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The "What is Money?" Show
WiM050 - The Saylor Series | Episode 12 | Why Bitcoin Succeeds
01:40:45
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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- [00:00]
Michael Saylor
Foreign.
- [00:08]
Robert Breedlove
Hey guys, this is Robert Reedlove from the what is Money? Show. And as you've 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 facilitate financial security for all. They accomplish this by bringing a high level of professionalization and sophistication to the bitcoin marketplace. As a true game changer in the industry, NYDIG is safely unlocking the power of Bitcoin for forward thinking individuals and institutions alike. By using nydig, you will gain access to an end to end institutional grade platform providing bitcoin OTC transactions, Bitcoin collateralized borrowing, secure custody, asset management, derivatives financing, market research and more. And all of these services meet the highest regulatory, governance and audit standards. Led by Robbie Gutman, Yin Zhao and Ross Stevens, NYDIG has absolutely exploded onto the bitcoin scene recently and is leading the way for ongoing institutional adoption in this nascent asset class. So please be sure to check out NYDIG as a single source for all your bitcoin needs. We've talked about how gold emerged, its limitations, why it ultimately fails, talked about why currency was introduced to augment some of its shortcomings, but also suffers from its own problems. And it ultimately fails, as we have seen and are seeing. So how does Bitcoin fit into the picture?
- [01:56]
Michael Saylor
So bitcoin as money. I mean, simply put, Bitcoin is the best money that the human race has ever had the ability to embrace. We know gold is defective because of its mechanical nature. And we know fiat's defective because of its political nature. Why does Bitcoin work? Bitcoin has the things that you need in order to construct a shared, immutable, correct ledger. That's our target. Shared, immutable, correct ledger. Bitcoin's got a base layer protocol. The base layer protocol is genetically encoded in the system from day one. The 21 million coins is one of the critical parts of it. The 2.1 quadrillion satoshis, and no more than that. I think the, I mean the second part of the protocol is not just the mathematical coin parameter. It's also the proof of work security model. So when we created it, we created it with 21 million coin limit. We created it, satoshi created it with a proof of work security model. And that is the part that makes it more likely to be immutable and shared and correct. And the third part is the Balance of power between the miners, the nodes, and the wallets or the holders. It wasn't inevitable that you had to build it this way. Bitcoin is an engineered monetary system. It's a feat of engineering. They built a protocol, they chose components, they chose the cryptography, they chose proof of work. All of these were engineered components. And then the balance of power between the miners, the nodes, and the holders with the wallets, that became clearer in the block size wars, I think, and following the block size wars, I mean, first miners were the nodes, and then the miners and the nodes split. And eventually we saw that the nodes themselves had a huge amount of power to check the power of the miners. But now we're seeing the emergence of the power of the holders, of course, the holders. All three of these dimensions are decentralizing at a rapid rate. I would say that we need the protocol at the base layer, that base layer protocol that I just described, that replaces the gold that was here at the beginning of the universe, and it replaces the base layer protocol. That's the political artifact of any kind of fiat currency. The second thing that Bitcoin has that makes it a much better money is it has an application layer protocol. The base layer protocol ensures that we'll never have more than 21 million Bitcoin. I mean, that's the most important thing. And then it ensures, what do I need? I need durability, integrity and security. So I need to know that it will never be more than 21 million bitcoin even 1000 years from now. I need to know that people aren't going to monkey with material things like the frequency or the block size. That's the integrity part of it, I guess, in durability integrity, they go arm in arm in a way, because if you change the frequency and the block size, you may inadvertently end up changing the limit at some point because you break it. And then you need security. You need to. You need to know that no malefactor can hack it or break into the network. So we're getting all of those things, the security, the integrity, the durability via the base layer protocol. But the application layer protocol is also important, and that's the ability to do final settlement transactions at the base layer with a bitcoin wallet address. We could debate, interestingly, Robert, do you need lightning or not? And that's an interesting debate, because I think that if we just had to be able to do base layer transactions on the bitcoin network, the system is still perfected enough to serve as a monetary system. You would end up with the layer 2 application being built via counterparties with some counterparty risk instead of what you can do with Lightning. But the combination of base layer transactions via Bitcoin Wallet and then layer two transactions via Lightning Wallet, I think those two things together, they're clearly superior as an application level protocol. If you group them together and say that is the non custodial, decentralized, open source protocol for moving money around in the Bitcoin standard, then you've got the structure of something really compelling. Another way to describe this is Bitcoin gives you a base layer protocol to move large sums of money around at small cost in an hour. And it gives you a layer two protocol to move mid level and small sums of money around instantly. For almost nothing. On my Lightning Wallet, I can move 1000 satoshis at the cost of one satoshi in a second, which is more efficient. I can move 100,000 satoshis, it's like $30. I can move $30 for one satoshi in a second. That makes that layer two protocol faster and more efficient than any other currency transfer protocol that I'm aware of in the history of the world.
- [09:20]
Robert Breedlove
Right. And my understanding of it is as the network proliferates and the network density grows, the transactions per second actually increase. And I don't think there's an upper bound on that. So the lighting network could actually be at full scale this global system of instant final settlement, effectively. Which is mind blowing.
- [09:42]
Michael Saylor
Yeah. I think the Lightning network is really strategic to the proliferation of Bitcoin. But as a theorist, I think that what's critical to Bitcoin's success is not the Lightning network, but the underlying Bitcoin final settlement. As long as someone can take final settlement of $100,000 in an hour for five bucks or 50 cents. I think right now, probably if you set a lower fee and you were willing to wait longer. Right. You can take final settlement in a day for a nickel, some very small amount, and if you want it done fast, then you pay more.
- [10:26]
Robert Breedlove
But I recall that optionality is what keeps counterparties honest, as you said. I recall you describing people being polite in Miami because everyone's potentially armed, that kind of dynamic.
- [10:40]
Michael Saylor
Yeah. It means you can pull your bitcoin off the exchange or out of the bank or away from your counterparty in an hour. So I think that's critical. I think that's critical. I think lightning is probably something that's going to accelerate the spread of Bitcoin. It's the logical next step. If we can engineer a decentralized non custodial crypto asset network based upon private keys and cryptography and the like as bitcoin, then there's no reason why we couldn't engineer a layer two of Bitcoin that's also non custodial and decentralized. That makes a different set of trade offs. In essence, I think the lightning network is a decentralized open proof of stake network. But the critical issue is it's a proof of stake network not staked with its own token, but staked with the underlying token of bitcoin, which makes it a much higher integrity, much higher integrity, much longer living, more secure, open decentralized network than one that was created with its own token, which would be self referential.
- [12:11]
Robert Breedlove
Right. I guess one other slight difference there is the actual revenues generated on lightning are for routing transactions versus just staking the asset. You get some percentage yield off the asset, you're actually getting paid for services rendered.
