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The "What is Money?" Show
WiM053 - The Saylor Series | Episode 13 | Bitcoin is Cybernetic Life
01:32:28
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]
Robert Breedlove
Foreign. 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, 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 Guttman, 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. Hey guys, welcome back to the what is Money Show. I am thrilled to be sitting down with Mr. Michael Saylor again today. And I believe we're going to jump in first into the bitcoin mining network in proof of work, which is this unique security model that secures Bitcoin and distinguishes it from many other forms of money, although it does draws parallels to what gold represented historically, but in a new form. Where should we start, Michael?
- [02:06]
Michael Saylor
Bitcoin is its own self contained monetary system and the Bitcoin system is replacing the fiat system. So I think a good place to start is exploring the way that we did everything in the 20th century with the fiat system and then comparing the implications when you switch to the Bitcoin system. In essence, what's the difference between an analog monetary system and a digital monetary system? And I find it helpful to try to model the two. So if someone said to me, so what is Bitcoin doing? Well, Bitcoin is dematerializing. The accountants, the auditors, the compliance function, the information technology function, the human resources function, the security function, the facilities function, the police force, the military, the function of war and the function of politics. All of those things are dematerializing and they're collapsing into the bitcoin network. And so on One side, the 20th century, if you want to do something, you operate a business. If you operate a business Like I'm a publicly traded business, I need accountants. And every three months we close our books every three months. The gold standard of business operations is you close your books quarterly and you have finance people and accountants that do the book close. And I've been a public company officer for like 22 years, so I've done 88 quarterly closes. Actually more than that. Well, Bitcoin closes the books every 10 minutes, right? So you've got an accounting function, but instead of a quarterly close, every 10 minute close. So then you've got this other issue which is in my world, the public company world, after you close the books, you have auditors. And so the auditors look at the books to verify that they've been properly closed. And they sign off on your quarterly results. And then there's a 10k where they sign off on the books at the end of the year. The audit process is manual and expensive. In the fiat world and the Bitcoin world, you've got triple entry bookkeeping, not double entry, but triple entry because the books get burned cryptographically and they're truly closed. They're closed with a cryptographic or an encryption. Whereas the books of a publicly traded company or a private company, with a public company, they're kind of open and then they close. With a private company they never quite close. You can never be sure. And you've got manual accounts and manual auditors. Those two functions matter a lot. But then the third function, if you look at a conventional bank or any kind of fiat bank, is you've got a compliance function. The compliance function is to make sure that you didn't enter into any transactions which are illegal or not non compliant or not permissible. And you can't enter into any inappropriate transaction. That compliance sometimes comes after the transactions are entered into. You see, with like Archegos where you had UBS write off billions and billions of dollars. Well, they entered into some non compliant transactions where they took risks they shouldn't take and they found out after the fact and the cost was billions of dollars to their shareholders. Well, Bitcoin solves that compliance issue with the nodes that are verifying transactions as compliant. And you've got like six verifications before you're sure it's pretty compliant. On the first verification, it's sort of compliant. But the compliance in Bitcoin comes from the process of mining plus the nodes themselves and it's 100%, what is it like 99.999999% certain after like the six confirmations. So you've got an automated process which is distributed, which is almost incorruptible. Whereas compliance in the fiat banking world is a manual process and you're not even checking compliance of every transaction. In bitcoin you got 100% compliance. By the time you get six verifications down, which is 60 minutes, well, you could be six months after closing the quarter in a publicly traded company or in a bank. Think about like our credit Card company, your MasterCard or your Visa and you're doing all these transactions, what percentage of them are 100% compliant? And when in fact you could be six months after the quarter closes and you would still have lots and lots of non compliant transactions, they pass through the system, right? And that's fraud. And the economy pays the price on that. You go to the next level. It. A bank or a money transfer agent in the fiat world has a big IT department and a bunch of data centers. Whereas in the Bitcoin world, the miners and the nodes, that is the IT infrastructure. So it's completely decentralized and self maintaining and self healing and it's continually upgrading itself through the process of mining. Whereas the banks, you have to have an IT department and an IT budget and they have to continually invest in this or they become obsolete. Well, so the fiat bank also has human resources department. You have to hire people to order the equipment, to configure the equipment, to upgrade the equipment, to do the compliance, to do the accounting, to do the transactions. Well, Bitcoin doesn't have a human resources department, right? Because there are no employees. You've kind of dematerialized it. Why is that interesting? If there's no human resources department, there's nobody to quit, right? There's no one to fire, there's no one to complain, there's no one to harass because there isn't a human resources department at all. You can see we have taken all of these human factors and we have dematerialized them into the protocol and the decentralized hardware which is continually being upgraded. Unless it isn't. If it isn't upgraded, if you're running a node and you don't upgrade, you fall out of consensus and you just get sloughed off the network. And if you're a miner and you're running on four generational mining equipment, then you become 100 times more inefficient and then you can't mine any bitcoin and you get pushed off the network. And if you're running a miner and you don't pay your electricity Bill, you get pushed off the network. So the network is self healing, self sealing, self upgrading in the bitcoin world, whereas in the fiat banking world it requires human intervention to do all these things.
- [10:10]
Robert Breedlove
Right?
- [10:11]
Michael Saylor
Oh, complicated. We're doing it. What's the next step? Well, security. In a real bank, I've got to have security professionals. I've got all sorts of IT security, physical security, people with guns, people hiring and training the people with guns, etc. And I've got to worry about someone hacking into that security system. As long as there's someone responsible, then you have to worry about that person. But in bitcoin, the security is intrinsic to the network. It's basically built into the protocol. It's making itself more secure. Then we get to facilities. The fiat bank has to go and have a facility in the middle of New York City and they've got a landlord and they've got a lease and they're paying money and they're paying taxes on the facility. The facility in bitcoin in essence becomes the mining rigs, wherever they might be, or the nodes. You've got a much simpler facilities model. In order to make fiat banking work, you have to have a police force, because the next layer is physical or civil security and that's provided by a police force. If you have a billion dollars in New York City or a bank with a billion dollars, then you need a police force in New York City to keep you from getting mugged. But if you have a billion dollars in bitcoin and you're in New York City, you don't rely upon the police force nor does anybody know you have it. But if they did have it, the security for New York City comes from a bitcoin miner in Iceland. And so security is not co located with the asset in the bitcoin system. In fact, security is not related, or the word would be. Security doesn't scale or it doesn't increase with the number of nodes of asset or the velocity of the asset in the bitcoin system. In the fiat system, security becomes a big problem because maybe you have a billion dollars and you feel safe in New York, but when you go to Brazil, you don't, or you go to fill in the blank. Whichever place it is that you don't feel secure in, at some point you're required to rely upon the police protection as you cross jurisdictions. That makes security heterogeneous and manual and expensive. And with bitcoin you have the same security on a cruise ship mid Atlantic as you have in a vault in the basement of J.P. morgan in Manhattan as you have on an airplane. And even if you're sitting on a sailing boat in the Caribbean and three people have guns to your head, you've still got the bitcoin miner in Iceland securing your asset. And it's a negotiation. The bitcoin is quite secure. It's more secure than you are. You have a physical security issue, but your financial security is the highest degree that anybody in the human race has ever had before.
