's created this global perpetual incentive scheme to, to figure out cheaper ways to make energy, right? You can't, because that's the only way to access cheaper Bitcoin production effectively. Although Bitcoin keeps getting harder to produce. So it's just really, really unique economics to think about. And then we went into the settlement aspects of Bitcoin and why comparing it to another crypto asset is simply the wrong comparison. Saylor made a great point that if you want to compare the cost to settle in Bitcoin, you have to compare it to gold, because with gold, you are settling in finality, right? If you, if I flip you a gold coin, you put it in your pocket and walk away. You and I have participated in an irreversible transaction. There's no authority in the world that can make you give me that coin, coin back. And there's no authority in the world that can, aside from gold mining, that can devalue that coin, right? So it's, we've transferred a token of self sovereign wealth, right? It is a, it is a final transaction, a final settlement. And there's only one other asset in the world that lets you do that in a, in a fully depoliticized way, right? You could argue that, oh, Ethereum lets you do that, but Ethereum is subject to political attack vectors. We don't know its whole supply. There's a small group of people that control its functioning, whereas that's just not true for Bitcoin, right? Bitcoin is the only truly decentralized digital asset in the world. And so that points to another way to think about Bitcoin. Another analogy that we went into was this the superconductive monetary network, right? It's a lossless energy network. So we can now transmit this meta energy, that is money, across time, across space, across jurisdictional domain, governmental domain, with the least amount of loss. And the analogy there to the superconductivity is it superconductivity is effectively cooling the conductive material to a very low temperature, so very low entropy medium. And by getting the entropy out of the channel, it maximizes the flow of energy, right? There's, there's the least impedance or the least friction in the channel. And I love that analogy for Bitcoin because that is what Bitcoin that's the breakthrough that Bitcoin is, right? It's the first asset we have in history that has absolute zero percent noise in the channel, which is unexpected supply inflation. Everyone knows and can agree to what the supply is and what the supply influences ever will be. And the other thing that analogy proves is that, or points towards rather, is that it's very expensive to achieve that, right? There's a great deal of energy expenditure necessary to achieve superconductivity or to achieve this breakthrough. But once you get there, you release all of these productivity gains again, kind of like that, that the phase transition to a lower energy state, when it crystallizes, it just throws off this exothermic reaction of value, cash flow, profit, whatever it is. And the, you know, it's. That's what Bitcoin's done, right? It's you. We've now had this singular moment breakthrough which would be called the Genesis block. Pretty much everything from there has been a step function of the algorithm that is now releasing all of these gains into the world in terms of reducing frictions to trade, you know, reducing the noise and theft in the channel in the form of inflation, and then giving us a medium of wealth storage, a key. It can't be confiscated, right? So it's taken a lot of unpredictability out of money, if you will. And I liked that same achievement can also be analogized to achieving escape velocity, which I thought was a really cool analogy. And that once you get, you know, there's a huge expenditure, say, to get into orbit, right? If you imagine a rocket, how much fuel it has to expend, how much ingenuity and design and science has to go into building a rocket to get it going fast enough away from the Earth to escape Earth's gravitational field. But once you get into orbit, all of a sudden your returns on energy expended go to like near infinity, right? You could just. The example Saylor gave was throwing a baseball on a baseball field, go, you know, a few hundred feet, I guess, if you've got a strong arm and then it'll fall. You throw that same baseball in orbit, it just goes around the Earth forever, right? So your returns on energy expended just explode, just. They become astronomical. And Saylor said about this, he said, quote, bitcoin is the most efficient system for channeling energy through time and space in the history of mankind. If we could just sit with that for a while and really think about the profundity of something like that, and that we are the species that Channel energy across time and space. That's what distinguishes us as man. And here we have the system that has achieved this function to a higher degree than any other system we've ever created. That's the breakthrough Bitcoin is. It's something truly remarkable. And it's, you know, why so many of us have decided to devote our life to it, talking about it and educating others. So this thing, I love the engineering mindset and lens that Saylor brought to this equation. I talked about a lot of these aspects of Bitcoin previously, but I was more focused on the time side, which time, too, is like absolutely scarce, but it's more of an experiential aspect of reality, whereas Saylor's very focused on the energy, which is much more of an engineering or physicist aspect of reality and much more measurable and objective than even time. So I think it's. It's. They're kind of saying the same thing, but. But it's speaking to a different audience in a way. I think it's just really good, really good stuff he's bringing to the table. And the other thing, the other last part I thought was cool about the. The absolute zero superconductive monetary network or achieving escape velocity was the example of the Hubble Space Telescope, right? So for the whole history of astronomy, we've been pointing our telescopes toward the sky, but we've dealt with atmospheric distortion, something we've had to correct for something like certain objects far into the distance we just couldn't even see. And it's all because we had this distortion of the atmospheric shell that surrounds our planet. But once again, once we achieved escape velocity and we got into Earth orbit and