- [12:28]
Michael Saylor
Yeah, which makes sense. We've got two things. We've got a base layer protocol and we've got an application layer protocol. Why does the bitcoin standard work? Or why is Bitcoin the best monetary system? How does it succeed in reality? Well, let's start with inflation, the scourge of inflation which destroys fiat and destroys gold. In Bitcoin you've got a conservative system and a mathematically complete system. So it's mathematically correct and it is conservative in a thermodynamic sense that we don't add additional energy in the system, nor does it deplete energy in the system. The basis of that conservation is, is that base layer protocol. The base layer protocol plus the proof of work together, you could have designed a system which wasn't conservative. Right. Just because you get everything else right. If Satoshi had gotten everything else right, but it left some randomness or some inflation in the token count, it wouldn't have been ideal. I think the second thing that is a big attribute for it is the difficulty of confiscation. The private keys of cryptography are the strongest property rights in the history of the human race. If we think about cryptography as the basis of property rights, then truthfully, the only property you can really own is digital property on a secure crypto asset network of which the only one we know of is bitcoin. So right now the only property you can truly own is bitcoin. Look, if we ever went to Alpha Centauri and we went to a new planet and we cut off communication with the earth, it's possible that the dictator of Alpha Centauri could spin up another Bitcoin network. Centauri network. And if it was a closed system, given enough, and it had the same exact mathematics as this, as it spread as a virus and infected the billions of people in Alpha Centauri, it would be its own crypto asset network. So you can imagine something like that. But right now what you've got is one successful life form, and that is Bitcoin. You've got one successful digital property. Now we actually have an engineered property. And so you have a scientific basis for property rights. We never had a before. It's illustrated pretty effectively. It's like if, if you have a million dollars and, and you convert the million into a building, well, the building can be seized by the mayor, by imminent domain. You can lose your building so that, and you can't move the building so that the building is impaired property. And the building can be taxed, it is immobile, it can be seized, it can be taxed. And it also has physical nexus, which means a meteorite can fall on it or an earthquake can wipe it out. So there are risks to the building. The useful life of the building is 100 years, maybe less, if it's poorly constructed. And it's only appealing to people in that geographic political nexus. If the building was in North Korea, how valuable is a building in North Korea to an investment company in New York City? So a building as property leaves a lot to be desired. Land as property has the same issue. A block in Manhattan is a lot more valuable than a block in the middle of the desert because the land is geographically located next to a lot of investors with a lot of money that can actually develop the land for some economic purpose. And the land can be impaired and taxed, the property tax. In fact, there's a phrase in the real estate business. They always talk about triple net. And you know, triple net is like, like after taxes, after your taxes, you know, maintenance, after your expenses. Yeah, etc. So these are high maintenance properties. They're very expensive and not very portable.
- [17:44]
Robert Breedlove
Yeah.
- [17:45]
Michael Saylor
So you can, you can rifle through the properties. Well, there's art, there's gold, there's silver, there's commodities, there are securities, there are bonds, currency baskets. They all have some liability. Many of them are currency derivatives. And so as currency derivatives, they have dilution coming from the inflation, the underlying currency. But the ones that have physicality are subject to search and seizure and impairment because you can't move them. And then some are, others are unique maybe, but even Though you might own art, people are going to create, making more. They're going to keep making more art. And so if you're looking for a property that no one can seize that is hardest to impair, Bitcoin is the hardest to impair property. Technically. I would say it's probably the hardest to tax, the hardest to destroy and the hardest to seize and the hardest to impair of any property available to you to purchase at this point.
- [19:05]
Robert Breedlove
I would say one thing I think is really interesting here is that if we define property as an exclusive relationship between an owner and an asset, but that relationship requires enforcement. Typically, it's enforced via the government. Historically. But bitcoin's different. Bitcoin is this property. Right. That's enforced.
- [19:30]
Michael Saylor
You can enforce yourself.
- [19:32]
Robert Breedlove
Yeah. Enforced by the network. And it's actually the first property. Right. Completely independent of that monopoly on violence. Not only does it not require enforcement by the government, but it's completely independent of the government. And that. That's just a lot to get your head around. I think that we've actually invented a property. Right. Fully independent of government.
- [19:56]
Michael Saylor
Yeah. And we'll talk about it more when we get to talking about proof of work and mining and the like, as you can go really deep into the basis of security for this property. But for the purposes of the bitcoin standard, right now, I think the most important thing to be said is it's the hardest thing to confiscate on earth. And I joke, you can't take it with you. If I shoot you in the head, you can't take your gold with you. The Egyptian pharaohs built pyramids. Take the gold with them. They were all robbed. If I said to you, take a million dollars and buy some property, you have to make sure that. And you're going to be murdered by somebody that you and your family next week buy some property that they won't get after you're dead. What is that property?
- [20:57]
Robert Breedlove
There's only one.
- [20:59]
Michael Saylor
Yeah. I mean, securities and bonds and currencies won't last. Gold, all these things are seizable. You can't take them with you. But if you buy bitcoin and you hold the private keys in your head when you die, the bitcoin goes with you and no one else gets their hands on it. And the significance of that is because it's impossible to confiscate with force and because it disappears with your death, then any hostile actor always has an incentive to negotiate with you. Because it's better for me to hold a gun to your head and take half of it, then pull the trigger and get none of it. And that's not true with any other property. In all other cases, I can pull the trigger and get all of it. And so you have an unstable situation with that property. And the interesting thing is that confiscation element, it works at the individual level, the institutional level, and the nation state level. So if one nation is going to declare war on another nation and murder everybody, they get their gold, they also get their land, they also get their factories. I mean, there was a joke neutron bomb, I'll just nuke you and we'll leave the cities. I might get the gold, the silver, the farmland, the buildings, the factories, the ships, but I wouldn't get the bitcoin. And so the spoils of war. Bitcoin is not spoils of war. Other things may be, but bitcoin is not spoils of war. With regard to a bank or a financier, if you own the bitcoin and someone puts a claim against you, the way it normally works is like, I've got a million dollars with a bank and I borrow against it and then they decide to mark my securities down and they force liquidate me and they sell all my securities and take my property. That happened with Archegos. I mean, it happens all the time. It happens all the time on crypto exchanges. If you have your crypto on the exchange exchange or your bitcoin and you borrow against it and then you can't meet a margin call, they can force liquidate your assets and they seize them. But if you pull your assets off the exchange and if you hold your private keys, then your bank can't seize your assets in a hostile fashion. They would be more likely to negotiate with you. And because you can take custody of it, you don't necessarily need to rely upon this all or nothing. Either I give you all my stocks and I borrow against them, or you have none of them. We could split the difference with I give you proof that I have it, proof of reserves without the transfer of the asset in return for a different type of loan.
- [24:24]
Robert Breedlove
Let me ask you a question real quick. So you touched on something really important that bitcoin alters the economic logic of violence, which is a very important element of how humans organize themselves. And you mentioned previously, the beginning of the series, how war has this tendency to accelerate learning for people. Kind of under the duress of war or the desperation of warfare, we figure out new ways of doing things. Do you think armed conflict in the 21st century could accelerate nation state adoption of bitcoin as this sort of advantage dawns on them that they can be plundered of their gold, but not necessarily their bitcoin.
- [25:11]
Michael Saylor
Yeah. I think all stress will accelerate the adoption of new technology. Right. For example, when people are fighting wars, like when we're fighting wars, we were hauling over C130s or air freighters full of pallets of cash, Right?
- [25:33]
Robert Breedlove
Yep.
- [25:34]
Michael Saylor
So normally the way you fight wars is with gold or with cash or with something. And if you're cut off. Right. And you need to buy or, or sell materials of some sort, you need hard currency. So I think that, yeah, it will accelerate the adoption of technology like bitcoin. And coming back to this issue, because it's not confiscatable, it doesn't invite violence on your person from other family members. For example, you ever worry about being murdered by a family member because of whatever your will says? If you had your bitcoin in a multi signature relationship or multisig something or other, then maybe it changes the dynamic. I think all sorts of violence against the individual, against the company or the institution, or against the municipality or the nation state, I think those are all less likely and less likely to happen and more likely to result in negotiation. So why else is bitcoin going to succeed? Why is it succeeding? Well, because hypothecation is so much more difficult. I'm not saying impossible, but the layer one and the layer two protocols, Bitcoin and lightning, those mitigate the need for hypothecation. It's less likely you would need to trust all your assets. If I can move 1% of my assets a day for a satoshi, then I wouldn't put all my assets in a bank. Right now all of your assets, all your stocks are probably in a bank. You don't hold any of them. In theory, you could actually take possession of your stocks as certificates and put them in a safe deposit box and take them out of street name. They say.