- [13:56]
Robert Breedlove
I think it is a great point that the asset and security are disentangled or separate because that's a huge benefit to Bitcoin is that it actually has kind of this non locality property where especially if you've properly custody that even if you've got the three guns to your head in the middle of the Atlantic, if it's in a multisig, done properly, you're not going to lose custody of that asset. And even if they take you out, in theory, you have inheritance or succession model behind that. Such the asset rolls onto your heirs or whatever you determine. You can't really do that with anything else. At least in a bearer asset form, you always end up trusting some intermediary to carry out your will. So that's something that makes Bitcoin very unique.
- [14:45]
Michael Saylor
Bitcoin is the apex property and it's the highest form of property rights. It really is. It's the only thing you can take with you to the grave. And I joked about it, I was online going back and forth with Peter Schiff the other day and he's saying, why would anybody ever want to have something for 100 years? You'll all be dead by then. I said, well, you can take it with you to the grave. He's like, well, you can take gold to the grave. I posted an article on ancient Egyptian burial tombs. If you go back and you do just even a few seconds of history and do a few minutes of research, you know that for the last 5,000 years people have been trying to figure out how to bury gold with them. They've all failed.
- [15:35]
Robert Breedlove
Right?
- [15:36]
Michael Saylor
2,000 five years ago, or 2,500 years ago, the Egyptians created pyramids and hidden tombs. They still had the tomb robbers. People would break into the pyramids. And the only reason that the King Tut had a treasure that lasted into the 20th century was because it was buried by a sandstorm and people didn't know it existed. His tomb, it was lost. But every other protected tomb with a treasure in it was raided and looted. And if you give it, if you Pause and think about it a bit. And if you're really serious and thoughtful, what you realize is there is no form of property that you can have custody of, why you're alive and after you're dead. And there is no form of property that respects your wishes after you're dead other than bitcoin. And the significance of that is not you need the money when you're dead. That's not the point. The point is much deeper than that. The point is, should you wish for something to carry on, if you want a park watered for 100 years after your death, you have a method to ensure that takes place. And if I hold a gun to your head and I say, give me all your property or I will shoot you with all other forms of property, if you say no, I shoot you when I get it anyway. So the game theory says I should just go ahead and kill you and take your property. But with bitcoin, the game theory says if I shoot you, I get none of it because you go to the death, the grave, with your keys. So with bitcoin, the game theory says I should ask for half. And it turns out that throughout human history, people have always struggled against governments and onerous groups, be it a monopoly or the like. But in nearly all of those cases, if they got half, they would have turned out okay.
- [17:48]
Robert Breedlove
Right?
- [17:49]
Michael Saylor
Like, normally, if they kept half, you know, you don't like taxes, but if you kept half of your stuff, you would still be okay. The problem with taxes is they take all of it over the course of some period of time, and you've got none. You've got no record, so you can't even negotiate. And it turns out that bitcoin is the first thing where you can negotiate it. And because you can negotiate it, it's property that encourages peaceful resolution.
- [18:24]
Robert Breedlove
Right.
- [18:25]
Michael Saylor
And all other forms of property encourage violent resolution. Because the phrase is winner takes all. Right?
- [18:34]
Robert Breedlove
Yes.
- [18:34]
Michael Saylor
All the other properties are winner takes all. I can either negotiate with you and take half if the bullet cost a dollar, and if the gun costs $387, and if you have a million dollars, I can either spend a dollar and take it all, or I can negotiate peacefully with you and I can take half of it. But the ROI on that last $1 bullet is $500,000. It's 500,000 to 1. And so the problem really is other forms of property, physical property, incentivize violence.
- [19:13]
Robert Breedlove
Yes.
- [19:14]
Michael Saylor
And the game theory dictates a violent resolution. And it's even worse than that. Right. Because the person that you know, lines up 10 rich people against the wall and shoots all 10 of them, ends up getting all their money, and then they're able to raise an army and they're a Mussolini or a Hitler. And then they get to go line up the next 100. And then they get the line up the next. You know, pretty soon you're Stalin, right? And there's a benefit to the most violent and they get powerful. But with bitcoin, it works the opposite way. Because first of all, you can't get all of it with violence. You get none of it with violence. And the second thing is, as soon as I said, robert, come into my I'm going to seize all your bitcoin, then your answer is no. Then when I say I'm sending guys to your house with guns to seize all your bitcoin, the most likely result is you're going to wire your bitcoin somewhere else in the universe that I don't know about, or you're going to put a multi signature on it and you're going to say, look, you can put your guns at me, you can shoot me, you can pull out my fingernails, but I can't give it to you. Right? It's like, okay, well, tell us who else has got the signature. Oh, somebody on a satellite has to sign. How about a computer program on a satellite has it and they've locked it up and I can't get it out. And, you know, until you release me and I've lived happily for five years and then I can get it out. How do you negotiate with a computer program on a satellite? Right, but if you don't want that, you're just like, okay, well, I sent it to somebody else. And now when that happens, the first person that attacks, the bitcoiner, he realizes that didn't work out so well and all the bitcoin leaves your jurisdiction and so the attack causes a response. And so it's not. What I'm trying to say is if you have 100 people with a billion dollars of gold each in your country, you can shoot all 100 and take $100 billion. And the game theory says you should. If you have 100 people with a billion dollars of bitcoin in your country, you could hold a gun, you can incarcerate them all and get half, but you won't. Because as soon as you incarcerate 1 or 2 of the people, the other 98 will leave the country. The bitcoin is, you see, you'll end up with a country where you manage to get half of two people's Bitcoin. And 98% of the Bitcoin will exit your jurisdiction. So the real game theory says Bitcoin has an immune system. And 98 or 99% of Bitcoin departs from a hostile political jurisdiction when you start trying to seize the asset. And that's what makes it the apex property. And in the same way that's what makes it anti violence and that's what makes it a cleansing technology for the human race. Because Bitcoin promotes civility.
- [22:42]
Robert Breedlove
Yes. So the physicality of the property itself is what makes it vulnerable to coercion. Effectively. The ideal property would be something that's non physical, like bitcoin. And I think this really gets to the crux of the value proposition of government and banking. Frankly it was the provision of the security for property. The bank is going to custody your gold, government's going to secure the territory so you can have peaceful commerce. And Bitcoin, by being an asset that has the security innate to enables this radical new level of social scalability. So we're eliminating this duplication of efforts that every bank has their own. Like you said, accountant, auditor, compliance, it hr, you've now just eliminated the need for that. So it's such an economizing force as well. Not only is it creating more civility, but it's creating more economic efficiency just by virtue of being non physical and having inbuilt security.
- [23:47]
Michael Saylor
Bitcoin is a bank in cyberspace. And 100,000 fiat banks collapse in the bitcoin network. And all of the energy and all the mass that was allocated to running those 100,000 fiat banks that gets released back into the economy to be recycled.
- [24:06]
Robert Breedlove
And this gets back to your book, I think, where you're making the point that to get rich in the digital age is like find a critical social function and dematerialize it such that it's orders of magnitude more efficient. And Bitcoin is essentially dematerializing these critical functions of banks and governments, the largest institutions in the world. So maybe that's one lens to view the significance of its value proposal.