we got a. A telescope up there in the form of Hubble telescope, that's when we started to see the universe in a whole new way with a whole entirely new degree of clarity and precision unlike anything we'd ever seen before. This totally free of atmospheric distortion. And it's because we eliminated the frictions to visibility, if you will, right? We eliminated the frictions to communication, in this case, communicating light to the eye or light to the telescope. And it gave us this entirely new perspective on the universe. And I think Bitcoin is just going to do something similar, right? We eliminated the atmospheric distortions, if you will, of counterparty risk, monetary inflation, commodification, all. All of these things that have screwed up every monetary system historically and broken civilization after civilization. All of a sudden we have this invention from Bitcoin that's like the Hubble telescope, right? It Just it exists in an orbit that's beyond man's reach, which is really important. So it's not vulnerable to counterparty attack vectors. We all know what the inflation rate is and ever will be. So there's no unexpected inflation. And it's just, yeah, just a lossless energy network. As Saylor said, this is something that's a really big breakthrough. And then the other thing there is the price signals that it would propagate. Right? Which price signals being the coordinating force in any economy. They've always suffered from these distortions that we just mentioned like inflation, counterparty risk and what have you. Uncertainty in general entropy, right? Entropy on the channel by being an entropy less or entropy minimized monetary channel. Bitcoin promise, like a bitcoin denominated world promises to allocate capital more efficiently than ever before. And that may sound kind of economic nerdy when you say allocating capital, but that means putting people and assets in the right place so their best satisfying wants or best solving problems for the demands of market participants. So it will lead us to a world in where more of our satisfactions are more easily. I'm sorry, more of our desires are more easily satisfied. So it's a really, really big deal and sitting in the talk too. I like this that there's kind of two types of people there. We have the doers in the world and I have the naysayers.
- [102:20]
Unknown
I would also say you could call.
- [102:22]
Robert Breedlove
Those the tinkerers and the bureaucrats or the entrepreneurs and the legislators. And these are what distinguishes these two people is one is action oriented, right? Willing to fail, willing to take risks, willing to put their skin in the game. Whereas the other one is just contrarian. It says things can't be done. I think I flashback to the example of the Wright brothers where every intellectual in the world there was basically consensus among them all that man would never fly until these two guys flew in their garage. So it's a really bad idea to bet against human ingenuity. Like if history showed us nothing else, is that we have this ability, amazing ability to problem solve in a way that we can't even fathom. So the point being when we look at a commodity, money versus something like Bitcoin is that it's a really bad idea to try and run a monetary system based on a commodity. Right? It's much better to run a monetary network which is intended to be a system for allocating our time and our energy based on math, right? Based on a system that has inviolable rules or one that incentivizes fair play versus a twisting of the rules, because that would actually produce the best outcome and the best mode of play. Right? When rules are fixed, players are going to play the game to the best of their ability. But when rules are bendable or breakable, you're actually creating incentives to behave in a corruptive way or an exploitative way. And that's what Bitcoin is, right? Through that game theoretical lens, you could just say it's the most fair game we've ever had. It's a fixed rule set that, that no one can change or manipulate. And looking at a money based on commodity versus a money based on math, you know, Bitcoin is actually channeling human ingenuity in a way that causes it to improve over time and in a way that causes civilization to improve. Whereas a commodity money is going to be channeling human energy and ingenuity into the compression of problems, profit margins on that commodity and the overproduction of that commodity. So it just, it makes so much more sense to be in a true digital money with a rule set based in math versus something, you know, just based on our ability to produce it in the natural world. It is such, such a leap forward in innovation and potentially civilizational advance as well, that it's hard to even comprehend how big of a deal this is. And finally, we touched on the transaction fees in the bitcoin network. So although it's a, you know, quote unquote lossless monetary system, there is a need, there's always going to be a need for some resistance in the channel, which we would call transaction fees. And, and this is essentially the fee we're paying to the miners, right, for securing the network. And we could think, as Saylor alluded to as the goddess of wisdom always introduced a little bit of friction. It's kind of like all things exist in opposition a little bit. We need something to push against, to move forward. And you can also think of the transaction fees as the expense or the tax we're paying to the governors of the network, which the enforcers of the rules are the miners. Right? So in the same way you pay taxes to the government ostensibly to protect and preserve your private property rights, in the Bitcoin universe, we actually have to pay this tax to the mining network so they can secure monetary network itself and preserve our private property rights in the time chain, the bitcoin timeshare. To argue that a crypto asset needs to eliminate transaction fees is just sort of ignorant of this fundamental truth that we need in a monetary network. What we need truly in a monetary network is zero unexpected energy loss or inflation, which Bitcoin provides. So I hope you guys enjoyed that episode again. That was our first session on day two. We're now into Bitcoin theory, getting into the modern age, and it's only going to get more interesting from here. So I'll see you back for the next episode.