- [27:39]
Robert Breedlove
Yeah, I don't even know if you.
- [27:40]
Michael Saylor
Can do that anymore. People don't do it.
- [27:42]
Robert Breedlove
Yeah. I think that I may be wrong about this, but I think the DTCC now officially owns all stocks, even if you own the certificate.
- [27:52]
Michael Saylor
Yeah. So it's harder and harder. Yeah. So the protocols mitigate hypothecation and also they punish hypothecators. If someone did go naked, short bitcoin in order to make a quick dollar and you pulled all your bitcoin off the exchange and they have to then settle, creates a massive short squeeze so whenever you pull those securities away from the hypothecator, then they get squeezed. So if I knew that it was impossible, like if you had a billion in gold, I know you're never going to take delivery of it. I can short it 100 to 1. And if I knew you'd never take delivery of the Bitcoin, I might get a little bit cute. But, but in a world where people can, then there are exchanges that fail, just like there are bad banks that fail. It's just that they're failing continually in Bitcoin because that's the nature of the free market. And that's how the free market squeezes out defective actors and malicious actors, right? And the ones that have perfected security and the like, they succeed. So the fourth dimension of virtue for Bitcoin is superior authentication. And again, the layer one, the layer two protocols and cryptography in general, and what you can do, proof of keys and the like and proof of reserves, they solve the authentication issue. And maybe it's solved for the first time effectively when you want to settle or you want to buy a piece of real estate, sometimes it takes a week, two weeks to do a title search. And it's a manual process. So you're talking about a hyper expensive manual process to even do a title search on a small amount of property. And Bitcoin gives you a way that's, I mean, presumably it's somewhere between thousand and a million times cheaper and faster. It's not an order of magnitude, it's many orders of magnitude better on the authentication. Maybe even more important than that, you can automate the authentication. That means that a computer program could authenticate 100 million different holders every hour for a nickel. When you get to that level, that opens up the possibility to create new types of businesses and new types of applications that otherwise would have been cost prohibitive because of the friction involved. Bitcoin succeeds over fiat based upon transportation Dynamics to the fifth element of virtue. It's fast on layer one and it's instant on layer two. Moving $100 million of property on layer one in an hour is fast. But moving $100 million, or maybe moving, moving $100,000 on layer two in a second for nearly free is instant. And so it's just much faster. And it comes with no artificial geopolitical constraints. Even when you have fast on fiat, you have fast, subject to geopolitical constraints that are continually shifting, whereas fast. And Bitcoin has no geopolitical jurisdiction. It's cyberspace, it's orthogonal to geopolitical space. And what you want is a situation where a billion people in China could all authenticate themselves and trade on a value network through the great Chinese firewall to a website sitting in Cuba or sitting in the us you'll never do that with any kind of fiat system. In fact, the entire Chinese system is constructed to create a capital fire firewall so that capital can't flow out of China, or in China, the central bank chokes it in order to maintain the RMB peg versus the dollar. So that idea that I can cross that layer instantly, that means I can build a value exchange into a billion transactions a minute. And I can build a value exchange that flows in a billion transactions a minute for a billion people across 100 different applications. And they can all move fluidly. Right. So I guess it's the difference between, if you want a metaphor, right. Liquid fluid flow into a container, like that's bitcoin and lightning. Or you take 1kg gold blocks and you can move. Or even London Good Delivery bars. Right. What are they? 400 gram? No, 400 ounce or whatever, I forget. Yeah, 400 ounce London Good Delivery bars. You can build whatever you want with those. But one of them is. It's like legos that are 400 ounces each and the other is water, liquid or air. You know, there's just no comparison between the two.
- [34:02]
Robert Breedlove
Static versus dynamic.
- [34:05]
Michael Saylor
Yeah. And completely liquid. Like try. What I want you to do is construct a tornado with London Good Delivery bars of gold. You can imagine a tornado with air and water.
- [34:22]
Robert Breedlove
Yeah.
- [34:23]
Michael Saylor
Or a whirlpool or a cyclone. You just can't imagine that with big, you know, bars of gold because one's discrete and the other's continuous. It's a difference between discrete fluid dynamics and maybe arithmetic. With Legos or something, you know, it's like you're like, well, Legos is fine. Yeah. It's fine for third graders.
- [34:50]
Robert Breedlove
Yeah, yeah.
- [34:52]
Michael Saylor
But Legos, you can't design a rocket nozzle with Legos.
- [34:57]
Robert Breedlove
Right.
- [34:58]
Michael Saylor
You're not going to design the wing of a supersonic airfoil with Legos. You know, you need continuous fluid dynamics.
- [35:08]
Robert Breedlove
You need more optionality. Right. Again, we're back to this. There's some core point here where again, earlier, the customer optionality to withdraw their bitcoin out of the bank at any time keeps the service provider honest. So then the service providers actually have to compete for the business, which gives us lower prices, better services, more innovation, more wealth, more freedom. And it's all rooted in this precision of customer choice. The Similar with the Legos, you don't have as much options with a big block. But if you're at the molecular level of the fluid, you got a lot of optionality.
- [35:49]
Michael Saylor
There is a dance between counterparties and are you dancing using two ton granite blocks or are you dancing using water or are you dancing with air? What structures can you create? And if we take all those things together and you consider the consequences for distribution, Bitcoin is something that can be distributed to everybody on earth for free, effectively free. So it's truly liquid. What I need is if I wanted to distribute something to 8 billion people, and I wanted 8 billion transactions an hour, forever. Like I want that degree of fluidity, I need to do it at the price of a satoshi transaction. I need to do it with very low friction. This low transport cost, this low friction results in massive distribution. And we can see with gold, for example, there isn't one ounce of gold for everybody in the world to give them. And so there's no way to distribute money with gold. And if we take Fiat, we know there's 1.7 billion people that run banked, maybe more, right? And so, and we know the ones that are banked are imperfectly banked and the banks don't cross connect. So we can't find a good way to distribute money via Fiat or via gold, but via bitcoin we do have a clear way. And I mean the last element is this division, right? The ability to break it down. I can't break down a gold bar, a gold coin. I can sort of break down Fiat. But even one penny is like too much sometimes. Being able to go to one satoshi is better than one penny. Especially because of this one thing. One of the big problems in cybersecurity is spamming and scamming. So I can't use the DMs of my Instagram because they're all 99% of the communication is spam or scam. I can't really use the DMS of non verified or non followed individuals on Twitter because of the same thing. I can't really use email without very expensive email filters that are continually filtering out spam and scam and the like. So there's, there's massive amounts of cyber insecurity every single day. If you have a website, it gets attacked sometimes by a denial of service attack. There are all sorts of hostile actors that will do DDoS attacks all the time. The reason for, for DDoS attacks and scam and spam is there's no cost, right? To Attack it. There's no skin in the game. And so what we need is to introduce skin in the game. The way to do it is to require a value exchange whenever you move to a router. If you had to pay a price to send a message at some point, you would attenuate large amounts of that scammy spammy activity. I mean, that's why proof of work was invented in the first place. Right? Adam Back was trying to come up with a solution to stop spam. But the other thing you can do is you can actually tie the value, say, 100,000 satoshis as a security deposit into your Persona online. If you posted 100,000 satoshis to your Twitter account and if they gave you an orange check and that was your security deposit, then the understanding would be if you misbehave, you get fined, and if you're a malicious actor, maybe you forfeit the security deposit. This is the way it works when you're renting a home. This is the way it works in all the real world. You're a bonded laborer. You can't drive a car without proof of insurance. We have these insurance policies or security deposits or performance bonds that pop up all through the real world economy. In the absence of all of those, because you're a real world actor, you have a risk. And the risk is if you misbehave, you have culpability, you're responsible. You may get pulled over by a cop. If you say something rude to somebody's wife, you may get punched in the face. I mean, you have either economic skin in the game or you have actual skin in the game. If you walk out onto a bridge that's rickety and you screw around and do backflips and you fall off the bridge, you may die. Yeah, there are consequences in the real world and the economic world, but there are no consequences in cyberspace for many of these activities. And so the result is people actually even create programs to create bots. And I might spit out 100 million fake Michael Saylors to do irrational, malicious things. And they're not even me. They can't die. Right. And the result of that, by the way, when you do that, that's a denial of service attack. The result of that is cyber insecurity. So the fluidity, the speed, and the efficiency of the Bitcoin lightning network has the potential to give us a solution to the cybersecurity problem. If we simply start to tie a small lightning wallet or an amount into some of these systems that YouTube, Google and Facebook and Amazon and Apple and Twitter and Medium and Reddit, all these other places where people are. You know, it's not a day that goes by that someone doesn't post a Michael saylor video on YouTube offering to get you free bitcoin. That's not me. But there's no verification on YouTube or registration. So if you had to actually post something, some deposit, and if you were forfeited the deposit, by the way, it's not that they don't take down the accounts. They do. They take them down within a day of when I report them every day. There's 10 Michael Saylor accounts that get taken down on Twitter. It's just. There's no economic cost.