- [24:34]
Michael Saylor
Yeah, I think so. And we even got to the best part, which is, I mean Bitcoin has dematerialized the accountants, the auditors, the compliance function, the operations function, the HR function, the facilities function, the security function of every single financial business, money mover or bank. It's also dematerialized the civil, police and municipal security function everywhere. Where that function was there to protect property, all property policing now the next thing is what happens when two countries disagree. So in order to protect your money, you need a military. And if you don't have a military, like, you know, fill in the blank, right? Ask the Spaniards during the Spanish Civil War, or ask the. Ask the French or the Polish people, you know, during World War II. If you don't have a military, then you lose all your property rights. So the fiat system provides the geopolitical security via military, via war, and via politics. This is where I make this interesting point. Bitcoin's the first multinational money. All the fiat currencies are national monies. Gold was a physical money. We replaced gold with fiat and with the banking system because we needed to move the money faster at a higher velocity and we needed to build new applications on it. So the price we paid was a central bank plus fractional banks. But even so, every single money is a national money. And if you want it to work in the world over time, that you've got military, you've got the State Department and politics, and you've got war. And that's the real expense of the fiat system, the fact that every 20, 30, 40 years, you have to fight a war, be it World War I or World War II, or fill in the blank in order to defend your property. So how does Bitcoin avoid that? Well, I mean, Bitcoin is a multinational network. And because it's. It's challenging to locate the network, you might be able to locate some of the miners, but some miners you can't locate. They're off the grid, and half of the nodes are off the grid coming through the Tor network. You don't even know where they are. So the network is running orthogonal to geography or political jurisdiction. It's in cyberspace. And that means that geopolitical disputes are settled in Bitcoin, but they're settled without war. So when one nation wants to tax a certain property, they can tax it. Maybe they can put a tax on a bitcoin miner, but they will either put a tax at so high that the miners shut down and then all the mining relocates, or the network just reconfigures. Or they will tax the Bitcoin miners at a level where the miners continue and the network just adjusts. So you've got a peaceable resolution via the political process. And there really is no incentive. If I actually raise an army of a million people, and I had atomic bombs, I can't use that to get your Bitcoin and no one else can use it to get mine. So Again, the transnational violence is not really encouraged with bitcoin. And what we've done is we have taken a fiat system that was constructed to make gold money faster, smarter, stronger, and done with the best technology of the 20th century. We have taken that 20th century model and we replaced it with a 21st century model, Satoshi's model, that makes money faster, smarter, stronger again. But in the doing of it, it's hard to understate how much inefficiency we eliminate. Right. Like if you replaced all the banks, all the money exchanges, and then half the police department and all the militaries, or half the militaries, take half of that entire fiat system that's meant just to protect fiat money flows, take it away. And then what you realize is that bitcoin is providing that monetary system that does something better, a million times cheaper. To say it's 1,000 times cheaper might be an understatement, but it's at least 1,000 times cheaper. It's a massive crystallization or a collapsing to a lower energy state where you're able to provide a million times more security and you can move money at the speed of light and you can make it a million times smarter and you can do it like a million times cheaper, all of those things at the same time. So that in itself is like. It's like inventing cold fusion. Right. I could take a sugar cube and I could split the atom and I could figure out, or I could take this bottle of water and I could run a fusion reactor on it that would power up the entire, you know, civilization for a year off the bottle of water. That's what it will do to the human condition.
- [30:53]
Robert Breedlove
Yes.
- [30:53]
Michael Saylor
That kind of breakthrough technology.
- [30:56]
Robert Breedlove
Yeah, it's such a massive reduction to scarcity. And, you know, that's really the pretext for war, is people fighting over scarce resources. And if there's one universal, I think it's human beings could agree that war is a bad thing. It's the most uneconomic activity we can possibly engage in. You're mobilizing capital to go and destroy capital and clearly destroy a lot of human life as well. I think this is a good way to look at it. Is that war in the 20th century, at least, this was the violent mode of reaching consensus on property to decide who owns what countries would raise armies and go to war and draw the lines on the map and say, this is mine, that's yours. And bitcoin is this alternative mode. It's a peaceful mode for reaching consensus. It's like A peaceful alternative to war in a lot of ways.
- [31:52]
Michael Saylor
Yeah, certainly. The Franco Prussian War was fought over, you know, over land. And World War I was fought over land. And World War II was fought over land. The Mongols fought over land, and Crusades were over land. And the French Indian wars were over land. And you could say the American Revolution was over land. It's a lot of war, territoriality fighting over Mexican American war over land, Spanish American war over land. Yeah, a lot of wars over land. If half of the money in the human race was in bitcoin instead of in land, then the property isn't the spoils of war. And I think the phrase spoils of war is important. Gold is spoils of war. Land is spoils of war. Bitcoin digital property is not spoils of war. So if you have a lot of money and you put it in gold, I shoot you and take your gold. You put it in land, I shoot you and take your land. If you put it in bitcoin, my gun is worthless. I got to talk you out of it.
- [33:17]
Robert Breedlove
Or negotiate.
- [33:18]
Michael Saylor
You are.
- [33:19]
Robert Breedlove
You have to serve the customer, provide a valuable service to someone that's willing to pay you for it. So it's the spoils of peace instead of war.
- [33:28]
Michael Saylor
And. And once you understand it like that, you think, why would I want to store my time, energy, or my life's work and something that's a spoil of war? Exactly right. Why. Why wouldn't I want to store all the. All my life's work in something which is a spoil of peace? It's just better every way. So just a few more thoughts on the bitcoin model and proof of work before we go deeper down the rabbit hole into the engineering dynamics. The proof of work model. The proof of work model is I do a bunch of work with energy. I generate a bunch of hashes, I try to solve the problem. I solved the problem. And then I claim the reward. I get paid for my work. The work that the bitcoin miner is doing is somewhat uncertain. There's no guarantee that you'll actually win the block, but somebody is guaranteed to win, right? What you've got is a bunch of people vying for the energy in the system. Every day, 900 bitcoin get mined, bunch of transaction fees get paid. All the bitcoin miners are competing via honest work to win their share of that energy. And so the other part to the bitcoin system is the difficulty adjustment as more miners enter and as the hash rate increases, the difficulty goes up. You could think about Difficulty as a protocol for competition and the proof of work algorithm is the protocol for work. Another way to say this is the bitcoin network rest on competitive work. Now, that's unique to a financial system. We never did it before with the fiat system. You could argue we did something similar with gold. Gold, you do a lot of work. The work is mining the gold, and there's no guarantee that you'll find the gold. But if you do find the gold and you get to sell the gold and you get paid for it, so there's some benefit. And then as more people get into gold mining, it gets more competitive one way or the other. So gold is a little bit like this. But I think that the more interesting idea here is that work and difficulty and bitcoin feel a lot like the work and the difficulty in capitalism. So bitcoin is a microcosm of capitalism. If you look at every single industry, what is the industry? Well, I work in this industry. I work really hard to win customers and I get paid. There's no guarantee I'll get them. If I launch a restaurant, my restaurant may fail, but it may succeed. If more people set up a restaurant, then it gets harder for me. Maybe the market will grow, maybe it won't. I don't know. There's uncertainty, there's competition. What's pretty clear is if I'm incompetent and if I don't get up and go to work every day, I can't guarantee you you'll mine the next block. But I can guarantee you if you turn off the bitcoin mine, you won't mind the next block. I can't guarantee you that your movie will be a hit, but I can guarantee you that if you don't make the movie or don't finish the movie, it won't be a hit. So in capitalism, you've got thousands and thousands of industries and markets. You've got groups of competitors. Everybody is working. Some people come up with better technique. There's S19 miners. They're better than S9 miners. Invent a new bitcoin miner. You can invent a new technique, you can run it harder, you can find a cheaper raw material. The same thing in bitcoin mining goes on with every other industry. So capitalism is proof of work with a difficulty adjustment.
- [38:10]
Robert Breedlove
Right?
- [38:11]
Michael Saylor
Right. The difficulty adjustment is taking place. Try launching your own mobile phone company in the year 2021 against Apple Computer. The difficulty has gotten pretty high.
- [38:21]
Robert Breedlove
And this is so key because it's the. That's a great way to look at it, the profits that emerge from a successful entrepreneurial venture that actually draws in more competition. If you're generating 30% profit margin, other entrepreneurs come in to try to feast on that profit margin. That is the difficulty adjustment in capitalism. The industry then becomes more competitive, it becomes more difficult to succeed, and then the opposite is also true. If you start generating losses, you actually expel competition. People go out of business. So it's so interesting to look at it that way. I've called bitcoin in the past a fractal of the free market. It's its own little free market that imposes free market principles at large.
- [39:01]
Michael Saylor
Bitcoin is modeled on capitalism. You could say that Satoshi was creating a competitive, honest work system to allocate the responsibility for the network and the rewards of the network. But you could also say it's modeled on like a, you know, a classic engineering control system. It's a first order negative feedback loop. Right. And if you look at the way that any arrow, aerospace, airfoil, any airplane, any control system, any ballistic system, any targeting system works, you have, you have these control systems, and then you've got servo mechanisms and cybernetic mechanisms. And it's like, I try this, I miss, I adjust, I try again, and you've got a negative feedback in order to converge. The negative feedback of bitcoin is the difficulty adjustment. And the control parameters is trying to converge on one block every 10 minutes to stay on schedule. It's not unlike an autopilot. If you're trying to get from point A to point B over the course of a hundred units of time, and you've gone one one minute, and you want to get there in a hundred minutes. If you're behind, you check, you go faster. And if you're ahead of schedule, you check and you go slower.
- [40:31]
Robert Breedlove
Right, right, right.
- [40:32]
Michael Saylor
Because you want to end up doing 100% of the work in 100 minutes. And so there's your negative feedback loop. You'll find this is built into thermostats, it's built into autopilots, it's built into all sorts of things in the engineering world. And it's built into every capitalist market. Now, I'll make one more point. Bitcoin's based on capitalism. Capitalism is based on nature. Where else do you see an example of work and difficulty? Right. It's like hunting.
- [41:06]
Robert Breedlove
Yes.
- [41:07]
Michael Saylor
You know, I. I'm. I'm a predator. I get up in the day, I hunt. Is there any guarantee I will get anything? No. What happens if I don't hunt. There's 100% guarantee I will starve.
- [41:21]
Robert Breedlove
Yes.
- [41:21]
Michael Saylor
What happens if I do hunt? Maybe I will be the best hunter and I will catch the gazelle. Maybe I will get unlucky and someone else less worthy than me will catch the gazelle.
- [41:33]
Robert Breedlove
Right.
- [41:34]
Michael Saylor
There is uncertainty. Maybe I will catch all the gazelle and there's no more gazelle and I will have to change my parameters. So in nature, you know, the prey, the predator, in this constant equilibrium, all the plants, all life forms, they're all working. What are they working to do? To capture energy from the. From the ecosystem.
- [41:57]
Robert Breedlove
Yeah.
- [41:58]
Michael Saylor
The trees are trying to get the sunlight. Right. The prey are trying to eat the leaves of the trees. Right. And the predators are trying to eat the prey. And the difficulty adjustment is if all the giraffe eat all the leaves of the trees, then only the giraffe with the longest neck can reach the leaves that are left. And all the other giraffes with the short neck starve to death.
- [42:23]
Robert Breedlove
Yes.
- [42:23]
Michael Saylor
That's a difficulty adjustment.
- [42:25]
Robert Breedlove
Yeah.
- [42:25]
Michael Saylor
Right. The difficulty adjustment is the slowest creature or the unluckiest creature gets eaten, and that's good. But the next week, all the wolves have to catch. Some have to catch creatures that are faster than any creature they've ever caught before. Right, right. And vice versa. So you've got continual feedback and evolution and survival of the fittest in nature.
- [42:54]
Robert Breedlove
Could we say that? Could we say that the difficulty adjustment actually makes Bitcoin the first money in history that is adaptive to human action? And then if you're looking at it through this Darwinian lens, I think he said something to the effect it's not the smartest, fastest, most intelligent creature that survives. It's the one that's most adaptive to change. So this Bitcoin, benefiting from this, whatever you want to call it, Bayesian inference or the Ooda loop, it's constantly adapting to its environment. That's why it outcompetes all of the forms of money.
- [43:29]
Michael Saylor
The word that rang through the halls of MIT when I was there was adaptive control system. You want to build complicated things. You want to go at the speed of sound. If you want to go faster than human beings can perceive, you have to build an adaptive control system. Because. Because human beings can't do it. Right, right, right. Tesla is trying to put it into their Tesla Autopilot. Right. The adaptive control system. So the cornerstone of most human advance is some kind of adaptive control system. You could even say, probably the Google people with their AI, they're building adaptive control via AI machine learning systems that are learning and adapting and ev all based on feedback. And the whole principle of training of neural nets is just feedback, right? Training network. I train it, I show you this and I tell you that's good. Now I show you the next thing and I tell you that's bad. Right? And then the more the training set gets bigger and the more training I do, the faster I learn. Assuming I've got that, you know, training.
- [44:40]
Robert Breedlove
To modify environmental fitness constantly and continuously.
- [44:46]
Michael Saylor
So Bitcoin's proof of work network. But what is it really? It's an adaptive control system for money and maybe it's the first adaptive monetary system.
- [44:59]
Robert Breedlove
So it's.
- [45:00]
Michael Saylor
And what is it adapting? What is the control function? The control function is. If we come back to our last set of discussions, what is the critical definition of ideal money? Shared, immutable, correct ledger. What is Bitcoin? Well, Bitcoin is an adaptive control system and is targeting correct, right? Yeah, it's self correcting. It's a self correcting monetary system. For example, how does gold go off the rails? Well, I started with 21 million gold coins and then someone sacked the Inca empire and brought back 10 million more. Now I've got 31 million gold coins. Well, where's the self correcting part? I don't want 31 million, I want 21 million. I just diluted the value of the civilization by 30%. It's not self correcting. Someone made 2% more gold. It's not. Okay, well if you have 2% error every year in a thermostat. Well the thermostat you grew up in with a kid is going to fry you by the time you're 47. What happens if you add 2 degrees a year to a thermostat? Well, it's going to be 182 degrees by the time you retire.