- [43:05]
Robert Breedlove
Right, exactly.
- [43:06]
Michael Saylor
And I understated that, really. The truth is, in my newsfeed, there's 1,000 fake Michaels that have stolen my image and my name. If you charged them all a quarter each, it would become a massive revenue source for Twitter. The scammers would immediately realize that there's a cost to attack the system. The amount of malicious behavior would drop by 99%.
- [43:33]
Robert Breedlove
This is a tragedy of the commons, effectively, the freeloader problem, where there's no cost to these imitators, so they just keep repeating it. And apparently it's a profitable enterprise because to your point, there's new ones every day and there's.
- [43:48]
Michael Saylor
And so the reason it exists is because the fiat standard system makes it too difficult to actually post something of monetary value.
- [43:56]
Robert Breedlove
Right.
- [43:57]
Michael Saylor
The only way you can post something of monetary value in the fiat standard is with a credit card and you dox yourself, and then you're not anonymous anymore. And so that's offensive to one group of people that don't want to be identified. They want privacy. But it's also prohibitive to another group of people that don't have a credit card and a third group of people that have a credit card, but the credit card won't clear across nation state boundaries. Bitcoin solves that problem and it fixes it. So on one hand, one extreme benefit is, yeah, bitcoin is a way to store a billion dollars for 100 years. On the other extreme, bitcoin's a way for everybody on Twitter to post $0.30 in order to eliminate 99.9% of the malicious behavior and improve the quality experience. Now, back to your dance. If Twitter can ask for 100,000 Satoshi deposit, and if people give it, and if Twitter's quality of service goes up by an order of magnitude and their cybersecurity enhances that might put pressure on Instagram, that might put pressure on Google, and ultimately now what you have is every big tech company competing with every other tech company to improve their service by building Bitcoin and their service. Because Bitcoin can eliminate fraud on YouTube and Bitcoin can eliminate fraud and cyber insecurity on Instagram. You've got something. It's like, why do I adopt this new technology? Because I can or because I need to? The early adopter does it because you can, and the later adopters do it because they need to. If PayPal doesn't roll out Bitcoin and Square does, then Square starts to eat PayPal's lunch. PayPal and Square both roll out Bitcoin and Apple and Google Don, right? Then they're at a loss. Right? So you have competition that's embracing new technology to progress the civilization to a better space. Bitcoin's the future for cyber. It's the promise of cybersecurity. In fact, that's the great irony. People criticize Bitcoin as maybe being a tool of cyber hackers, but the ultimate destiny of Bitcoin is to make Cyberspace safe for 8 billion people by building it into every cyber offering and creating skin in the game for every malefactor. And consequences that are not based upon counterparty risk and don't have to be threaded through nation states or central banks or credit card companies.
- [47:02]
Robert Breedlove
Yeah, it's truly transformational. And then just simply by introducing that risk of loss for agents in the system, you're just incentivizing honesty, which is again, this grand theme with Bitcoin. And one other benefit, that this is just a promise of Bitcoin. Now, it's still experimental, but the idea of building social media applications on top of the Lightning network in a way that they are actually censorship resistant. I think that experimentation is very important, especially as we see more people being deplatformed, canceled, censored, et cetera. So it seems like there's this potential for Bitcoin to restore honest, unstoppable discourse in the digital age.
- [47:50]
Michael Saylor
Bitcoin is the crypto asset network, and Lightning is this crypto transaction network. And it's possible for us to have other crypto application networks, decentralized, open, non custodial. And they all have promise based upon the core idea. So if we wrap up this entire Bitcoin standard discussion, why does Bitcoin succeed in theory? Well, because the base layer protocol is mathematically sound and secure. Secure. And the application level layer protocol is sound. And it's open to upgrade. And therefore the property rights that it delivers are perfected and they're open to upgrade. The open network means that you can upgrade them. And when I say upgrade, maybe upgrade means keep making the lightning network better. Maybe upgrade means roll out square cash app with cash tags. Maybe the upgrade means building an Apple pay. What does it mean? It means 100,000 different things. There's a free market, a Darwinian competition to build applications and other types of platforms that are upgrading the Bitcoin protocol. And their, they're, they're drawing on the promise of digital property in order to meet some other use case. And there'll be some that will succeed. There'll be some. There's going to be exchanges that fail. Some succeed. There's 100,000 ways to think about a wallet, right? Some will be better than others. The market will sort it out. We've got a very competitive Darwinian system. But the result is every intelligent person that encounters Bitcoin, they're incentivized to find a way to make Bitcoin more valuable. And they might do it by a creative financial application. They might do it with security, they might do it with a device, they might do it with a software program. They might do it by plugging into a different network a different way. And some ideas will be great ideas and other ideas will be good ideas and some ideas will be bad ideas. And Bitcoin will benefit from the good ideas, it will accelerate from the great ideas and it will ignore and slough off the bad ideas. That's something that the gold and Fiat, they don't have working for them. Right? You could imagine some gold applications, but you are crippled. Gold jewelry, gold goblets, gold coins. And then that's the end of the road. With gold and with Fiat applications, we took that much further. Heck, we created sovereign debt, we created all sorts of interesting money markets and all sorts of other securities with Fiat. We created travelers checks, we created credit cards. You can't say there aren't interesting applications. The Entire Visa and MasterCard network is kind of a thing of awesome beauty if you compare it to the system of Roman gold coinage. Clearly big advantage. It got the civilization to where it is. Bitcoin is really just still early days. We're just into the second decade. These applications and these networks that will be built on it are in some ways a blink of an eye. But you see, in the conventional world, companies like Nydig and Nydig's built a CEFI platform and that platform is being used to deploy bitcoin type services to banks downstream. They've created a platform so that you could create a credit card that integrates with Bitcoin some way. So that's layer two, layer three. It's a custodial layer two, not a non custodial layer two. You have counterparty risk in Nydig, but there's nothing that says that it couldn't become a non custodial lightning based platform at some point.
- [52:32]
Robert Breedlove
Right?
- [52:32]
Michael Saylor
Who knows? But that's one approach. And then lightning is another approach to a layer two, a non custodial decentralized layer two. But you know, that's not the only. There's no monopoly on this. You know, you could create a competitor to it if you wanted to. And then you can, and then you can create applications like Square Cash app, which is another kind of custodial application, but it is an open custodial application. So to the extent that you want to, you can move your bitcoin out and move it to another, another layer two platform or to another application or just take self custody.
- [53:20]
Robert Breedlove
So I was just going to say.
- [53:21]
Michael Saylor
Just different ways that the network is evolving.
- [53:24]
Robert Breedlove
I was just going to say even the custodial risk is different with Bitcoin because it's trivial to take delivery of it. It's relatively cheap to secure. So even if you are taking some counterparty risk with some of these layer two, layer three technologies, a lot of them can be set up to either you withdraw manually or even automate the withdrawal into self custody.
- [53:47]
Michael Saylor
Yeah, sometimes the hardcore bitcoiners are, they're a little bit hard on everybody and it's like the perfect being the enemy of the good. For example, if I buy the bitcoin and I trust a counterparty for a week, but I have the option to take it off the exchange or out of the mobile app when I want, that's a totally different situation than if I bought a million dollars worth of land in California.
- [54:16]
Robert Breedlove
Right? Exactly.
- [54:18]
Michael Saylor
You will never in a million years be able to move the million dollars of land in California out of California. So the custodial risk of a building or land is orders of magnitude greater. You're trusting the mayor of the city and the governor and the nation state and every bureaucrat and you're never going to change that. Whereas look, even if you bought Bitcoin on PayPal when they didn't have the wire out option, people had a big fit on Twitter. But the truth is. So you had some Bitcoin on PayPal and for six months you couldn't Take custody of it. And then after six months, because of the big protest about it, eventually they upgraded their wallet and now you can. Mm, Right. So it is possible, if you buy bitcoin in certain places, that you'll be able to custody it or move it somewhere in the next year or two or three years, but it's absolutely impossible that you will ever convert a building in New York City into something which moves at the speed of light on the lightning network.
- [55:35]
Robert Breedlove
Right.
- [55:37]
Michael Saylor
Not without selling it, liquidating it, paying the capital gain tax on it, and converting it. Right, yeah. So I think that generally just about all these flavors of bitcoin are higher quality property. And even when you. Sometimes people want to own the bitcoin outright. And I get that because our company owns the bitcoin outright because we want to be able to transfer it to any counterparty and take. Take custody and do whatever we want with it. We want sovereignty over it. But if you were to own bitcoin in a fund or an etf, it's still higher. It's the second highest quality property you could own. It's not the best property in the universe, because the best property in the universe is own the bitcoin. But the second best property in the universe is own a bitcoin derivative that's one for one, backed by bitcoin from a counterparty that you can reasonably trust. And there are plenty of examples where people have buckets of money and they can buy the security, but they can't buy the bitcoin. It's like in some retirement plan and you're able to buy a security but can't buy the bitcoin. And there are lots of investors, trillions and trillions of dollars of money managers, and they've raised money. I might have 100. I have $10 billion in my portfolio. And because of tax code or because of law, or because the contracts I have with my limited partners or the charter, I can't buy the bitcoin. But I can buy a security based on bitcoin. The real world is a nuanced one where there are lots of different types of capital. Not all capital is fungible. If I have a billion dollars, it doesn't mean I can just convert a billion dollars into bitcoin overnight. I might have 100 million and all I can do is buy land and I might have another $100 million. All I can do is buy a security and I might have another $100 million and all I can buy is debt. If that was the case, I would prefer to have debt backed by bitcoin land underneath the bitcoin miner and a security that is a bitcoin backed security. Because those three things would be sitting on a stronger foundation of collateral than to buy three things that have no relationship to bitcoin. That's the value of bitcoin. Ultimately, you compare gold standard to fiat standard to bitcoin standard and your conclusion is Bitcoin is simply digital money. And digital money is, is an engineered system to create a shared, immutable, correct ledger. If you were Satoshi and you were doing it again, your checklist would be, okay, how do I make it shared and open? How do I keep it from changing? How do I make it mathematically correct? And then what kind of things can I put in it that will cause the entire world to want to protect it and secure it and improve it over time instead of attack it and destroy it? And I think that's what Satoshi created, this engineered digital asset network that happens to make the best monetary system that the human race has come up with. If there's ever a better one. You'll start from those principles of digital money and you'll say, how do I make it better? You could imagine maybe something better. But what's most likely to happen is the bitcoin blockchain just migrates into the better thing.
- [59:51]
Robert Breedlove
That's right.
- [59:53]
Michael Saylor
And it goes on, right?
- [59:55]
Robert Breedlove
Yeah.
- [59:56]
Michael Saylor
The adaptivity injects itself into the better thing and carries on. I don't know why it wouldn't last thousands and thousands of years.
- [60:04]
Robert Breedlove
Yeah, you would assume that the UTXO set would just migrate wherever it needed to go. Again, it's that open source adaptivity of bitcoin makes it seemingly disruption proof. Because what can you do? How do you disrupt it? I mean, it's really interesting and I think this is a brilliant way to look at it. So one last question here. Clearly it is superior property for all the reasons we've laid out. What is the impediment to people understanding this? Is it just the, I guess, the proof of work necessary to study Bitcoin to understand all of this? Or is it a misunderstanding of property? Is it a combination?
- [60:57]
Michael Saylor
I think it's just the rate at which the human race can embrace a profound idea. There's the speed of light, and that's a limit Einstein spent a lot of time talking about. And the speed of light is kind of the rate at which the universe can communicate with itself and the speed of sound. And the speed of sound is the mechanical rate at which air can Communicate. Right. If you're moving faster than the speed of sound, you're arriving before the molecules can get out of the way. And that's why there's a shock wave, because you're moving too fast. You can't, you know, the speed of light is like, that's the speed limit. Now there's a speed, a speed through of which an idea can move through a socio political economic fluid that we call a culture. How fast can an idea move through a culture? It would be a function, I think of cognitive bandwidth of human beings and distraction and life expectancy of human beings and how fast they speak with each other and how much you sleep, you know, and if you ever look at, you know, look at animals, you ever see, you know, some of the animals, the smaller ones seem to move faster than you and me.
- [62:39]
Robert Breedlove
Right, right.
- [62:40]
Michael Saylor
They've, you know, they're at a much different frequency.
- [62:43]
Robert Breedlove
Yes, right.
- [62:45]
Michael Saylor
They can agree, disagree, careen into, you know, into a brick wall, come back, regroup, careen into another one, agree again, and move forward. All in the amount of time that we're deciding whether we should make a decision. There's a frequency. So this is socio political frequency. In the history of science, the structure of scientific revolutions, they just speculate generally new paradigms, they take place when the entire old generation dies. So 30 years, a generation is reasonable because in 30 years an entirely new group of decision makers take over the government. Right. The person running the army is 50 and the 20 year old will be running the army in 50 years because that's the life expectancy or the career expectancy. So normally it's life expectancy to take a paradigm shift or generational expectancy about 30 years. But sometimes if there's a war, certain things get jammed faster. And they get jammed faster because your life expectancy on normandy beach wasn't 30 years. Years. Right, right. I mean, if you do something egregiously, like assuming that you cling to horses and you reject machine guns, that was an irrational behavior that could last from, you know, 1905 to 1914. But it didn't last from 1914 to 1915 because there was a war and there was an instant consequence. So I think that war and disruption accelerates consequence and the absence of that is a generational thing. And then you'd have to crank in the rate at which information moves now. Like for example, I feel like information moves on YouTube much faster now than five years ago or 10 years ago. Information moves on Twitter faster.