- [46:30]
Robert Breedlove
Yeah, right.
- [46:31]
Michael Saylor
Your books are going to burn at Fahrenheit 451. Just give it a few years. You can't tolerate 2% drift much less 7% drift. All of these adaptive control systems, like you know, the steam engine is based on negative feedback thermostats, you know, even longitude. John Harrison, when he invented longitude, we talked about it. How do you find longitude in the ocean? You need two clocks. How do I actually get the two clocks to keep time when you have heat that's compressing and expanding the material in the clock? The answer is I have to sandwich in or wedge three different layers and one layer has to contract as the Other expands so they offset so that you eliminate the bias. You can't afford to have any flex.
- [47:32]
Robert Breedlove
Right.
- [47:33]
Michael Saylor
You need perfect. Like how do I get a watch to run true? I can't have it lose two seconds a day or five seconds a day. I need perfect timing, otherwise you're going to miss by 100 meters.
- [47:48]
Robert Breedlove
Right? Yeah.
- [47:50]
Michael Saylor
And so all of engineering is all about error correction and adaptive control systems. And so Bitcoin is a self correcting monetary system and fiat isn't. And gold isn't and commodity money isn't. Because there's nobody that can play God. If God could reduce the number of gold coins to 21 million every time someone tried to slide another one in there, it would be self correcting. If it was exactly when you lost, you know, something, or you, you know, shaded it or counterfeited or whatever. If you had some deity, then maybe you'd have a self correcting system, but you don't. Now we know, we know the fiats are, there's not even a, there's no truth to them. No one even knows how many, how many dollars there are. Right. There are two things we don't know in this world. How many ounces of gold there are and how many dollars there are. And there's one thing we do know. How much Bitcoin has been created and how much will be created.
- [49:07]
Robert Breedlove
Yes.
- [49:11]
Michael Saylor
I think that taken its entirety, what Satoshi engineered was an adaptive control system for money. A self correcting system and ultimately a natural system. A natural, conservative, organic system. If I look at creatures in the wild and they have to compete in their ecology, in their ecosystem all the time, then they're healthy. And when I make them zoo creatures, they stop competing. And at the point that you become a zoo creature and you're fed and you're sitting in a chair watching Netflix, you become progressively less healthy and you become more fragile. And so all of these fiat currencies are zoo creature money. They're not natural. When we say that's not natural.
- [50:16]
Robert Breedlove
Yes.
- [50:16]
Michael Saylor
If you think about it, you realize the things that are healthy are natural, not because nature is conservative.
- [50:23]
Robert Breedlove
Yes.
- [50:24]
Michael Saylor
And by conservative I mean, I don't mean politically conservative, I mean physically thermodynamically conservative.
- [50:30]
Robert Breedlove
Right.
- [50:31]
Michael Saylor
Nature never takes, you know, 22 creatures and turns it into 57 million creatures overnight. If you have 22 and three die, you have 19.
- [50:41]
Robert Breedlove
Right.
- [50:42]
Michael Saylor
Nature is conservative. There are consequences. And if you know, and if a wolf eats all the deer and there are no more deer, then the wolf starves to death and then the deer come back because there are consequences. Bitcoin is wonderfully engineered because the protocol is conservative and correct mathematically. B the proof of work algorithm is an honest work. It is an open, egalitarian work. Anyone can do that work. I can do that work with brute force energy. I can do that work with new machinery. I can do that work anywhere in the world. No one can stop me from doing that work. Ergo, it's an open system. It's an open natural system. It's not a closed system. Your zoo creature is living in a closed air conditioned system. And the wild animals living in an open system. Wild animals are going to evolve and adapt to an open environment, which is much more challenging. Zoo creatures are going to adapt to a closed environment. What's an example of an adaption to a closed environment? You're 300 pounds overweight because you sit in a chair watching Netflix and.
- [52:13]
Robert Breedlove
There.
- [52:13]
Michael Saylor
Are no fat predators.
- [52:15]
Robert Breedlove
Yeah. This is. Then maybe the commonality between life and Bitcoin is that each is really just a survival strategy. At the end of the day, your DNA is the collective lessons of your survival strategy across history. And it's kind of like an organic blockchain, I guess, if you will. And bitcoin is just this survival strategy for money. Life is that strategy propagating through flesh. Bitcoin's propagating through code. And both of them are error correcting their own behavior. Life is intelligently figuring out what it needs to do to advance itself to extend its DNA into the future. And Bitcoin is adapting to human behavior to extend itself into the future. So it's not just an analogy. I think that we say this thing as a digital organism, it feels pretty damn close to true.
- [53:12]
Michael Saylor
Bitcoin is cybernetic life.
- [53:14]
Robert Breedlove
Yeah.
- [53:17]
Michael Saylor
And when you play God, when you design satoshi created life. Right. There's a genetic code to it. And then you decide, are you going to release it into your aquarium? Are you going to release it into the ocean?
- [53:33]
Robert Breedlove
Right.
- [53:34]
Michael Saylor
Is it going to be a barnyard animal? Is it a domesticated pet? Is it a zoo creature? Or did we release it into the wild? And bitcoin was cybernetic life released into the wild? Because proof of work is inherently permissionless, which means that it was meant to live in all environments and to go everywhere. And you can't keep it caged. Right. To the extent you try to keep it caged, then you lose control of it. There are other forms of cybernetic life that have been designed not to go in the wild. Like A proof of stake system.
- [54:22]
Robert Breedlove
Yeah.
- [54:23]
Michael Saylor
Right. A proof of stake is more like a barnyard animal or a zoo creature. You've, you've designed a domesticated pet which, you know, is kind of toothless.
- [54:34]
Robert Breedlove
Yeah.
- [54:35]
Michael Saylor
And, and maybe it's got pretty feathers.
- [54:38]
Robert Breedlove
Yeah.
- [54:39]
Michael Saylor
But it was never meant to live in the jungle.
- [54:44]
Robert Breedlove
Right.
- [54:44]
Michael Saylor
It was like, that would be no fair. I mean, no fair to let that loose. It was kind of a domesticated creature.
- [54:54]
Robert Breedlove
This is such an apt analogy too, because that is the only way fiat currency survives is through these layers of legal insulation. If you put fiat currency in the wild, so to speak, and let it compete on its own merits, it would immediately collapse anything to gold. Or Bitcoin. Yeah.
- [55:11]
Michael Saylor
Fiat is another example of domesticated money.
- [55:15]
Robert Breedlove
Yeah. All right, guys, that was episode 13 of the Saylor series. And we continue going deeper on Bitcoin, this time really focusing on the different business functions that bitcoin dematerializes and starting to dive into proof of work and how deeply connected this is to nature and capitalism. So I think the first point that came up in this episode was that Bitcoin is actually a new mode of human organization. You could say this, it's like the first decentralized company or business, if you will. And what you have is this ingenious blend of, of incentives, business operations, energy, really production. So Bitcoin's getting mapped onto energy assets to actually monetize energy production, but also enabling that to be distributed widely via Bitcoin itself as a surrogate for the energy necessary to protect, reduce it. And so Saylor makes this brilliant point that proof of work, monetary network is effectively dematerializing virtually the entire political stack that we're accustomed to. This is why Bitcoin, I think, is so hard to grasp, is that it is truly this first principles, disruption to money, but the second, third and higher order repercussions of that, or that it causes a reconfiguration in all of the institutions that we're accustomed to dealing with. He starts out really focusing on the administrative function. So the accountants, the auditors, the lawyers, ultimately even the regulators. This technology enables something Nick Szabo wrote about called social scalability. This effectively means, and we've talked about this before, but this effectively means that we can employ these tools, these digital tool sets like Bitcoin, to actually perform the functions that were once only performable by a human being. I liken this to pre industrial age, pre industrial age manpower was, was necessary to, to accomplish lots of jobs. Right. Plowing a field, whatever it may Be, um, but gradually we replaced manpower with, you know, like the steam engine or even animal power before that. Uh, and this actually had the effect of freeing people's time to focus on more complicated aims and tasks. So it's this, you know, as we, as we've talked a lot about, this is very closely related to energy. We are economizing mankind's usage of energy where in the current system we need humans, we need white collar humans to go through all of these accounting, auditing, legal, regulational decision making processes. But by mapping, I guess by creating a mode of distributed consensus through digital technology, many of these functions can now be codified and performed without political softness. And Szabo makes the distinction between wet code and dry code. Wet code being things that are much more subjective, whereas dry code would be processes that are much more apt for encoding, for applying an algorithm to. This all gets back to that Whitehead quote. You've probably heard me say this before, but I think it bears repeating and I'll quote it exactly this time. Alfred North Whitehead a long time ago said that, quote, civilization advances by extending the number of important operations which we can perform without thinking of them. So in other words, anything that can be automated should be automated. If it can be done profitably, it should be done. A lot of people are scared of this, right? People are scared of losing their job to AI or whatever automation mechanism. But we should in fact celebrate this. This is innovation. This is in a free market. If we didn't have central banking, say, harvesting that economic surplus that automation creates, this would be equally distributed. Not equally distributed, but distributed to all market actors in the form of price decreases. And my series of Jeff Booth goes deep on this topic. But the point is that this technology radically increases our ability to economize ourselves. And I would bet that if you go and ask any of these accountants, I used to be an accountant, by the way. Lawyers, investment bankers, regulators, auditors. I can almost promise you they don't love their job. They might tell you they like their job or they like the people they work with or whatever, but the actual mechanical work, I can speak personally to being an accountant is not necessarily that fun. Might be interesting, might have some value in learning about how things work under the hood, so to speak, but it's not a lot of fun. So I see this technology as an opportunity not only to economize human action, but really to add more satisfaction to people's lives where they don't have to do these rote, mundane, repetitive tasks and can instead outsource that to automation. And Bitcoin's a huge piece of that. So what this really means is that this is the process that creates more aggregate wealth or riches in the world. So far from being fearful of this transition from say the industrial age to the digital age, I think the right attitude towards it is more like looking at history where going from agricultural to the industrial age, a lot of people feared the factories and whatnot. But the net outcome of that, although there may have been a lot of local discontinuities, the local shoemaker may have been put out of business by the shoe factory, that's still very likely. You're going to have a lot of these disruption events, let's say to traditional business models. But the long term outcome of that is more wealth for everyone, more innovation, more free time. So I think it's something to be celebrated. And then further, that freedom, that newfound freedom that innovation gives us typically results in people reorienting themselves towards more complex aims that can't necessarily be automated yet. So this leads to typically higher, better, more quantity, more quality of want, satisfaction. We have freed up labor and freed up our time in the world to go and pursue higher aims. And really this is at the basis of civilization, is giving people this free time to pursue higher aims. That's kind of the crux of everything we're doing. So then we pivoted the discussion actually into the security aspects of Bitcoin. There's a deep point here that bitcoin is the first money with an intrinsic security model. And this is something that we talked about it bleeding over into the domain of banks and governments, which a lot of their ostensible purpose historically has been to provide security in one form of another. But with Bitcoin we have something where the security is actually inbuilt, but paradoxically non local in a way, which is really interesting. So Saylor brought up this point that you have a billion dollars in a bank in New York City. You have to depend on some marshal force or political framework around that. You need to trust the security guards, you need to trust the bank administrative function, their custodial protocols, their paper pushers, et cetera, et cetera. And there's a lot of interpersonal trust injected into that chain. Whereas if you have a billion dollars in bitcoin in New York City, you're only depending on the mining network. Essentially you're depending on your own custody model. Like assuming you're in a geographically distributed multisig, the first layer of security is non local. Your custody is non local. No One can take it from you. And then the base layer of security, let's say, is the mining network itself, which is everywhere. It's everywhere. There's a Bitcoin miner plugged in in the world. So you get this interesting security model that's non local to the asset. And the custody model can be similarly non local when done correctly. So this isn't like you've stuffed a bunch of gold in your pocket and you are now a single point of failure. One guy can mug you and take your gold. You're able to distribute the custody in a way that makes it very theft proof, very resistant to attack. And then the mining network itself is really just premised on individual market actors self interest. So it's one of the most reliable functions we can identify in the marketplace. So I guess the punchline on this I would say, is that the decentralization of Bitcoin enables a deep specialization in network security. Whereas historically with physical assets you had local specialization, this particular outfit that was in both political and physical reality built up around your asset to custody it and enable access to it was locally specialized. You'd go to the local bank or the local government jurisdiction. But Bitcoin applies this standard to it and then globalizes it such that you can have very deep specialization in network security. That's basically just all the things capitalism aims to be in the sphere of services, which is cheaper, faster, better, more accessible, et cetera. Saylor mentioned this, that he had a little spat with Peter Schiff about being able to take Bitcoin with you to the grave. And there's that old common refrain that you can't take it with you. But with Bitcoin, although you can, I guess I would say you can't take it with you to the afterlife per se, but you can take it with you. You could put your keys in your brain and when you kick the bucket, that's it. You effectively made a contribution to every other Bitcoin holder via this anti dilutive mechanism. If your Bitcoin holdings go off the market, then all other Bitcoin holders are basically absorbing that economic value pro rata. But further and more nuanced to that point, and Celia spoke about this earlier in the series, is that Bitcoin actually allows you to project your willpower beyond your own life. Now this is a very formative area, but you could in theory fund a certain smart contract to release funds over time based on certain criteria. I think the way you described this earlier in the series was creating a digital monument or a state in Cyberspace that's somewhat self sufficient, where you don't actually have to depend on the legal and political framework to carry out your