- [65:10]
Robert Breedlove
Yeah, there's almost this liquidity coefficient for Ideas that has just gone through the roof with digital tech.
- [65:18]
Michael Saylor
I mean, it used to be someone would retire and they go back to Harvard University and they're going to teach. Okay, so you retire and you're going to teach from age 60 to age. Or age 50 to age 80. So you teach for 30 years, and you have 100 students a year, 200 students a year. And so you spend 30 years of your life. And after 30 years of your life, you've taught 10,000 people.
- [65:44]
Robert Breedlove
Yeah.
- [65:47]
Michael Saylor
And now, you know, you get 10,000 views on a podcast. And that's like. That's a boutique thing, right?
- [65:54]
Robert Breedlove
Yes. Yeah.
- [65:58]
Michael Saylor
So information is moving at a broader scale. There's a much more competitive battle over ideas. Good ideas travel faster. Mediocre ideas don't travel at all. They get stamped out. The race is evolving a bit faster. But having said all that, you know, like, Warren Buffett still got a lot of money, right? He's still got a lot of money. Has he listened to 10 hours of content on Bitcoin yet? Probably not, right?
- [66:35]
Robert Breedlove
No, probably not.
- [66:37]
Michael Saylor
So somebody controls $100 billion, and they haven't spent 10 hours thinking about it. So what happens? Well, that $100 billion will be locked in the old system until some cataclysmic change takes place. Right. So I think that it's reasonable to expect it takes a decade.
- [67:08]
Robert Breedlove
Decade. Until a decade is fast. You think full maturity? I mean, clearly not full maturity, but.
- [67:16]
Michael Saylor
It took one decade for the thing to become. Look at the life cycle of Google. Weren't they found, like, 1998, something like that?
- [67:28]
Robert Breedlove
Yeah. So a little shy of 25 years.
- [67:32]
Michael Saylor
The first decade, they were growing fast, but people weren't convinced that Google was going to rule the Earth. Right, Right. The second decade. Now we're the end of the second decade. And now what do you think of Google? Yeah, So, I mean, I think normally 10 years to get going, and then the next 10 years is the big 10 years.
- [67:57]
Robert Breedlove
Right. So this is it.
- [67:59]
Michael Saylor
I think we just finished year one of the second decade. Gotcha. Year one started like Black Thursday, right?
- [68:08]
Robert Breedlove
Yes.
- [68:08]
Michael Saylor
Of March last year. And think about everything that happened between that March and the next March.
- [68:16]
Robert Breedlove
Yeah. Such an inflection point for digital technology, the digital age, even, and for distrust in analog institutions. It just seems like they both diverged almost in an instant. Okay, guys, that was episode 12 of the Saylor series. And once again, Mr. Saylor brings the heat, this time exploring Bitcoin as an alternative to both gold and Fiat. So we started the conversation here with Very important concept. And we saw this with gold and fiat gold and currency rather, in that money tends to be implemented in layers. We had gold as kind of a base layer of money historically, but as we've covered, because it was limited in its transactability across space, we had to abstract gold into a layer two currency application to make it more transactable across space. So we find an analogy for that in Bitcoin, actually. Bitcoin layer one, this is the Bitcoin blockchain. This is the equivalent of gold. You have somewhat slower settlement, although it's still many orders of magnitude faster than physical gold. But the energy expenditure and the slowness of settlement and consensus on the base chain is what gives it rigidity, certainty, integrity, security, reliability, dependability, all of these features you want in money. It's a place you're storing your wealth. You want to know that it's resistant to all forms of corruption, manipulation, distortion, et cetera. And that degree of assurance has a cost. And the cost is proof of work. You have to actually expend energy to create assurances of supply limitation. So to ensure that bitcoin adheres to its fixed cap, its fixed money supply of 21 million, the only way we know how to do that as a species is through energy expenditure. Don't let anyone else fool you about this for reasons. Saylor goes into much more deeply. Proof of work is the only established consensus mechanism for guaranteeing a fixed supply money. So it is proof of work that makes bitcoin thermodynamically sound money. It's secured by energy by necessity. And there's a deeper point here in that work is the only thing you cannot counterfeit. You could think about this in a physical sense. You can't just work out really hard for a week and get in really good shape. It takes years of dedication and training and persistence to actually look at. You have to actually become athletic to look athletic. So there's a proof of work involved with becoming physically fit in the same way that there is with guaranteeing the quality of something else, like a money supply. This is important, that work cannot be counterfeit, because that's exactly what the central bank is doing. It's a centralized, legalized currency counterfeiting operation. It's generating a new supply of money with no energy expenditure, no work outlay whatsoever. And that is the reason, because there is no cost associated with expanding the money supply, that the central bank is in a privileged legal position to confiscate wealth from the entire productive economy. This is the core reason There is no proof of work in fiat currency. And that's what Bitcoin is fixing, right? So Bitcoin uses this consensus mechanism to hold a fixed supply and this is optimizing its ability as money to express value across time. So that is what layer one is optimizing for the expression of value across time, just like gold was. And then at the application layer, layer two, we see things emerging that are trading off some of that trust minimization or assurance in that instead of not needing to trust anyone, you're trusting the Bitcoin code and the mining network, which is the incentives of the mining network are aligned with their own self interest. So you're basically trusting the self interest of miners to preserve the integrity of the blockchain. At layer two, you're actually trading away some of that trust to instead depend on smart contracts with something like Lightning Network, which is this lattice of interconnected smart contracts that allows you to send Bitcoin around the world at very high speed. So Lightning Network would be an analogy to currency, but again with orders of magnitude more efficiency. Again, you'll have to check my numbers on this, but I think when the Lightning network reaches a certain level of network density, meaning enough people have adopted it and there's enough channels interconnected, that the transaction throughput goes to near infinite and the transaction cost is basically near zero. So you're getting this perfected currency, this digital currency application via the Lightning network, on top of the assurances of Bitcoin core the blockchain. And the trust is preserved in this system because participants in the Lightning network maintain the option to settle to the Bitcoin layer 1 blockchain at any time at their own discretion. So again, this is a very important point. We hit on a lot. This optionality preserves honesty. So if we're both routing transactions on lightning, which the rough analogy here is if you imagine an abacus, you and I both fund our channel with one Bitcoin. We can then slide beads back and forth across that abacus, kind of like a credit or debt based system effectively. But either one of us can settle to the main chain at any time. So there's pretty much an inability to corrupt that transaction mechanism. And so that abacus connection then gets scaled out to an entire network of peers, which is the Lightning network. So you have the optimization for expression of value across time at layer one with Bitcoin and its fixed supply of 21 million, which comes with limitations. These are thermodynamic engineering limitations that you can't move it as quickly across space, it takes time to settle to the base chain. Typically it's six confirmations, which is roughly 60 minutes. But you can trade off some of that security assurance into something like the lightning network or other protocols. There's many in development. We're just talking about lightning today because it's the most sophisticated so far. And pick up near perfect transactability across space while giving off some of that assurance across time. So what you're getting here in the integration of these two systems, layer one, layer two, is an optimized money. Effectively, you've got something that holds its value perfectly across time, and you've got something that moves or expresses value across space as nearly as perfectly as we figured out so far. It's a really profound invention. I think the other point here is that the lightning network, we said we're funding this with bitcoin. So again, the analogy here was we had to custody. We had to centralize the custody of gold into warehouses, and then those warehouse operators issued receipts for gold. Those were the call options on gold that became banknotes, became currencies ultimately. And that's essentially we're replicating that model, but in digital space with a lightning network. The difference being that you have this instant option for final settlement at any time, which was not something that the warehouse operation could offer. You had to actually take the paper back to the warehouse, redeem the physical gold, and then if you wanted to transact in the gold again seamlessly and conveniently, you actually had to take it back to the custodian, put the gold on deposit, take the paper receipts, and transact with those. So this combination of layer one, layer two technology and Bitcoin gives us an instant global final settlement system. It's something like we've never seen before. And that optionality again, to call to settle to the base chain whenever you want. This is keeping the whole system honest. Maybe another way to think about this is you can basically call someone's bluff at any time. You can call their bluff. So, and this is kind of a rough analogy, because I don't think in the lightning network there's a lot of latitude as far as manipulating these contracts. But because there are more features in these smart contracts, there is in theory, more attack surface. There's more opportunity for software engineers.