wishes after your death, but you can do something that's a little more customizable and efficient, frankly, and reliable because you can actually strip out a lot of the counterparty risk or the human element. And then further with Bitcoin, because it's non physical and we've talked about this a lot as well, if you follow some of my work, it forces any would be attacker or it doesn't force, rather it incentivizes any would be attacker or assailant to you to negotiate with you towards a peaceful resolution versus if you're holding physical dollars or physical gold, someone's just going to shoot you and take your money. But at least with bitcoin there is this inducement to negotiate between attacker and victim. And this is a property that many bitcoin proponents believe holds a great promise that will cause systems of human organization to have less buildup of political asymmetry and even serve as a check on totalitarianism. And Saylor made this point where if you have physical gold, one guy shoots you, takes all the gold, he's now even richer to raise an army to go out and shoot more people and take their gold. And you follow that chain of events to its logical conclusion, you end up with a authoritarian totalitarian outcome, a Mussolini or Stalin or whatever. Bitcoin and gold somewhat served as a check on this historically, at least when nations had free gold flows between them, it would be somewhat of a check on government violence. But even that, as we've seen, just didn't work. So bitcoin's like a more effective check on the incentives oriented towards violence in the sphere of human action. And Saylor went on to make the point that even if you do effectively assault a bitcoiner or even ineffectively, it doesn't actually matter. Every attack on a bitcoiner is going to signal a defensive response by all other bitcoin holders. So if it comes out that one individual is attacked with a $5 wrench, and maybe he was holding his keys, not in multisig, so they were confiscated, all of the other bitcoiners made aware of this attack would then be incentivized or made aware of this particular attack that worked, and there'd be a defensive adaptive response. Again, bitcoiners are by nature very adversarial, thinking, very tech forward. There's ways to anonymize this capital, to move it, cross borders et cetera et cetera. So the defensive response by a group of individuals carrying a superiorly defensive technology is what makes the Bitcoin network just antifragile, frankly. It advances itself through adversity. Even when you attack its individual actors and holders, that actually improves the defensiveness of the network overall. So it's a very powerful point. And Saylor went on to describe Bitcoin as the first multinational money. Again, just as violence was dissuaded at the individual level, the same economic dynamic holds at the geopolitical level, such that countries even would be more incentivized to negotiate with one another because there's less carrot at the end of the stick towards violence. I thought this was a great point, that so much armed conflict, especially between governments, has occurred over land. And Saylor named off a whole gamut of wars that have occurred over land. But as a lot of value, a lot of monetary value today is stored in real estate precisely because the store value function in fiat currency has been compromised. So when money cannot reliably hold its value over time, you're going to sell the money and buy anything that does remain reliably scarce. So a lot of that monetary premium or that store value function and money is actually absorbed by tangential asset classes like real estate, like stocks, like commodities. You can put gold and Bitcoin in there as well. And so as that process unfolds, as Bitcoin continues to monetize, more of that monetary premium in a global perspective would be held in Bitcoin versus held in real estate. And this would actually lead to more of that original situation where you're disincentivized to armed conflict and you're more incentivized to negotiate. So there is a very powerful motivational force here. And this goes right to the bottom of human psychology and game theory, frankly. And so maybe this will catch on. But we called Bitcoin the spoils of peace. And I think that's a good way to think about that particular aspect. Finally, we got into a really interesting discussion about the proof of work model and its relationship to capitalism and nature. I said this recently, and I think it's very apt. I'll say a couple of things here. One way to think about Bitcoin is that it is reunifying the symbol of money with its original referent, which is work. We all know instinctually that money and work go hand in hand. Why do you go to work? You go to work to earn money. You earn money. Why? To pay for the work of others. This is just money. And work are the same thing. And this points directly to the free market emergence of gold. Gold was analog money premise on proof of work model. The only way to produce it was through work. And in fact, it was the hardest thing to produce, which is why it became hard money. That's what it actually means. The other way to think about this is that work is the only thing humans cannot counterfeit. And this is key. This is key to hard money, as we've just mentioned. This is key to entrepreneurship. The only way you're going to make it in this world. And you're going to convert a vision that you have, or a prediction, or converting what you think you can see the future in a way, or the way the future could be in a way that others can't. The only way you can convert that into reality and create a successful business is through work, the extremely hard work of entrepreneurship. And anyone that's ever been an entrepreneur will tell you this. It's one of the hardest activities you can engage in as a human being. And it's premised on proof of work. This is also fundamental to economics. We're constantly trying to figure out how to convert our work energy, which is say, our labor, into greater results. So we're working to devise methods, procedures and forms of capital that actually amplify the returns on our work. So once again we have more free time to go and figure out more ways to solve other problems and so on and so forth in a virtuous cycle. So work is so fundamental to all of this. Money and work are so fundamentally connected. And if you look at fiat currency through that lens, it's intuitive, that it's nonsensical and it blows up and it goes to zero. You could ignore, or for now you could just set aside all of the historical empirical cases of that very eventuality unfolding where fiat currency hyperinflates and goes to zero. And just look at this deep connection between the work necessary to earn money and the work that it lays claim to, or is a call option on. To speak more accurately, fiat currency is produced with essentially zero work, right? This is a central database in the United States. Instance at the Federal Reserve, it's an SQL database, at the Fed, it's a one node network. If they want to create more money, you just make one entry to the database and it's updated. You have allotted yourself a higher proportion of the total money supply at the expense of all other dollar holders. There's no work involved. So of course the system is corrupt. We don't have to go down that avenue of conversation. I think I've said it enough. But basically, if you had a machine that you could use to print money ad infinitum, you would absolutely do that until the machine broke. I think that's pretty obvious. And so I actually consider work to be something really fundamental to life. There's this great G.K. chesterton quote that a dead thing can go with the stream, but only a living thing can swim against it. The entire universe actually this defines the arrow of time in the universe. I think this is the second law of thermodynamics. The universe tends towards greater entropy, which is a greater disorder or randomness. And life is the only thing that cuts against that. We actually can. We're anti entropic. So we're converting the entropy that we encounter in nature into useful order. And this is a really deep idea. Like it's biblical, you know, it gets into thermodynamics in scientific age. So it's important, right? Work is very important, important to all life. And this, I mean it's fundamental to nature and it's also fundamental to capitalism. And we started out this conversation. Saylor makes the great point. Bitcoin is a microcosm of capitalism. I've said this in the past, that I think reality is made up of different fractal layers. And basically a fractal is the geometry of nature. You don't see a bunch of squares and circles and triangles in the world. You see a lot of jagged self, similar patterns. And Bitcoin has this free market that it is itself, its mining network is a free market. Anyone with access to sufficiently cheap energy can use it to alchemize that energy into digital gold. There's free entry and exit to the marketplace. It is the competition is centered on a defined rule set. So there's not a, I guess, governing body, you would say it's the actual nodes choosing which rules they want to run, which is guided by individual self interest. And then the miners are actually enforcing those rules through energy expenditure. So Bitcoin is like a free market in and unto itself in the market for money. And by virtue of adhering to these free market principles, it's almost imposing them out into the world. By trying to use any other money besides Bitcoin, you're going to incur Bitcoin out competing money. And we've gone into that a lot elsewhere, so I'll leave it alone here. But the point being that Bitcoin is a microcosm of capitalism. I actually think Saylor says This better than I say it, so we'll go with that. The difficulty adjustment in capitalism. This is a connection I'd never made before. It is the mechanism of profits and losses. So just like bitcoin has a difficulty adjustment built into its own microcosm of capitalism, there is a difficulty adjustment in capitalism more generally, and it is profits and losses. If you are an entrepreneur generating a lot of profits, you're going to get a lot of attention from potential competitors that will become competitors as they seek to come and harvest some of those sweet juicy profits you're creating. And contrarily, if you're generating losses, certain competitors in that industry are going to start going out of business. The ratio of revenues to expenses is out of whack and they're going to get liquidated and capital will go back into the market to higher and better uses. So this is very key. So there's this adaptive mechanism in capitalism, call it economic calculation or the profit and loss mechanism, that's changing the difficulty of each industry based on customer demand, supply, innovation, all of these factors, but quantified by a single metric. Similarly, there is a difficulty adjustment inbuilt into bitcoin, whereas the harder we try to mine it, the harder it becomes to produce. That's just a brilliant, brilliant connection in my assessment. In that way you could look at fiat as a distortion of the difficulty adjustment of capitalism because again, you are corrupting the medium through which these profit and loss signals are propagating such that entrepreneurs cannot tell whether these are actual consumer driven wishes. If the price of homes is going up, does that mean consumers want us to build more houses? Or does that mean the Fed just printed a lot more money and people are buying houses as a means of escaping inflation? So it introduces noise to the channel, it distorts this ad app adaptive mechanism of capitalism and therefore causes maladaptation of market actors, which we could call misallocation of capital, entrepreneurial over borrowing. And in sum, this creates the business cycle, this exacerbates the business cycle. So we get huge booms and then overly severe bust as a result of manipulating the economic medium, which is money. Instead of working again back to work. What does this do to the incentives? This incentivizes people instead of working to make this incentivizes business models and market actors to position themselves to be on the take, to be rent seeking, to be deceiving anything to try and get near, or even to politically position yourself nearer the fiat currency spigot, which in a functional central banking system is basically just an Infinite wellspring of stolen wealth. New money keeps coming out of it and you are able to benefit with little to no work just as a result of your political positioning. And this causes all kinds of problems. The zombie companies, instead of having a true Darwinian competition in the marketplace, we have the Federal Reserve picking winners and losers. It just doesn't even make sense. It would be as if in an NFL football game the packers beat the Patriots, but then the NFL commission comes in and says, nah, we're going to let the Patriots win this one. We're going to give them 10 extra points. Like who? It's maddening, it's crazy, it makes no sense. Yet this is the heart of economic modernity, frankly. So bitcoin fixes that reorients our incentives away from taking back towards making again through work, reincentivizing work. And so this gets us back to the goal seeking function of capitalism, which is to satisfy consumer demand. Mises says this repeatedly, that only the consumer is sovereign in the free marketplace. So whatever he's buying, that's what he's signaling to producers to make more of. And the Saylor called this a first order negative feedback loop or an adaptive control system. So this is a system that has goal seeking behavior. The simple example would be the thermostat, right? I turn down the thermostat, it measures the temperature in the room. The temperature of the room is higher than the goal I've set for it. It will turn on the air conditioner. As the air conditioner pumps heat out of the room, it will cool the room. When it reaches the target temperature I've set on the thermostat, it will turn off the air conditioner and so on and so forth. It has this constant goal seeking behavior toward the temperature that I set for it. And in capitalism that goal seeking is want satisfaction of the consumer. So the consumer gets what the consumer wants, so to speak. And to go a layer deeper with this is like okay, capitalism very important. Why? Because it's based on nature. Again, the nature of work. Or we could say Darwinian reality. And this is another way to look at this. We said Bitcoin's a microcosm of capitalism. But if we invert it, we could almost say that looking at it through a natural lens, Bitcoin out competes every other form of money precisely because it is adaptive. Again, this is Darwinian. Life forms are constantly iterating themselves their survival strategies to be more fit to their environment. Bitcoin accomplishes this through the difficulty adjustment. And if we take it One step back here. So we talk a lot about capitalism versus socialism. You could even say socialism has this capitalistic dynamic to it. It just has a moral camouflage where the Marxist credo was, from each according to their ability, to each according to their need. Sounds beautiful and poetic, but what it was actually doing was, was camouflaging the true intent of give the state more power to be a predator on the citizens which are the prey. They actually preyed on the property, frankly, of the citizens. So bitcoin, by being this free market money, it empowers people that have been preyed upon, preyed upon via taxation, via inflation, regulation, any asymmetric imposition of someone else's opinion into your life. Bitcoin gives those people that are being, again, economically preyed upon this ability to be impenetrable or resistant to the opinions of others. And that's very important because it puts us back into this domain of capitalism where if someone cannot get value for themselves by imposing their opinion or their willpower upon you, then they're only left with the option of doing something productive again. Back to what Mises said, honoring the sovereignty of the consumer in the marketplace. So Bitcoin is just a total transformation of the incentive system back towards free market principles. Fiat, it's a zoo animal, as Saylor says. It's a closed system. It needs insulation to survive. It actually has to be insulated from competition. There's a famous Greenspan quote about this where he said basically any effective store of value would have to be illegalized to keep fiat currency relevant. Nature and Bitcoin, these are thermodynamically conservative systems. So they're conserving of energy, which is a principle we observe in reality, right? This thermodynamic reality operates according to conservation laws. Energy can neither be created nor destroyed. Fiat is just the opposite of that. It's just constantly bleeding energy. It's an instrument that's designed to trade energy or time, but it's constantly has this error rate or loss or leakage and it just doesn't make any sense, right? There's no other system in the world where we would tolerate the standard. If you think of money as the standard of economic energy or time, however you want to call it, it's constantly being depreciated through someone else's opinion. It just doesn't make any sense at all. The commonality here is that both life and Bitcoin are these self correcting adaptive control systems, given that adaptivity. So if I can hold Bitcoin, I have the most Adaptive, superior apex money there has ever been. I am now immune to the predations of others just by virtue of using Bitcoin. Holding Bitcoin, being a bitcoiner insulates you, or not even insulate, this may be a bad word. It gives you the competitive features necessary to disregard the predations or the attempted predations of others. If I hold Bitcoin, I don't have to worry about what the Federal Reserve does. I actually want them to print more money because I'm holding an insurance policy on dollar depreciation by holding Bitcoin. Saylor said it well, there are no fat predators. So when everyone's having to compete to earn their food and their energy and their sustenance, there's no room for laziness or complacency or parts of yourself that aren't useful. Again, you wouldn't be a fat predator. It just wouldn't make sense. Natural selection would not favor a fat predator. So Bitcoin gives people that have been preyed upon the ability now to have this predatorial power and money. Just all Bitcoin needs to do is maintain a supply cap of 21 million and it becomes a predator on fiat currency. Because as people are taxed harder and harder through inflation, they are naturally going to seek inflation resistant money. And Bitcoin has perfected inflation resistance. So I don't know if you call it a predator necessarily. It's more like a black hole where people will just voluntarily adopt it by virtue of being coerced everywhere else. It's a really interesting way to look at it, but the difficulty adjustment to Bitcoin does make it something that's really hard to disentangle from life. Where do we draw the line? This is an adaptive system interacting with human life, coordinating human action at scale out competing legacy institutions. I think Saylor said it well when he said Bitcoin is cybernetic life and it's a form of life that cannot be caged, which is really important because if it could be caged, it would be caged to insulate fiat currency from being out competed. So I thought this was a super interesting discussion. I love the connections between capitalism and nature and I think Saylor, brilliant as always, helps expand my thinking on it even more. So I hope you enjoyed episode 13 and I'll see you back here again soon.