- [78:07]
Michael Saylor
To.
- [78:07]
Robert Breedlove
Mess with things, let's say. So it's not as trustless as the base chain. So I think that is a useful way to look at it. We have a money that's evolving in layers. So anytime someone's decrying bitcoin at the base layer, you have to have this knowledge of how monetary systems work. They work in layers, and different layers are designed to satisfy different functions of money. In this case we're talking about time versus space. So that gets us into the discussion on why Bitcoin succeeds. Saylor laid out a number of good points here. The first being that it's the end of inflation. Essentially. Bitcoin eradicates the concept of unpredictable supply inflation. We all know with perfect certainty essentially that 21 million will ever exist. No more, no less. I guess you could say less actually. When coins are lost or destroyed, which would be sent to a burner address that no one has the keys to, you're actually contracting the total money supply downward from 21 million. And this has an anti dilutive effect on holders. So every time someone burns a Bitcoin, they're basically making a pro rata contribution to all other Bitcoin holders because it's increasing the scarcity per coin effectively. And another reason Bitcoin succeeds is because it is the ultimate form of property. As Saylor spelled out, it's got a non physical nexus. It has this inbuilt security that's independent from the monopoly on violence. So you don't need this political approval for the relationship between you and your asset, which is property. Property is the relationship between owner and asset. You instead just need the security that's built into the Bitcoin blockchain and possession of the private key. So it's this radically new property, a non physical property with no physical nexus. And then very importantly, it's securable in any information bearing medium, which is just really profound. It's an information bearer asset. So you can take this private key, you can chop it into pieces, you can distribute it geographically, you can encode it in publications or songs or any number, anything that can bear information, which just opens up the spectrum of possibility for securing your money. To that end, Saylor makes this point that you can even take Bitcoin when you go. If you put private keys in your brain, for instance, and you pass away, then that's it, Bitcoin's gone and you've taken it with you effectively. And if the market's aware of that, then it's essentially once again, I guess, actually, even if the market's not aware of it, over the long run, it would be that anti dilutive contribution back to the market just because the coins will never move. So that would take some supply out of the float, which against the same demand would actually increase the purchasing Power of Bitcoin, which is really interesting. And the other point he makes, which I think is a really good one, is that hostile actors, because they can't take bitcoin from you involuntarily, that it actually bends the incentives towards negotiation. Whereas if you have physical gold, someone will just pop you and take it, or physical cash, your bitcoin custody properly can't be confiscated that way. So what an attacker or transgressor would do instead is they'd be incentivized to negotiate with you. And that plays into a bigger theme we talk about in a bit. The next point we went into was the hypothecation of Bitcoin and with low transaction costs, the ability to withdraw at 24 by 7, any would be hypothecator is very likely to be punished by the marketplace. So another way to say this is with hyper mobile capital like Bitcoin, that the user, either the user of this custodial service or whatever, if it's the lightning network, whatever service or function it is, they have more optionality by virtue of Bitcoin's mobility. So this allows customers more power in the marketplace. And you could compare this to something like the gold market, where gold again suffers in the portability department. It's very difficult to go and claim physical gold. It's expensive to move and settle, et cetera, et cetera. And it is for that reason that central banks have been so successful, successful in manipulating the price of gold in the derivatives markets. Because what it is, you have a lot of paper claims to gold, these call options to gold, if you will, floating around the marketplace, but very little to any physical settlement. There's still some being conducted, but not at a high frequency enough to call the bluff. Once again, with an inability, we'll say with immobility of capital comes an inability to call a service provider's bluff. And what this does, as we explained in prior episode, this opens up this gap between trade and settlement, between representation and execution, between what you say you're going to do and what you actually do. And in that gap is where all the corruption and systemic risk in the traditional financial system fester. Because there's all these signals out there, these non costly signals that aren't being rectified to reality frequently enough. So we get all of this distortion in the marketplace from this simple technological limitation of gold, which is really mind blowing. If gold were just informational, if it were just hyper portable, it would resolve a lot of these issues. And that's exactly what we get in Bitcoin, we get the properties that gold provides us as money, but perfected effectively. So it is this destructive force to corruption, frankly, in the traditional financial system. And then Saylor makes it further point that Bitcoin's also solving for authentication. This is a big deal too, in traditional markets, especially if you've ever bought or sold a house, you've probably dealt with title search and what they're looking for. There are other claims to the property effectively, but Bitcoin, by virtue of it being an informational bearer asset, it is unencumbered by the act of possessing it. It's just as if you hold physical gold bullion, the mere act of possessing that presupposes your ownership of it. So that's very important. This radically lowers transaction costs, this lowers legal costs, disputes, et cetera, and it just simplifies things. And that you can hold your wealth in a trust minimized barrier asset that no one else has claim to the end. So that's very powerful. And there's other aspects to the authentication as well that you can prove reserves, actually. So you can sign a message on a Bitcoin balance and prove you have the balance, that you have control over the balance you represent, that you do, versus having to have an audit or some other time consuming, expensive process. You can just sign a message, it's that simple. And so that's a big deal. And then we also made the point that Bitcoin is hypertransportable, which has all the benefits we've outlined earlier, but also it contributes to this more to optimizing this dance between counterparties that Saylor discussed. And this is in many ways you could think of the market process itself as one giant, decentrally choreographed dance between counterparties. It's countless service providers providing goods and services to one another, but also exchanging money and contracts and trust and signals and information to coordinate their efforts. I love the example we said you can't make a tornado with gold bricks, which you could with water or wind.
- [87:02]
Michael Saylor
So.
- [87:05]
Robert Breedlove
If we think of money as these little data packets of veracity, if you will. So it's like if I send you money, if I hand you a gold coin, you don't need to trust me in any way. I've just authenticated to you that I have the economic value under my control necessary to buy the good or service. So it's a little packet of truth. And with Bitcoin we get this very deeply quantized packets, these little packets of veracity. So this enables a much more elaborate dance between counterparties. Which is to say a much more sophisticated market. And as we know from economics, that the more you can increase the frequency and intensity of exchange, the more wealth you can create. So another way to say this is the smaller and less expensive your transactions are, the more rapidly people will trade, the more wealth they will generate. So just by virtue of being a much more transactable money, Bitcoin promises to usher in a boon in economic activity. It's further to that point. Bitcoin becomes very distributable because it has low transaction costs. Whereas we see all the cost headaches and corruption associated with government helicopter money currently. If they were instead on a bitcoin standard, notwithstanding the possible insolvency of the government, in that case, they'd be able to much more easily distribute money if there were a helicopter money like program on bitcoin. Also, Bitcoin is much more divisible than physical gold. Each unit is divisible into 100 million subunits called satoshis or SATs. And with transaction costs so low, they approach zero on layer two, as we said earlier about lightning network, and with the the divisibility so granular, this enables micropayments. Micropayments are something that have been talked about on the Internet for a long time, but they've always suffered from this problem of not being able to overcome the fixed cost that's amortized into them from the legacy banking system. But with bitcoin, micropayments become possible because again, we can get the cost so low and the unit so small. And this is when Saylor took the discussion of Bitcoin fixing, spamming and scamming.
- [89:31]
Michael Saylor
Right?
- [89:32]
Robert Breedlove
It's reintroducing skin in the game, which is to say a balance of incentives and disincentives for each economic agent, and that they are incented to behave properly and disincented from behaviors that would be harmful to the network. And that dynamic. This is something Taleb writes about extensively. It's inherent to and necessary for the longevity of most systems. I mean, this is like biological systems, socioeconomic systems, systems of all different varieties. It's very interesting. That is another one of those core principles that lacking skin in the game is the reason we have so much corruption in the financial system. If the central bank policymakers bore the consequences of their decision making, they would be much less likely to engage in decisions or execute decisions that would harm the economic system. But because they do not suffer any consequences of their decision making, that they run rampant and expand the currency supply like mad. Like we're seeing currently. It's interesting that he went into the discussion of this fixing social media as well. And one aspect I found interesting here is that so with Bitcoin itself, you could say that early adopters are getting in it because they figure it out. We figured out the first properties of money and how Bitcoin is superior. They buy it because they can. You're betting on this future outcome based on a study of the history of money and based on the technological limitations of gold and the applications and potential of Bitcoin, you sort of make this risk adjusted bet to buy it. But should Bitcoin succeed as we think it will, there's going to be a cohort of people that will buy it because they need to buy it. You could say this is someone in an economy undergoing hyperinflation. They will buy Bitcoin just to escape the inflating currency and be able to buy bread and water and these staples of living. So there's this spectrum of early, slower adoption and at the other end of that spectrum is this late adoption under duress in a way. But Saylor opened my mind to this interesting in that that not only occurs in the monetary use case, if you will, but it could also occur in the social media use case that he lays out. Where if Twitter adopts Bitcoin and starts attaching these SAT transactions, if you will, to their messaging system or to their commenting system or reputation system, whatever it may be, and it introduces this incentive schema that promotes quality discourse and say they have success with that. So Twitter has created a more honest environment for social media by virtue of integrating to the Bitcoin system, which is enabling micropayments to be attached to all these messaging services, introducing risk of loss for bad behavior once again. If they're successful with that, they're going to draw in more advertising dollars, they're going to draw in more user engagement, they're going to start to out compete, say Instagram or something else. So there's this further dynamic to Bitcoin where an early adopter, again, we're just focusing on the social media application here, but I'm sure there's dozens of others in the digital space that they'll adopt it because they can, whereas later adopters may have to adopt it because they need to just to remain competitively relevant to deliver a quality of service similar to Twitter, Instagram now has to integrate to the Bitcoin blockchain. This is just an amazing and little understood aspect of Bitcoin is that as I think Saylor said It can make cyberspace a safe place for 8 billion people to interact, which is to say we have a system. And this is so fascinating about Bitcoin, is that it's incentivizing honest behavior at every level. Everyone that touches Bitcoin, their incentives are shifted towards honesty because that is the only productive strategy. Even in this case, we just laid out where a social media platform will actually have to reintroduce, not reintroduce, introduce this cost of messaging which increases the honesty and quality of dialogue in their network. But they have to do that precisely because a competitor already did it and there was an economic value generated from that. So this is where the lines start to get blurry. It's like there's this economic goodness created by Bitcoin, but it's related to a moral goodness of additional honesty, or higher quality discourse, if you want to call it that. And so that's a lot to think about there. This connection, maybe even between, as the Austrians have written about for a long time, there's a lot of literature on this, this connection between the monetary standard and the moral standard. It seems like Bitcoin is just really highlighting that connection and introducing an ideal honest money to the world again. So to cap this off, all the way back to how Saylor and I started this discussion, he laid out this idea of ideal money, which was this shared, immutable, correct ledger in the cloud, if you will, which would, again, if we just consider property. Property is kind of being this list of who owns what, money being the ultimate form of property because it can be used as a call option effectively on any other form of property and a trading economy, that the money isn't the wealth, wealth is the capital. We're creating. The things, the goods, the services, the reputations, the knowledge, all of that, that's the capital. But money is the instrument, the social construct, if you will, that reflects the value of all that capital and is used as a liquid medium for trading the capital. So we're trading things for money all the time. So we'd have to trade things directly. It's lubricating the market process, if you will. So therefore, money is really just informational in nature. You just need something that maps onto the scarcity of energy and time, which are the primary inputs into the economy. That's what we are economizing for, actually, is our own time and energy exposure expenditure. So the ideal money would be this purely informational, incorruptible, shared informational tool that mapped onto that directly and kept track of who successfully Satisfied the wants of the marketplace. Whatever the market wants, whoever gives it to the market should then earn money basically, and an ability to claim.
- [97:15]
Michael Saylor
Claim.
- [97:16]
Robert Breedlove
The goods and services that the market generates for themselves. So that's what Bitcoin is. Bitcoin is that Bitcoin is this shared, immutable, correct ledger in the sky. And it's effectively the closest thing to a perfect monetary technology the world's ever had. So then the question that I finished with is what's going on? Why is this not? Why is this still laughed at? There's so many people in mainstream media, which I would more aptly call the corporate press. Thanks Michael Malice for that one. That laugh at Bitcoin, think it's a joke, think it's going to zero. It's a Ponzi scheme, whatever. And as we've covered here, it's clearly the opposite. It's entirely opposite. So I asked Saylor what's going on, what's the disconnect here? And he makes this great point that human beings can just uptake a new idea so quickly, especially when it comes to something as fundamental as money. It takes time for this idea to spread. It's a profound idea, by the way. So it takes really long time, I think, for people's worldview to attune to this new radical technology. Right. You're literally talking about swapping out the base layer protocol for human action. We've been playing the game of gold for 5,000 plus years and now we're talking about being 12 to 13 years into this digital disruption of gold. So that's how big of a deal it is. Which explains why there's so much information asymmetry in space, but also explains why there's so much potential upside. The market capitalization of Bitcoin is reflective of the world's understanding of money effectively. And so we're early Bitcoin as this time of recording, it's sub 1 trillion market cap. And I think the global store value marketplace, depending on how you measure it, it's over $200 trillion. So you're talking about a 200x upside today. And I think that smells about right to me. So the spread of this profound idea, it's really throttled by people's willingness to study and learn. I think bitcoin takes hundreds of hours to really dig into and see the light. And then it, it's also to the plus side, I think it's increased actually by the liquidity of ideas enabled in the digital age. Information just moving so much faster on YouTube via podcast, the Internet in general. So who knows? I think if I had to guess, I'd say It's about a 15 year process before Bitcoin is a or the dominant money monetary system in the world. I'd say so by the year 2035 is kind of the way I'm looking at it. So I hope you guys enjoyed that one. Again. That was episode 12. We've got several more to go and I look forward to seeing you back here soon.